A second round of test drilling below Oceana Gold's Frasers underground tunnel at Macraes in East Otago has been completed and returned "promising" results.
A third programme is due to start by the end of the month.
In late-July, 19-year-old Oceana raised $30 million to expand its exploration programme which it hopes could extend its mine life by a further three years after 2014.
The past week's high inter-national gold prices, above $US1000 ($NZ1417), have boosted many gold producers' shares around the world.
Yesterday, triple-listed Oceana's shares were trading up more than 3%, around $1.35 in Australia, on good volumes.
By April, Oceana had drilled 39 holes around the Frasers tunnel area, from the surface and from within the tunnel, and has just completed a further 23 holes into a sub-parallel area 10m-20m below the existing Frasers underground mining operation.
Oceana interim chief executive Marcus Engelbrecht said from the recent 23 holes drilled there were gold grades "of a higher average tenor" than those at present being mined underground.
He mentioned two holes which over 7m of drilling each showed a gold grade of respectively 4.72g per tonne (g/t) and 4.31g/t.
"While it is still early in the exploration process, the grades and widths look promising.
"We are hopeful that we can continue to expand and advance this deposit to a stage where it can be integrated into the mine plan by late next year," Mr Engelbrecht said in a statement yesterday.
Based on results of the 39 and 23 holes drilled to the end of July, Mr Engelbrecht said estimated gold grades were at 3.9g/t and 4.1g/t "The panel 2 deep deposit is an exciting new area of the Frasers underground that we believe has the potential to expand further to the south and east," Mr Engelbrecht said.
The most recent drilling has extended the estimated resource by about 200m to the northeast.
The test drilling around panel 2 within the underground development is part of a $10 million exploration programme this year to find new estimated resources and convert them into mine reserves, management said at the time of the first results coming in.
Craigs Investment Partners broker Peter McIntyre said if the drill testing "comes to fruition" and proved a financially viable resource could be mined, it would extend the mine's life, a scenario which was underpinning the recent increase in Oceana's share price.
The $70 million Frasers underground development will eventually have 21km of tunnels around its main 3.5km decline and contribute to Oceana's forecast record 280,000-300,000 ounces of gold production this calendar year, which is also sourced from open pits at Macraes and in Reefton on the West Coast.
For the half-year to the end of June, Oceana achieved a turnaround in fortunes, from a $US30.4 million ($NZ46.7 million) after-tax loss last year for the same period, to a $US49 million ($NZ75.3 million) profit, on the back of currency gains on hedged gold and reduced production costs.
