Australian Solomons’ Drive to Bring Back Gold Ridge

Tsunamis and civil wars are just some of the problems that could hinder the development of 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.

What’s more, the company was rewarded for its efforts when it struck a new, gold-rich zone earlier this year.

The Gold Ridge project sits roughly 30 km southeast of the capital of Honiara at 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 1990s, Gold Ridge once produced enough yellow metal to reach 34% of the country’s gross domestic product.

Despite the robust figures, warring factions on two of the country’s islands caused the mine to close after just two years in operation. Before that, the mine had turned out 210,000 oz. of gold at a cash cost of US$222 per oz.

In 2003, Australian and New Zealand military forces helped move the country out of war and into peace. Shortly thereafter prospective miners returned.

ASG was one of the first to venture there and, gambling the new peace would hold, the company snapped up Gold Ridge from Delta Gold for a paltry US$20 million.

The price included the original plant, which remarkably enough had remained intact during the civil war. ASG plans to refurbish it and add four leach tanks with an eye towards bringing mill capacity up to 2.5 million tonnes per year from 2 million tonnes.

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

Barry Casson, ASG’s corporate finance executive, attributes the rise to the inclusion of a cyanide destruction circuit — absent from an earlier plan. The circuit adds roughly US$30 per oz. to operating costs, Casson says.

Also changing is the targeted startup date.

ASG had said it would begin production at the start of 2008; it now says production won’t begin until the end of 2008. Casson blames the pushback on a change in financing plans, compounded by a delay in completing the feasibility study.

Gold Ridge has a measured and indicated resource of 28 million tonnes grading 1.54 grams gold for 1.5 million contained ounces. It has roughly another 1 million oz. gold in reserve, with the 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, but that will likely increase as the new zone is better defined with further drilling. Other numbers in the feasibility study could move upward, too, 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 intersection included two 1-metre intersections each grading more than 100 grams gold per tonne.

ASG says the strike length of the new zone is 175 metres and it is open in both directions and at depth. The company is now drilling the gorge to determine the extent of the mineralization.

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

Charivung Gorge sits between two of ASG’s planned four open pits, which means the company is now considering scrapping its original 4-pit plan in favour of one large hole.

Casson says the new zone’s ideal position means that the strip-ratio for a larger pit would remain low. The previously announced strip ratio for the four pits was 1.5:1.

The plant could also see some changes. Casson says if throughput increases, the plant would be expanded to reach greater capacity in the crushers, mill and leach tanks.

Casson explains: “The likely scenario would be to develop the 2.5 million-tonne-per-year plant anyway, and to then incrementally increase plant capacity later.”

ASG has a completed feasibility study and a recent private placement that put $15 million in the kitty for exploration and preliminary development. But one issue remains: if the project is to be fully developed, a community will need to be moved.

The relocation of villages was negotiated between the company and the landowner council — and an agreement is in place. But the local government still needs to formally approve the proposed development where landowners will be moved to.

ASG says the process takes time but it isn’t causing any critical project delays.

“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.”