Release: Archipelago Resources: Status report on the Toka Tindung gold project

(May 22, 2007) In the last announcement by Archipelago Resources plc on the 27th March 2007, reference was made to the delay to approval of the environmental documents (AMDAL) required to operate the Company’s Toka Tindung Gold Project in North Sulawesi, Indonesia (Project). As stated, this is preventing the Company from drawing down the syndicated Project finance facility arranged by Investec Bank, necessary to complete construction and allow commencement of production.

This delay to AMDAL approval and the conditionality of project finance has now forced the Company to temporarily suspend construction activities. This is a bitter disappointment to the Company, local employees who cannot benefit from jobs created by the Project and the Nation of Indonesia to whom by Presidential authority the Company’s operating subsidiaries are engaged as contractors through Contracts of Work to discover and develop mineral resources.

That work has progressed for over 20 years and involved the expenditure of over US$100m leading to the discovery of the 1.7m oz Toka Tindung Gold Project, which when developed will be one of the biggest new gold mines in Indonesia for a decade.

As previously reported the Company has fully complied with due process having spent much of last year producing comprehensive AMDAL documents that meet all Indonesian and International banking requirements. The Deputy for the State Minister for the Environment recently confirmed to a Parliamentary Committee that the operating companies AMDAL documents are acceptable to the AMDAL Assessment Commission as required to allow the Project to proceed.

The Company considers that it is entitled to the approval sought both in law and under its Contracts of Work, a view also supported by the Minister of Energy and Mineral Resources who has recently stated that the operating companies are entitled to proceed with development of the Project.

The Company is currently continuing to work with the Indonesian Government authorities at the highest levels to resolve the issue of the AMDAL approval in an amicable manner and remains confident regarding the Government’s intention to honour its Contract of Work obligations and find a solution in the very near future to effect AMDAL approval and allow the development of the Project to continue.

While the Company has recently put in place a comprehensive package of Project, ancillary and contingency finance sufficient to fully fund Project development with no less than 5 banks all of whom are very supportive of the Company and its Project; in the absence of AMDAL approval the Company cannot avail itself of these facilities. Currently the Company can only access the previously announced interim 6 month bridging finance facility provided by RMB Resources. That facility is now drawn and consistent with the Company’s financial planning to date it is therefore beholden upon the Company to seek a longer term financial solution in consideration of a worse case scenario in which AMDAL approval is further delayed.

The Company is considering a number of options in this regard, with the most likely being an additional but longer term subordinated loan facility including detachable warrants in recognition of the proposed lender’s third ranking security position. Negotiations are well advanced and Notice of an EGM in June 2007 will be sent out to shareholders in coming days requesting approval to allow the proposed capital raising to proceed.

While it is disappointing that this course of action will have to be undertaken given the demonstrated willingness of banks to fully finance the Company’s financially strong Project post AMDAL, it is worth re-stating the increasing value of the Project at today’s gold prices and the potential for the Company’s share price, even allowing for the effects of dilution, to substantially re-rate following receipt of AMDAL approval.

Based on the financial model reported in the Company’s 2005 Annual Report published in June 2006, whose costs have not materially changed since that date, the Project will, at a current gold price of around US$660/oz, generate an annual EBITDA of around US$58m per annum, equivalent to about 22p per share on an undiluted basis. On the 15th September 2006 the Company’s broker Ambrian issued a report on the Project advising that upon reaching production at the gold price prevailing at that time of US$590/oz, the Company should have a value of GBP106p per share. This valuation was repeated in a later report dated 25th January 2007 following a site visit by Ambrian to inspect and report on the excellent progress being made with development activities.

One benefit deriving from the current delay is that the Company’s gold production remains unhedged and shareholders therefore continue to enjoy the benefit of full exposure to the spot gold price while the delay continues and the gold price continues to rise. While unintended, this currently amounts to an accumulating reward for our shareholders.

As Managing Director (Colin Loosemore; Ed)I apologise for this unnecessary delay and share your frustration at its impact on the Project’s construction and production schedule, but wish to reassure you that the Board remain convinced that AMDAL approval will be forthcoming and that the Company will achieve its objective of substantial production and returns to shareholders. Sadly in our industry today we are not alone in facing obstacles to Project development, a factor that contributes to the long lead time for new projects and helps explain why despite 7 years of rising gold price, supply has remained static, perhaps itself something that bodes well for the commodities outlook and the gold price in particular in coming months and years.

As previously announced the Toka Tindung Gold Project has a resource of 1.7M ozs of gold, of which at least 0.9M ozs will initially be mineable by open pit. At current gold prices together with recently reported encouraging drilling results, the Company considers it likely that significantly more than 0.9M ozs will be mined in due course. The Project is targeted to achieve a production rate of 160,000 ozs per annum.

Archipelago is a mining company listed on the AIM market of the London Stock Exchange. The Company’s principal activities are gold mining and exploration in Indonesia (as 85% owner of the Toka Tindung Gold Project in Sulawesi), Vietnam (as majority party in the Pac Lang and Cam Thuy/Ba Thuoc joint ventures with VINACOMIN a Vietnamese Government mining company) and the Philippines (as option holder over a 100% interest in the Corplex tenements).(end of release)