Archipelago Resources

Archipelago Resources has chosen three banks to lead $70m (£43.7m) of financing for its Toka Tindung gold project in Indonesia.

Headed by the entrepreneurial Colin Loosemore, Western Australia-based Archipelago has picked French banking group BNP Paribas along with Standard Bank and Australia and New Zealand Banking Group to head a syndicate to provide $60m project finance and a $10m cost over-run facility for Toka Tindung in Indonesia’s North Sulawesi area. AIM-quoted Archipelago has 85% of this project, which boasts an estimated resource of 1.75m oz of gold equivalent.

The commercial terms of the proposed funding remain confidential, but the company has suggested hedging some 170,000 oz of future gold production, about 15% of envisaged output, by way of put options, leaving Archipelago in a position to take full advantage of any increases in the gold price.

The company estimates it will be able to mine 1.1m oz of the 1.75m oz deposit by open-pit methods, significantly cheaper than underground mining, and has designed the planned open pits ‘conservatively’ on the basis of a $600-an-ounce gold price, against today’s $1,097 market price.

Loosemore and colleagues estimate Toka Tindung can produce gold at an average rate of 160,000 oz a year for at least six years. But they say they are confident further exploration can ‘substantially extend the life of the project', provided the gold price stays within its recent trading range.

Shares in Archipelago rose from 2003’s AIM float price of 23.5p to 50.5p in 2006 before environmental approval delays and other snags knocked them all the way to 2.88p in the past 12 months. Highlighted by Growth Company Investor at 22.75p in mid-2008, they have now reached 38.5p and have scope for further improvement.