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Indonesia still promising

WESTERN Australian mining companies with projects in Indonesia are keeping their nerve, as they live on the edge of a volcano.

Aurora Gold, which abandoned one mine and came close to closing another last year, now sees a bright future for its remaining project. And Herald Resources, proving what is expected to be a world-class lead-zinc deposit close to Aceh, is confident that it is insulated from the violence occurring at the other end of the island of Sumatra.

However, Australian explorers and miners have been surprised that there remains considerable interest in investing in Indonesian mining ventures, even though parts of the sprawling archipelago are afflicted by violence.

A study just completed by the Economist Intelligence Unit found Indonesia the fourth most risky country in the world in which to do business (with only Iran, Myanmar and Kenya ahead of it).

Aurora Gold is seeking to sell or farmout Toka Tindung, following the damaging and widespread impact of illegal mining at the satellite Talawaan prospect. A mine and processing plant, almost commissioned, were placed on a care and maintenance basis 18 months ago but will be abandoned if no buyer or partner can be found.

A year ago the company wrote off or listed provisions of $97 million “in recognition of increasing uncertainty of Indo-nesian operating conditions.”

This means that the strong return to profit at Mt Muro, in particular, will provide immediate benefits in the balance sheet. Aurora has found that there is interest in acquiring assets like Toka Tindung. Some companies are apparently willing to gamble that Indonesia will solve its problems, and that exploration and development will again be attractive.

The prospect is that any company buying, for example, Toka Tindung would not expect to be able to confidently move back for at least several years.

Meanwhile, Aurora Gold is embarking on a new exploration program to add at least a year to the life of the Mt Muro mine, in central Kalimantan, after a strong recovery in production in the second half of last year.

Illegal miners swarming over the company’s workings (with some pits becoming entire com-munities) had almost brought operations to a halt.

Almost all the intruders were from other parts of Indonesia and nearby villagers were angry that their jobs in the mine were endangered by the illegals.

The local people, transported in buses provided by Aurora, descended on the district capital, and demonstrated for nearly a week outside government and police offices, demanding that the illegal miners be cleared from Mt Muro.

This spurred official action, and the intruders were moved off the mine, production resumed and has been highly productive. Aurora employed the disrupted time to design a new mine plan, and gain a better understanding of the deposit’s structure.

It has also reduced costs, and Mt Muro continues to be a strong cash generator, achieving its second best annual production result since project inception – a 13 per cent increase on the previous year’s output to 253,250 gold equivalent ounces.

This included record monthly production of 30,192 ounces in October and record quarterly output of 73,780 ounces in the third quarter.

However, it has reserves for only about 18 months production, and a drilling program just launched aims to extend this.

Herald Resources is carrying out what is almost a pre-feasibility study on its Dairi prospect, in Sumatra, with an indicated and inferred resource of about 10 million tonnes.

The indicated classification has 27 per cent lead-zinc and some silver, providing, on the face of it, an attractive project.

Some of the leases are close to Aceh province – although still a long way from the violence.

However, the company’s executives stress that the cultural and ethnic background of the people in its area are very different from those in Aceh, and there has been no sign of tension.

Relations with local authorities are so close that Herald Resources has taken a group of local officials to Toronto, for a mining conference, where a presentation on the Dairi venture is being given.

The regional authorities are keen to encourage mining development in what is almost a frontier area on the island, and are confident that there will be no disruption.

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