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British funds raise gold miner’s European hopes

PERTH-based international mining company Gold Mines of Sardinia Ltd has raised $9.4 million through a placement of 25 million new shares in the United Kingdom on the likelihood of a multi-million ounce gold resource – potentially the largest in Europe.

The company is now seeking to place the new shares on the Australian Stock Exchange and on London’s Alternative Investment Market to back its exploration program on Sardinia, the second largest island in the Mediterranean Sea.

Market punters have been quick to jump back on board the company over the past month, since the company announced an agreement had been finalised with Homestake Mining Company of California, the $9-billion subsidiary company of Barrick Gold Corporation.

The agreement gives Barrick the option to fund 100 per cent of all costs until completion of a feasibility study of two areas totalling 142 square kilometres.

Sardinia Gold Mines SpA, 90 per cent controlled by Gold Mines of Sardinia and 10 per cent Sardinia Government owned, will hold a 32.5 per cent interest in the joint venture, while Barrick will have a 67.5 per cent controlling interest.

Since news first broke of the joint venture arrangement, the share price has jumped 15 cents.

But it has not just been the interest from Barrick that has caught investors’ interest. Healthy production figures at its Furtei Mine have increased the cashflow.

Gold production for the December quarter was up 118 per cent on the September quarter, while cash operating costs fell 46 per cent.

The new sulphide plant also has successfully come on stream.

During the past quarter, a second shipment of finished gold-rich concentrate was dispatched, cementing the operations change from an oxide to sulphide producer.

Almost one million dollars worth of gold bullion and concentrate was sold during the quarter.

DJ Carmichael analyst Peter Strachan said Homestake basically had underwritten Gold Mines of Sardinia through its joint venture arrangement and its 10 per cent stake in the company.

But he said the company, although experiencing declining production costs after the abnormally high costs in the September quarter when the Sulphide flotation plant was brought on-line still was – at US$260 an ounce – a relatively expensive operator.

The lack of hedging facilities in place also left the company wide open to high or low gold spot prices, he said.

Gold Mines of Sardinia traces its roots back to GemCor and General Gold Resources, two WA companies with an interest in the Sardinia projects who, in 1996, formed the one company.

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