Hello CPDLC,Forgive me for posting the entire article but I...

Hello CPDLC,

Forgive me for posting the entire article but I wanted to draw people attention to the current cost per ounce and the sulphide grades.

I recall mentioning the cost per ounce at around $300-350 and a post sort to correct me, claiming it would be much higher. Well this article seems to confirm my understanding.

April 22, 2008

Richard Johnson Settles In At Allied Gold, And Outlines Some Big Plans


By Alastair Ford



The new chief executive at Allied Gold is Richard Johnson. He came in for a bit of flak here in London when he was appointed back in January for choosing to re-locate Allied’s offices to Brisbane. And rightly so, you’d think. Perth is Australia’s great mining capital. You could make a case, possibly, although not perhaps seriously, for Melbourne or Sydney, on the basis of their metropolitan and international status. You might even, at a push, argue for Canberra, if you need to bend the ears of government officials on a regular basis in order to steer a tricky license through. But Brisbane?
It turns out that working out of Brisbane was a condition of taking the job for Richard Johnson, for two very good reasons. Firstly, he already lives there. Not perhaps the most fundamental of financial, or even technical, of arguments. But on the other hand never underestimate the value of happy executives at the top of your business. Secondly, and crucially from the business angle, Brisbane is the jumping off point from Australia to Port Moresby, the capital of Papua New Guinea. Why take the red-eye from Perth to Brisbane, only to transfer, when you can get a nice morning flight direct, and arrive in country faster, and more cost effectively, by flying out of Brisbane.

Richard doesn’t spell it out in so many words, but he was brought on board at Allied to bring step it up a gear. Not to say it was lacking focus without him, but the company is no longer engaged in the simple matters of pegging ground, securing title, and proving up resources. Allied has been producing gold from its Simberi property on Simberi Island, in the Tabar Islands, Papua New Guinea since February 2008. By the end of March it had already shipped over 10,000 ounces, in the process fulfilling its hedge commitments by a whisker. Barrick is a joint venture partner on other licenses on the Tabar Islands. There’s a reserve of nearly 800,000 ounces to work off, with a further 2.4 million in the measured, indicated and inferred resource categories. So, time for the entrepreneurs to call in a mining man, to run the show properly.

Richard Johnson is that man. Not only does he know how to get his own way – the Brisbane office being a case in point – but he knows mining, and he knows Simberi too, from days of old when he used to work for Durban Roodeport Deep (DRD). DRD nosed around Simberi for a while, but ultimately an oxide resource in the Pacific was a bit of the radar for a deep mining specialist rooted in the Wits. Nord Resources took on Simberi for a while, before the entrepreneurial side of Allied, in the form of chairman and managing director Mark Caruso, took it on and eventually took full control.

To take us up to the present, Allied has got Simberi up and running and into production at a cost of A$93 million. That’s A$13 million over the original budget, but all in all, not a bad effort. The cost per ounce of the gold already shipped has come in at less than A$300, so there are some healthy margins on offer, although admittedly 170,000 ounces is hedged at US$700, and costs will rise over the life of the mine to around US$300. They may even go higher, given the general cost inflation across the industry. Still, it’s going to bring in some decent cash flow, and although it was a tight squeeze meeting the first hedge commitment, now that Allied is shipping, that side of things ought to run fairly smoothly. What’s more there’s a little bit of further upside in the hedge, in that 40 per cent of it allows for a gold price higher than US$700, while still protecting the company on the downside. European Minerals, eat your heart out.

Looking ahead, Richard’s got big plans. The current output rate is 2.2 million tonnes per year, but he’d like to get that up to 3.5 million or possibly four million, once the relevant studies are completed later in the year. There seems no reason to suppose that this can’t happen, and that output can rise to around 130,000 ounces per year, up from the current projected 84,000 ounces per year over the eight year mine life. Drill rigs are on the ground, bringing more ounces to the table, and any expansion of the oxide plant ought to be achievable through cashflow.

Working up the company’s sulphides is another matter, but if Allied can add to the 420,000 ounces at its Pigiput prospect on Simberi, it may well be feasible. There the grades are currently running at an enticing 10.4 grammes per tonne, and like Simberi’s oxides it’s free-dig, so the trick will be in the processing rather than the mining. The drill rig’s working away there too. If Richard can deliver a sizeable sulphide resource running those grades, then he could move the office to Timbuctoo, and shareholders wouldn’t complain. Just as long as he swings by London once in a while to keep us all in the picture.