G-Resources gold project back on track after deluge

Gold miner G-Resources rose 5.6 per cent yesterday after announcing that it had largely overcome problems caused by torrential rain at its Indonesian gold and silver mining project, but at a cost of US$80 million.

The company also announced that it had signed a US$150 million contract with Australia-based Leighton Holdings - the world's biggest contract miner - for 65 months, to conduct mining operations at its Martabe project in Sumatra.

Production at the mine will now start in the fourth quarter instead of the first quarter of 2011, the company said in a statement to the stock exchange.

'It has set us back six months - we have been a bit unlucky,' said G-Resources deputy chairman Owen Hegarty.

G-Resources stock hit a recent peak of 59.5 HK cents in May but has since languished and drifted down to 35 HK cents at the end of last week before yesterday's jump to 37.5 HK cents.

Hegarty said that three metres of rain had fallen on the site over a three month period and had unearthed slippage 80 metres below the surface.

As a result the company has had to move the plant site where the ore will be processed and the tailings storage facilities which hold the waste material from processing the ore.

The original capital cost of the mine was about US$360 million but this has now increased to US$440 million following the additional work.

Hegarty said that the company had spent US$150 million up to the end of June, adding that he believed the company had sufficient funds to complete the building of the Martabe project up to when it expects to start producing gold in 2011.

G-Resources was formed last year via a backdoor listing after its controlling shareholders bought Smart Rich Energy Holdings then changed its name and raised US$587 million and acquired the Martabe project from Oz Minerals for US$211 million.

The project has reserves of 2.7 million ounces of gold and 32.8 million ounces of silver, and resources of 6.5 million ounces of gold and 66.4 million ounces of silver.

The company is targeting production of 250,000 ounces of gold and 2.5 million ounces of silver initially which amounts to revenue of US$342 million at current prices.

This implies a cost of less than US$250 per ounce to produce the gold, which by global standards is low.

G-Resources says it aims to produce one million ounces of gold per year within the first five years of production.