February 03, 2010Allied Gold Expects Annual Production To Reach...

February 03, 2010

Allied Gold Expects Annual Production To Reach 200,000 Ounces Within A Year.

By Charles Wyatt / www.minesite.com

Nobody should think that once a gold mining company gets into production its problems cease. Mark Caruso, the chief executive of Allied Gold, must have felt he was boxing an octopus in the quarter to end December, wondering where the next blow was coming from. He is a tough and resilient man, however, and the actual results for the period show that production increased by 24 per cent to 17,456 ounces, and that cash costs fell by 11 per cent to US$720 per ounce. But consider what he was up against. Just for a start, the annual rainfall on Simberi Island in Papua New Guinea, where the companys Simberi gold project is situated, is 9.2 metres. This is perhaps best put in context by the fact that London only gets 59.3 centimetres, and it seems to rain In London a lot, particularly at the time of a test match. But in the September quarter the rainfall at Simberi was above average, so it is no wonder some of the pits were swamped and production impeded. Mark has taken this in his stride, and a number of initiatives have been taken, including the acquisition of rain covers for ore delivery conveyors, which should arrive shortly.

The other problem with which he had to contend was an argument with local landowners which meant that nine days of production were lost in December and another four in January. Mark points out that Allied Gold is not in breach of any permits or legal obligations and that the Mineral Resources Authority is fully on side. In fact it sent a formal delegation to the mine to participate in discussions which helped bring the standoff to an end. But that extra hassle was all Mark needed in a very busy quarter when ownership of Australian Solomons Gold was attained, and during which A$159 million was raised for the redevelopment of Australian Solomons Gold Ridge mine on the Solomon Islands, and for the oxide plant expansion at Simberi.

Gold Ridge has been on care and maintenance for the past nine years, but Mark considers the plant to be in quite good nick and says that it just needs some refurbishment. During the unrest, he says, they stole all the copper tubing and pulled the belts off the mill. That sort of thing. Nothing we cannot 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 boom was on and good engineers were scarce and very expensive to hire. This time round things are very different. Mark says hes now assembling a first rate crew at a reasonable cost and could also use some of those who had been through the tough times at Simberi. The tailings storage facility at Gold Ridge will need to be dewatered, a process which will be completed by the middle of this year. By that time re-location of housing will be underway and the main administration block will have been built. Earthmoving equipment and light vehicles are being acquired and engineering studies on plant and infrastructure have recommenced.

As far as the oxide plant expansion at Simberi is concerned, the good news is that the present plant has sustained throughput at a rate of two million tonnes of ore per year, so there should be no insuperable problems in jacking it up to three million tonnes. A study on the expansion conducted towards the end of last year proved positive, and this has now advanced to the pre-feasibility stage. The plan is to install a SAG mill in series with the existing ball mill. Two additional 2,500 cubic metre agitated leach tanks and a tailings thickener will also be included. The final investment decision will be made during the current quarter, but there does not seem much doubt about it, as an option has been taken on a suitable SAG mill to ensure that the plant can be commissioned before the end of this year. When complete the expansion should boost annual gold production by 15,000 to 20,000 ounces, and the capital cost is expected to run out somewhere between A$30 million and A$35 million which will not make a big hole in Allied Golds funds.

Meanwhile the results of the pre-feasibility study into the mining of the companys sulphide ore will be announced before the end of March. The aim is treat 1.5 million tonnes per year of higher grade sulphide ore, to produce economically between 80,000 and 100,000 ounces of gold per year over a 10 year mine. A decision on the process route has yet to be made, but it may well involve the production of a concentrate which can then be put through a roaster to oxidize the sulphide minerals. Roasters have been inspected in Nevada and Sweden and the pendulum seems to be swinging in that direction as laboratory roasting trials are being carried out.

The other factor that has to be considered is whether there are sufficient ore reserves at Pigiput to warrant such a plant. Again there does not seem much doubt about this as some very encouraging drill results were announced last month and the new resource estimate is scheduled for February 10th. Mark Caruso seems very confident as he says, the point that should not be lost is that the oxide and sulphide mineralization remains open and there is no doubt that the present 4.7 million resource will be increased significantly. At Simberi we are in the right geological setting to find more gold.

So there we have it. Plenty of reserves and enough money to complete the oxide expansion, bring Gold Ridge back into production and even commence production from the sulphide ore. The most recent results show production of 33,528 ounces in the six months to end December. In the current quarter Allied will do no more than 17,500 due to the days lost at the beginning of January. This means that it will have to come up with 19,000 ounces to meet its target of 70,000 ounces for the year. This should not be too difficult, bearing in mind the amount of de-bottlenecking that has been taking place at the plant. Mark has also forecast that annual production capacity will be up to 200,000 ounces by this time in 2011, so he must be confident that Gold Ridge can be brought back into production within a year, and at a rate greater than 100,000 ounces.

Thereafter it is onwards and upwards, with 300,000 ounces in view once the sulphide plant is operational. No date set on that, as there is a lot to be achieved first, but by that time the last of the hedging programme will have gone and Allied Gold might even have a full listing in London.