Solomon Gold : On a mission with Newmont to discover the South Pacific’s next giant orebody

Solomon Gold, as the name suggests, is exploring for gold and other metals in Solomon Islands. The company, which was spun off from the ASX-listed D’Aguilar Gold in an AIM listing in February 2006, is on a mission to discover the next world-class orebody in the South Pacific. To date it has invested A$18m in exploration, discovered a copper-gold system at Sutakiki, and is building up an extensive geological knowledge base about its project areas. It recently received a huge financial boost and vote of confidence in the prospectivity of its projects when it announced a JV agreement with Newmont, one of the world’s top three gold producers, whereby Newmont will invest up to US$12m over the next 5 years to acquire a 70% stake in five of Solomon Gold’s tenements on the island of Guadalcanal.
 
Solomon Islands is an archipelago comprising 992 islands in the South West Pacific with a combined area the size of Belgium. The islands range from relatively large, densely forested landmasses with mountains up to 2,500 metres high, to low lying coral atolls.  They lie on the Pacific Rim of Fire, a geologically active region characterised by earthquakes and volcanoes and host to many of the world’s largest copper-gold orebodies.  One of the biggest islands, at 150km long by 45km wide, is Guadalcanal, home to Honiara, the capital of Solomon Islands, and the country’s main international airport.  

D’Aguilar Gold, an Australian resource generation company which specialises in early stage exploration, first acquired its tenements on Guadalcanal in 1995 through ARM (Australian Resource Management), its wholly owned subsidiary, now fully owned by Solomon Gold.  The four contiguous tenements, which covered 388 square kilometres of ground, lie to the south of Honiara, with the northern boundary of the closest tenement, Mbetilonga just 8km from the capital while the furthest extremity of Koloula is almost on the south coast, some 45km away.  

From 1995 the company conducted an exploration programme with detailed reconnaissance mapping and it established strong working relationships with the local communities and government.  This lasted until 1998, when civil strife on the island forced it to withdraw.  In 2003 when peace was restored Solomon Gold resumed its fieldwork and  commissioned Kenex, an independent New Zealand consultancy, to construct a detailed exploration and Geographic Information System (GIS) database for Guadalcanal based on exploration data collected by ARM and by other previous explorers on the island, an illustrious group which included Newmont Mining, Utah, Kennecott, Niugini Mining and CRA. Kenex’s report was published in October 2005 and the decision was taken to float Solomon Gold as an independent entity on AIM.  

The AIM admission document, published in early 2006 outlined the Director’s reasons for believing that Solomon Gold’s projects had the potential to host a commercially significant bulk-mineable copper-gold orebody.  In essence their arguments were that:

1.    Guadalcanal is located in a region known for world class orebodies.  PNG and the Indonesian archipelago, (which, in a manner of speaking is Solomon Islands’ back yard), is comparable to Guadalcanal geologically and tectonically, and it hosts at least four giant deposits of 40+ million ounces of gold equivalent including Grasberg (100Moz of gold equivalent), Ok Tedi (55M oz),  Panguna (50M oz) and Lihir (40Moz), plus many other smaller deposits.

2.    Despite regarding the island as prospective for world class copper gold porphyry systems Guadalcanal has received only scant attention from the major explorers because of the logistical and operational difficulties of operating there.

3.    The Kenex report and database increased the level of understanding about the geology of the island and confirmed that ARM’s tenements covered the most prospective ground on the island.  The presence of copper and gold mineralisation on the tenements has been amply demonstrated since 1957 by previous exploration programmes by various government agencies and companies.

4.    The Gold Ridge Mine, a 2Moz resource with a grade of 1.86g/t which lies 40km south east of Honiara and 7km from the boundary of Sutakiki, one of Solomon Gold’s tenements, is proof that significant gold mineral systems exist on the island.  The mine, which produced gold from 1998 until 2000 when it closed because of civil unrest, is currently being redeveloped by the Australian Solomon’s Gold, (an unrelated company despite the similarity in name).

5.    ARM/Solomon Gold has demonstrable experience in conducting business and operations in the Solomon Islands.   Nick Biliki, the Operations Officer, is based in Honiara and was formerly the Deputy Director of Geology from the Solomon Islands’ Department of Mines and Energy.

6.    Solomon Gold’s management team has secured unprecedented access arrangements to the key prospects. (This is a key issue as negotiating access agreements in this area can take considerable time).

