AUSTRALIAN-based Kula Gold reported project upside indicated by Watou drainage anomalies at its Woodlark Island project in Papua New Guinea.

In a recent statement, Kula said the Watou prospect continued to demonstrate the potential for Woodlark to deliver additional ounces to improve the project’s economics.

Pan concentrate results indicate continuity of Watou surface gold mineralisation, Kula said.

Results of the first phase of a regional pan concentrate drainage sampling program were to identify exploration and potential resource targets.

Kula completed this phase through the collection of drainage pan concentrate samples from a 30 square kilometre area located within trucking distance of the plant site selected for the Woodlark Island project.

The Watou prospect is expected to be an extension of the Woodlark King deposit, offset by a north east/south west regional structure and a continuation of the prospective 2.5 kilometre Woodlark King Illawarra fault zone.

Kula chief executive Stuart Pether said the results demonstrated the increased potential of the Watou prospect to deliver additional resources for the project.

“The area of the anomalous zones if at least twice the area of the current Watou mineralisation, defined by close space trenching. The shape of the anomalies confirms our understanding of the regional north west and north east structural controls on mineralisation,” he said.

Kula said the program aimed to identify and priority rank regional pan concentrate anomalies as a prelude to trenching and to demonstrate the potential for a significant increase in the project resources.

Kula reported cash on hand at A$593,000 as at 30 June, with additional cash of A$1.88 million from the second tranche of a share placement received on 17 July.

It came as the group reported a net loss of $876,000 for the half year ended on that date, an improvement on the A$1.5 million loss recorded over the same period in 2014.

An equity placement of 55.5 million fully paid ordinary shares, to raise A$2.22 million was made by the company and reported in Kula’s June quarterly report.

The placement was made in two tranches, with the first issuing 8,500,000 shares at 4 cents each on 10 June and the second tranche of 47 million shares also at 4 cents each on 17 July.

Kula said the equity raising will provide sufficient working capital for the next year and will be used to continue exploration, maintain infrastructure and community programs on Woodlark Island and working capital to advance corporate opportunities and or a project level joint venture.

The company expects to reduce corporate overhead costs for the next 12 month period by over 60 per cent, compared to the previous 12 month period.

Kula closed its Sydney office and relocated a smaller office to Perth, while director fees and the salary of the chief executive were halved.

Cost reduction programs have been implemented at the Woodlark Island project, but the company has continued a number of community projects stakeholder engagement and maintaining the project assets and infrastructure.

A report prepared for the company by Ernst & Young said Kula’s cashflow forecast for the year ending 31 December 2016 showed that Kula would need to raise additional working capital to enable it to fund its activities.

Should it not do so, “there is signficant uncertainty as to whether the group would be able to meet its debts.”

The Woodlark Island project is wholly owned by Kula Gold and is located 600 kilometres east of Port Moresby in the Milne Bay province, Papua New Guinea.