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UPDATE: Archipelago Resources declares start of full gold production at Toka Tindung

Archipelago Resources today declared the start of full production at its 95 per cent owned Toka Tindung gold mine in Indonesia. The mine is now achieving the targeted 1.5 million tonne per annum production rate, which will see Archipelago produce 150,000 ounces of gold in 2012.

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Archipelago Resources (LON:AR.) today declared the start of full production at its 95 per cent-owned Toka Tindung gold mine in Indonesia. 

The mine is now achieving the targeted production rate. This means that the mine is expected to produce at least 60,000 ounces of gold this year.

Output at Toka Tindung is expected be 150,000 ounces of gold next year – and for the remaining life of the mine. 

"Meeting our production objective is a significant achievement for Archipelago and our ability to generate positive cash flow will provide the platform for meaningful growth,” said chief executive Marcus Engelbrecht.

Archipelago is currently mining from the Toka Tindung open pit as well as two other satellite deposits, Pajajaran and Araren.   

Meanwhile, the group continues its exploration of the area already covered by the Toka Tindung mining permit.

"Having successfully established our production base, the company is committed to pursuing further drilling programmes at Toka Tindung,” Engelbrecht added.

“This will support organic production growth at Toka through increased reserves, additional sources of ore and greater production optionality."   

The company also announced today that it will not proceed with the Pac-Lang joint venture in Vietnam.

The decision follows a comprehensive review of the work conducted there to date. The exploration results do not justifying further expenditure, Archipelago said. 

“Archipelago maintains a strong management presence in Vietnam and the company continues to review other opportunities in that country,” it said.

Today’s guidance that Toka Tindung would produce 60,000 ounces this year falls short of the firm’s initial forecast of 110,000 ounces in 2011.  

The group had already flagged that gold production would be lower due to a number of complications in the mine’s ramp-up.

According to analysts such problems are common for mine start ups. 

“Whilst it is disappointing that Archipelago has again revised down its production guidance down for 2011, it is also not surprising as very few gold operations manage to ramp up to full-scale production without a few hiccups in the first 12 months of the operation,” said Ambrian Capital’s Adam Kiley.

“What is pleasing was that Archipelago managed to achieve its annualised throughput rate on schedule during the current quarter.

“By achieving the throughput rate we are confident that Archipelago will be able to meet its 2012 production guidance of 150,000 ounces of gold.” 

According to Kiley the group remains on track to report an increase in its reserves and resources before the end of this year. 

Ambrian today repeated its ‘buy’ recommendation for Archipelago, but reduced its target price from 92p to 89p due to the reduced production this year (current price 64 pence, unchanged today).

John McGloin, Collins Stewart’s mining analyst, added: “Now that full production has been established, the next major step for the group is to expand the  resource base at the mine, which has seen very little drilling since the feasibility stage.” 

The first phase of drilling has been completed, with resource modelling now underway. 

McGloin added: “Overall, with production established and with significant opportunity for organic growth around Toka Tindung, the company appears to be at an attractive entry point, in our view.”

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