7.    The Solomon Islands’ Mining Act provides an orderly regulatory environment under which to conduct exploration.  (Note also that the major source of foreign earnings in the past has been logging, but the extraction rate has continually exceeded sustainable levels so stocks have been depleting.  The government sees mining and agriculture as the solution, and are strongly encouraging mining investment in the country).

8.    The directors have considerable experience in discovery:  CEO Nicholas Mather, a geologist with 27 years experience, has been involved in start up companies which today are capitalised at over A$4bn, including gas company Arrow Energy (which has grown from 0 to $2.3bn), and the billion dollar BeMax Resources minerals sands company.  Mr Mather was also a director of Ballarat Goldfields during its re-emergence as a significant Australian gold project.

Since listing in February 2006 Solomon Gold has conducted an extensive geochemical programme and full airborne magnetic survey supervised by a team of eight geologists (of which half are locals and half are ex-pats) operating from three base camps on the island. It has also drilled 14,000 metres, and in late 2007 it announced the discovery of the Sutakiki copper gold system in which the best intersection was 32 metres at 9.45g/t of gold including 10 metres at 21g/t – an announcement which led to a trebling of the share price in 3 days. It also continued to develop relationships with the local communities gaining unprecedented access to the project areas.

However 2008 proved to be a mixed year.  A considerable amount of exploration was undertaken both in Guadalcanal and on Ngella in the Florida Group of Islands.  But the drilling and sampling, while promising, did not deliver sufficient results to define a resource.  Meanwhile, of course, the world economy and availability of credit was declining rapidly so the company was forced to wind back its drilling activity, to retrench a number of staff and to revise its strategy to focus on grass roots exploration without the need for a capital intensive drilling programme. Where the previous focus had been on exploring for peripheral high grade veins and skarns the new focus was on finding the larger parent porphyry systems.  

In November 2008 things began to change again as Newmont entered the picture, signing a term sheet with Solomon Gold which outlined the principal terms of a proposed JV agreement on five of Solomon’s exploration licences. The agreement was finally ratified in early March 2009, and the terms provide that in Stage 1 Newmont may earn a 51% interest by spending $6m within 3 years and may elect to proceed to Stage 2 (70% interest) by spending a further $6m over the next 2 years.  Solomon Gold will act as manager and operator for the programme for the first year and Newmont may elect to manage it thereafter.  Newmont will second two geologists to the programme.

Current Status and Plans for 2009

The current status of the projects is summarised in the table below.  

The plans for 2009 are to spend US$2m on the JV projects focussing on agreed target areas in central and southern Guadalcanal with a programme of mapping, grid soil and rock chip sampling and at least 2,800 metres drilling.  Importantly the Newmont review has identified key targets at Vurakara and Kuma (although this had been previously downgraded by Solomon Gold).  The mineralisation at Kuma is now interpreted to be a cap rock, possibly overlying a significant mineralised porphyry copper/gold system.  At Chupukama where access has been recently arranged after an absence of 12 years Solomon Gold will investigate a halo of gold targets around a central copper porphyry core.  Results from trenching returned an intersection of 55 metres at 2.4g/t of gold and 50 metres at 1.63g/t. The geophysical patterns at both Chupukama and Vurakara are supported by sampling and indicate potential for significant mineral systems.  

Exploration, of course, is inherently risky. And for Solomon Gold, in addition to the all the normal geological and operational risks, the terrain in the project area is physically challenging - access is mostly only by helicopter or foot using logging tracks and the rivers – and there is no grid power.  As the Competent Person’s report in the Admission Document noted that “Exploration potential at Solomon Gold’s tenements is high …. but exploration is anticipated to be relatively expensive and time consuming in comparison with other terrains internationally, though no more difficult than other geographically comparable regions of the southwest Pacific and South East Asian portions of the Pacific Rim”.

Exploration stocks too are risky, particularly in the current market environment which has hammered the sector and is focussing almost exclusively on production and cash flow. But there is a school of thought, expounded in a recent interview by investment analyst Marc Faber, which argues that commodities will be the first assets to rally when growth returns after the credit collapse/recession, and that mining stocks, especially exploration companies, are currently attractive provided that you buy the right ones with a strong backer.  (See Bloomberg article, Faber says Buy Gold Explorers backed by Miners).

So on the upside Solomon Gold has a strong backer in Newmont and early mover advantage in some highly prospective ground, yet it has a market valuation of just £4.1m. The prize, if Solomon Gold is successful in its mission to discover the South Pacific’s next world class orebody, could be huge.