Kula Gold (ASX: KGD) shares are down 15% today. KGD shares haven't fallen upon any specific piece of bad news - rather the contrary in fact. The company has declared that results so far are so good that they’re redoubling efforts to make them even better. At which point perhaps a little cynicism is in order - or so perhaps thinks Mr. Market. Perhaps we should wait for truly positive results in this first stage before spending more money? Sure, there’s might be something truly wondrous there but there’s always that risk that there isn’t.
The specific announcement is this: “Kula Gold Limited (“Kula” or “the Company”) reports that the Board are pleased with the progress, and the current RC drilling programme has been increased to a planned 2,000m (originally 1,000m) at the Cobra Lithium Prospect. Cobra is located approximately 20km West of Greenbushes in Western Australia; the world’s largest hard rock lithium mine. The increased programme will provide better geological understanding and coverage of the 3.2km of surface mapped pegmatites.”
Well, OK, this is work that will have to be done at some point - but only if there’s really lithium there. But it’s also work which will cost money. So, perhaps spending this more money should in fact wait until there’s proof that there is that lithium there to justify the higher spend?
D’ye see why this extra spend might not be an unalloyed joy? For as we said about Kula Gold before: “So Kula Gold has announced preliminary results from Mustang and Cobra. No one is as yet saying this is a lithium find, what we could say is that we've found mineralisation which is consistent with there being lithium there. So, this is very early days and not, at all, proof of ultimate value. On the other hand Kula is pretty small ($7 million market cap) and so can be regarded as an option on there being something there of final value. 30% up on this news isn't out of order. “ We’re still at that stage of preliminary results. Sure, we’ve got more news about tourmaline, muscovite and so on. Which are oft associated with lithium but can be present without the Li. It’s still true that Cobra is near Greenbushes. But we’ve no actual proof that there’s lithium there at all.
That’s what the drilling is trying to find out. So it is possible to think that perhaps doubling the money spend before having that next, very interesting, little piece of information might be a good idea. It also might not be - thus the varying KGD share price perhaps.