Archipelago Resources

Archipelago Resources (AR.) says TokaTindung in Indonesia is operating at 65% of planned gold production after starting a second open pit. Based in Western Australia, the AIM-quoted company declares it is now on track to produce some 80,000 oz of gold equivalent for 2011, having begun mining at Pajajaran, to the south of the main Toka Tindung pit in Indonesia's North Sulawesi region.

With US13m (£8.1m) in the bank and a $15m working capital facility drawn down but as yet unused, Archipelago indicates it will take Toka Tindung to full production in the fourth quarter of this year. Managing director Colin Loosemore has said the company, which has established a 1.7m-oz gold resource estimate so far for the project, expects to produce at a rate of 160,000 oz a year for six years.

The company, which says it expects to announce the results of further exploration drilling soon, says it envisages average cash costs to come out at $487 an ounce, less than a third of gold's current market price, for the first six years of production at Toka Tindung. The terms of Archipelago's project finance facility oblige the company to hedge about 100,000 oz forward at a much lower floor price of $900 an ounce, but Archipelago explains it is hedging with put options, which give it the right but not an obligation to sell at that price, thus achieving some protection against sharp price falls without limiting possible profits from price rises.

Recommended by Growth Company Investor at 31p last year, Archipelago shares trade at 65p, up 2.75p this morning. Hold on for now.