Australian Solomons’ drive to bring back Gold Ridge

Tsunamis and civil wars represent the darker side of building a mine in a tropical paradise like the Solomon Islands.

But Australian Solomons Gold (ASG) (SGA-T) has already weathered the former, allowed the latter to subside, and is now moving towards bringing a gold mine back to life by the end of 2008.

Whats more, the company was given a geological reward for its efforts when it struck upon a new gold rich zone earlier in the summer.

The Gold Ridge project sits roughly 30 km south-east of the capital of Honiara at an elevation of more than 300 metres above sea level — high enough to protect it from the tsunami that ravaged much of the country in early April.

Built back in the late 90s, Gold Ridge turned out enough yellow metal to contribute 34% to the country’s gross domestic product.

Despite such robust figures, however, warring factions on two of the countrys islands caused the mine to be closed after just two years of operating. Up until then, the mine had turned out 210,000 oz. of gold at a cash cost of US$222 per oz.

It took the arrival of Australian and New Zealand forces in 2003 to move the country out of war and into peace. Shortly thereafter prospective miners returned.

ASG was one of the first and, gambling the new peace would hold, it bought Gold Ridge for the bargain price of US$20 million in cash from Delta Gold.

The price included the original plant which, fortunately for ASG, was not leveled during the civil war. ASG plans to refurbish it and add four more leach tanks with an eye towards bringing mill capacity up to 2.5 million tonnes per year from 2 million tonnes.

The projects feasibility study estimates the mine will turn out an average of 124,000 oz. per year at cash costs of approximately US$388 per ounce. Those costs, however, are up from earlier in the year when ASGs chief executive, Ron Douglas, told The Northern Miner they would likely be in the low US$300 range.

Barry Casson, ASGs corporate finance executive, attributes the rise to the inclusion of a cyanide destruction circuit which wasnt part of the earlier plan. The addition adds roughly US$30 per oz. to operating costs he says.

Also changing from earlier in the year, is the targeted start-up date.

ASG had said it planned to begin production at the beginning of 2008; it now says production wont begin until the end of 2008. Casson blames a change and subsequent delay in financing plans, compounded by a delay in completing the feasibility study, for the pushback of the start-up date.

The project currently has a measured and indicated resource of 28 million tonnes grading 1.54 grams gold for 1.5 million oz. It has roughly another 1 million oz. in reserves, with mineralization described as a low-sulphidation epithermal gold deposit.

The total mine life before the new gold zone was intersected was put at eight years, that likely will increase as the new zone is better defined.

Other estimates in the feasibility study could see changes in an upward direction thanks to the discovery.

On July 3, the company announced that one of the three holes it put into the Charivung Gorge area returned a 137-metre intersection grading 3.44 grams gold per tonne. The intersect included two 1-metre intersections grading more than 100 grams gold per tonne each.

ASG says the strike length of the new zone is 175 metres and it is open in both directions and at depth. It is now focusing its exploration program on the gorge to determine the extent of the mineralization.

The news had an immediate impact on its share price, bumping it up 43% to $1.46. Since then its shares have moved between $1.20 and $1.44.

Boding particularly well for the company is the position of the Charivung Gorge it sits between two of ASGs planned four open pits which means the company is now considering scrapping its originally four-pit plan in favour of one large pit.

Casson says the zones near ideal positioning means a revised strip-ratio for the larger pit should remain low. The previously announced strip ration for the four-pits was 1.5:1.

As for the impact the new find could have on plans to refurbish the existing plant, Casson says if throughput does increase the plant would be expanded further — including additional capacity in the crushing, milling and leach tank areas.

However, Casson says, the likely scenario would be to develop the 2.5 million tonne per year plant anyway, and to then incrementally increase plant capacity later.

With a completed feasibility study under its belt and a recent private placement putting $15 million in the kitty for exploration and preliminary development, the company his well positioned for the coming year.

However, one issue remains: for the project to come to full fruition, a community will have to be moved.

Casson clarified that the government is not required to approve the new relocation of villages — that was a matter between the company and the landowner council, and it5 has already been agreed upon.

The government does, however, have to formalize the legal title for the development that landowners will be moved to.

ASG says while the process takes time it isnt causing any critical delays to the project.

We expect this approval in the next two months, Casson says. There are approximately 200 houses to be built for those being relocated. The house designs have been agreed with the landowners.