Archipelago sees N. Sulawesi gold mining to start production Q3 2009

UK miner Archipelago Resources expects to resume construction of its Toka Tindung gold project in North Sulawesi in August this year as it had been close to acquire US$60 million project financing for the project.

?Finalisation and drawdown of the project finance facility is now expected in August, and an announcement that adequate funding is in place to allow construction activities to re-commence in August 2008 is expected next month,? CEO Colin Loosemore said in a report Monday.

Loosemore added that production from the mine is expected to start in the third quarter of 2009.

The company's environmental impact statements (AMDAL) for its 85 percent owned Toka Tindung Project in Indonesia was finally approved in March this year, together with approval to proceed with construction. The project has been facing heavy resistance from provincial government and NGOs.

Whilst the delay to developing Toka Tindung has added significantly to project costs, this needs to be viewed in the context of the strong rise in the gold price and the likely reduced hedging obligation. "The benefits arising from this delay and the avoidance of costly, out-of-the-money hedge obligations far outweigh the costs arising from the delay", states Loosemore.

Construction activities to date include the completion of three water storage and sediment control dams, roads, drains, and a jetty to deliver machinery and bulk consumables. At the plant site, concrete foundation work is nearly complete, and two thickeners, three leach tanks and two fuel tanks have been constructed. Some civil engineering work will be completed by local contractors during the forthcoming dry season (third quarter), while Leighton Contractors Indonesia will commence contract mining early in 2009.

Based on a resource of 1.7m oz gold equivalent, Toka Tindung is expected to produce at an annual rate of 140,000oz in the first year, rising to 160,000oz in year 2. The project has an initial planned mine life of 6 years and a processing life of 8.5 years, but Archipelago remains very confident that operational life will be substantially extended. This is based on the current high gold price and excellent exploration potential in the vicinity as evidenced by the results announced early in the year from a number of holes drilled beneath the projected southern end of the Toka Tindung pit. Two of these holes intersected ore-grade mineralization - 12m at 9.7g/t gold and 20m of 3g/t.

At a gold price of US$800/oz and an oil price of US$105/barrel, Toka Tindung has projected cash operating costs of US$370/oz and will generate an annual operating surplus of US$66m.(alex)