The Kula Gold Ltd (ASX: KGD) share price surged 32% today after the company announced the discovery of kaolin clays near Southern Cross, Western Australia.

Kula shares settled at 5.7 cents apiece by market close after reaching 6.7 cents at one stage.

Let's take a closer look at what the announcement has in store for the Australian mineral explorer's shares.

But first – what is Kula Gold?

Kula Gold is a minerals exploration company based in Western Australia.

Its expertise lies in acquiring "significant geological structures" that are positioned on or near major gold mines. This means its main objective is to find prospective metals, namely gold.

Kula has a market capitalisation of $9.6 million.

What does today's announcement mean?

Kaolin, also known as kaolinite or 'white clay', is used in a variety of skincare products, toothpastes and hair products.

The discovery of the "high quality kaolin clays" is a plus for the company, with recent prices for such kaolin end-products fetching "up to $700 per tonne".

The company also notes the recent success of several other kaolin miners from the current price action.

Therefore, Kula forms the view the "initial assays are significant in grade" to justify further investigation.

Specifically, the company reported:

RC drilling at the Airfield Project near Southern Cross WA intersected thick >42m vertical kaolin clay development over the 300m drilled length at the newly named Boomerang Kaolin Prospect.

Further touching on the drilling results, the company said:

Whilst Kula's results are preliminary and need to be confirmed by follow up drilling and assays, the Company
believes that the initial assays are significant in grade and extent and require further investigation and drilling.

Today's announcement comes after the company announced it had successfully "recognised a geophysical structure" in its Southern Cross Gold project on 2 July.

In its release, Kula explained it had found "large areas of previously unmapped or recognised amphibolite" at this location.

Amphibolite is a stone that is used in paving and road construction. Following the discovery, Kula revealed it had applied for new applications, adding to its 570km2 Airfield location.

Kula share price snapshot

The Kula share price has climbed ~28% this year to date, extending the previous 12 months' return of 46%.

These gains have outpaced the S&P/ASX 200 Index (ASX: XJO)'s return of ~11.3% this year to date.

The share price is trading just off its 52-week high of 6.9 cents but well above its 52-week low of 2.8 cents.

The post The Kula Gold (ASX: KGD) share price leaps 32% after drilling results appeared first on The Motley Fool Australia.

The Kula Gold share price is currently up 110% at 4 cents, after analysts from Credit Suisse tipped the prospective gold miner as one of their top 6 shares for 2016. Frankly, that's pretty irresponsible for a company with a market cap (after the rise) of just $8.9 million.

Earlier this week, Credit Suisse tipped Kula Gold's share price to rise 362%, with a target price of 6 cents.

Kula Gold is developing the Woodlark Island Gold project in Papua New Guinea (PNG) and received its mining lease in July 2014.

But investors are forgetting that the company will need at least US$160 million (A$228 million) to build the processing plant and associated infrastructure – At the end of December 2015, Kula Gold had just $1.1 million cash in the bank. A capital raising is likely just around the corner.

Construction is expected to take 18 months, IF the company can acquire the financing, and then IF everything goes to plan (unlikely). Production is expected to be around 100,000 ounces of gold a year.

This is truly a highly speculative investment (actually, it shouldn't be called an investment, rather a lottery ticket), and the odds of it not paying off for investors buying in today are high. If you truly want to invest in a gold miner, you'd be better off with producing, profitable miners like Northern Star Resources Ltd (ASX: NST) or Evolution FPO (ASX: EVN). Northern Star even paid a fully franked dividend last year and Evolution paid out a token dividend.

Foolish takeaway

Speculators and traders may be buying in today in the hope of seeing a quick profit – but they are more than likely to see a quick loss of their capital.

Look out below.

The post Why the Kula Gold Ltd share price soared more than 100% today appeared first on The Motley Fool Australia.