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http://www.minesite.com/nc/minews/singlenews/article/allied-golds-success-on-the-remote-island-of-simberi-gives-its-ambitious-bid-for-australian-solomon/1.html

September 23, 2009

Allied Gold’s Success On The Remote Island Of Simberi Gives Its Ambitious Bid For Australian Solomons Plenty Of Credibility


By Charles Wyatt



So Mark Caruso, chairman and managing director of ASX and Aim-listed Allied Gold has decided his company’s production profile needs a boost, and has made an agreed off-market bid for Australian Solomons Gold which, despite its name, is listed in Canada. When Minews had lunch with Mark back in May he said that his aim was to achieve annual production of 200,000 ounces of gold from the oxide and sulphide resources at the Simberi open pit mine that Allied controls on the Tabar Islands in Papua New Guinea. The target date was 2011. If he succeeds in this offer for Australian Solomons he is going to raise his production profile to 300,000 ounces by the 2013 financial year. But investors did not seem to be overjoyed by the idea initially, as the shares stuck in the groove established at just over the A50 cent mark, but they are probably awaiting more information and want to see if the deal actually comes off.
Brokers in London seemed to like it, though. Kate Ward of Hanson Westhouse made a visit to an Aim listed company called Solomon Gold fairly recently and she points out that Newmont has completed a farm-in agreement to explore Solomon’s projects on Guadalcanal Island, a deal which must, in itself, confirm the prospectivity. For it is on Guadalcanal that the Gold Ridge mine, the main asset of Australian Solomons Gold, is situated. Those of a certain, advanced, age will remember the long drawn out battle of Guadalcanal, the biggest of the Solomon Islands, which took place in the Second World War and was the first major offensive undertaken by the Allies against Japan in 1942. That’s the history. As far as geography goes, the Solomon Islands stretch out in a south easterly direction from Papua New Guinea to Fiji and are right on the Rim of Fire.

Those of a lesser age may also remember that Gold Ridge itself has a bit of history behind it. Back in 2000 the mine was being run by Delta Gold, following its acquisition of Ross Mining, when a little local trouble erupted which is best described by the anodyne phrase ‘civil unrest’. It was too much for Delta, though, which closed the mine. Its rating was hit badly as it also had problems in Zimbabwe and eventually it ended up merging with Goldfields. Even more recently, during February last in face, there were reports of a cyanide leak from a rusty tank up at the mine. This is the sort of thing that the ‘greenies’ latch onto like lightning, but it is something that can be cured very quickly by an efficient team. Mark Caruso has certainly got that and he is not frightened of problems. According to Kate Ward, when he arrived at Simberi Island the first vehicle off the barge was a bulldozer that was used to crash a road through to the prospect as there was no existing infrastructure whatsoever. No good bringing a generator until there was somewhere to take it.

Minews managed to catch Mark Caruso on Guadalcanal where he was just about to make a visit to the Prime Minister. Very sensible to make such a visit so early, as he will need the support of the government if he is to make a success of Gold Ridge. Mark confirmed that the cyanide leak was no problem at all. He then sang the praises of the Guadalcanal operation: “Gold Ridge is only 25 kilometres from an international airport, there is potential for hydro-energy, and the mine is in a fair state considering how long it has been inactive”, he said. He describes the recent civil unrest as “more like gang warfare”, adding that it was “nothing like a war in Africa with everyone running around armed with AK 47s”. In fact it was a battle between tribes which was sorted out when a peacekeeping force made up of soldiers from Australia and New Zealand was installed in 2003.

Mark sees Gold Ridge as a basic refurbishment job. “During the unrest”, he said, “they stole all the copper tubing and pulled the belts off the mill. That sort of thing. Nothing we can’t sort out. A feasibility study has been done on how to bring it back into production. The great difference is that when we developed Simberi the great boom was on, and good engineers were scarce and very expensive to hire. This time round things are very different”. He reckons he’s assembling a first rate crew at a reasonable cost, and that he could use some of those who had been through the tough times at Simberi. Mark has no doubt that they would be capable of getting Gold Ridge operating again by 2011. For the record, they’d be working up a project with a resource of 2.2 million ounces, and which produced about 210,000 ounces between 1998 and 2000. It’s also still fully permitted.

The major hurdle at the moment is acceptance of the offer, but Resource Capital Fund, which has a 29.9 per cent holding in Australian Solomons has agreed the offer of Allied Gold shares for 19.9 per cent, and has publicly stated support for the other 10 per cent. And why wouldn’t it, as the paper represents a 99 per cent premium to the share price of Australian Solomons on September 15th? In the meantime Allied Gold can offer short-term growth in production from increased oxide capacity at Simberi and longer-term increases from a sulphide plant.

Back in July Allied announced that it was on track to produce more than 70,000 ounces of gold in the financial year 2009/10 from the Simberi oxide gold project which is still at ramp-up stage. Exploration is also going well, having generated a 45 per cent increase in total resources at a cost of just A$20 per ounce. Once this deal goes through Mark Caruso should have won a re-rating for his company. At that point he’ll seek a TSX listing. It is his success in bringing a gold project on a remote island into production that lies behind the growing opinion in London that he can turn Gold Ridge into profit once he gets his hands on it.