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Gold in sight

Wednesday, January 04, 2006

A FOCUS on Indonesia has been the cause of some hardship for a Melbourne-based explorer, but the pay-off could be just around the corner. By Luke Forrestal



After more than a decade of traipsing around Indonesia in search of gold, including several periods where the investment climate was not all that conducive to success, Melbourne-based explorer Austindo Resources is within sight of its most pressing goal – to establish its first producing mine in the country.

Late last month Austindo commenced site construction at its Cibaliung project, in Banten Province on the island of Java, marking the occasion with a traditional Indonesian groundbreaking ceremony attended by more than 200 people including local dignitaries, government officials and company representatives.

For Austindo executives who watched the company stagger in 1997 due to the combined effects of the Asian economic crisis and political instability in Indonesia, and hit another rough patch in 2002 when the country was again in turmoil and the gold price was foundering, the feelings on the day must have varied somewhere between vindication, redemption and jubilation.

The company first gained exposure to Cibaliung in 1999 when it picked up a 63% stake in the project previously held by Canadian company Palmer Resources for $300,000 – "a very, very cheap entry", according to managing director Ian Price. It has since increased its holding to about 87%, in the process diluting the stake of Indonesian partner PT Antam.

Price, who has been with Austindo for the past three years, said exploration potential was the main reason his predecessor, John Carlile, a geologist with a history of locating substantial epithermal gold systems in Indonesia including involvement in the discovery of Newcrest Mining's Gosowong deposit, was attracted to Cibaliung.

Again, in this instance, Carlile's assessment turned out to be on the money. At last calculation, the project hosted a total resource containing 480,000 ounces of gold and four million ounces of silver, and proven and probable reserves containing 355,000oz of gold and 2.95Moz of silver.

Based on these figures, Austindo says the planned underground operation at Cibaliung can sustain production of at least 70,000oz gold equivalent per annum for a six-year span, with a start date pencilled in for the last quarter of next year. However, it is confident of lifting the rate to 100,000ozpa once further exploration is conducted.

Austindo spent about $US1 million on exploration drilling in 2005, with 80% going on activity in the Cibaliung project area.

Price said the company would have a similar budget for next year, but was likely to allocate a greater portion to its two less advanced projects, Pekalongan in Central Java and a new tenement in Papua that it recently applied for and will explore in alliance with Anglo American.

Both projects are said to be similar to Cibaliung in terms of style of mineralisation, which potentially means Austindo will have a tried and tested formula to apply if they too are proven to be feasible.

"We would hope to see in a couple of years, once we've had some exploration success, that the company could roll out another Cibaliung look-alike using the knowledge gained there and the same sort of processes in terms of the mining," Price said.

"If we have that success with exploration, we're aiming within five years to be getting towards 200,000oz annual production."

The most immediate and obvious priority, though, is to get Cibaliung up and running smoothly.

Austindo plans to use a combination of Indonesian and Australian contractors for the $US34 million mine development, with the company already having engaged Aker Kvaerner to relocate the second-hand CIL plant it picked up from Sipa Resources' mothballed Mt Olympus operation to site. Other key contracts are due to be let shortly.

Price expects the actual mining, which Austindo will carry out itself, to be relatively straightforward. The Cibaliung ore body lends itself to conventional mechanised cut and fill stoping and its high grades are expected to enable the company to achieve a cash operating cost of less than $US200/oz.

Furthermore, Price said Austindo's chances of success with the project have been boosted by the strengthening gold price and marked improvement in the investment climate in Indonesia.

The nation's embracing of democracy had been an important change that would hopefully ease the political turmoil of years gone by. With it had come moves to give provincial governments more say in decision-making, a development that has had significant implications for mining and exploration companies.

"(The diminished central government influence) has had both good and bad effects," Price said. "Some local politicians and bureaucrats are still coming to terms with understanding exactly what their powers are.

"In our case, we're dealing with provincial governments and local governments which are actually functioning very well. But in other parts of Indonesia there are some issues and problems."

Price believed there were three other factors Austindo had working in its favour when it came to dealing with Indonesian bureaucracy:

* Its partnership with PT Antam, which he described as "very positive".

* Having as its major shareholder Austindo Nusantara Jaya, an Indonesian-Australian company owned by the Tahija family – "You can't speak highly enough of them as a major shareholder".

* A workforce comprising predominantly Indonesian nationals, who are "very competent and highly skilled". "They've worked with both Indonesian and Australian companies so we've got tremendous capacities within the organisation. These are the people driving our business."

With these working in its favour, Price said the company had not encountered any particular difficulties with gaining the necessary approvals for Cibaliung and, in fact, the process had occurred a lot quicker than many people expected it to. - AUSTRALIA'S MINING MONTHLY