Indonesia – North Lanut/Bakan

News

13 May 2008 Significant drill intercepts at North Lanut, Indonesia

Background

In March 2002 Avocet purchased an 80 per cent interest in an Indonesian company, now named PT Avocet Bolaang Mongondow (PT ABM). It holds a 6th generation Contract of Work (CoW) located in the central portion of North Sulawesi in the District of Bolaang Mongondow. The North Lanut gold mine is located within the CoW, which includes exploration and mining rights over approximately 50,000 hectares. An Indonesian company, PT Lebong Tandai, owns the remaining 20 per cent.

Following a one year construction period, gold production commenced in October 2004. Exploration activities have continued within the CoW with the Bakan project being the most significant prospect that has arisen.

Operating results - FY2007

In May 2007 North Lanut passed five million man hours with no lost time injuries (LTI), a significant milestone for the operation. Unseasonal rainfall at the North Lanut operation in early 2006 required the mine to conduct some re-engineering of the waste dumps and storm water ponds for the dump leach. This work was undertaken during the first half of the year. During the same period, heavy rainfall hampered operations with the mine's haulage fleet unable to operate at full capacity. Construction of the second stage heap leach pad continued throughout the period. These factors meant that the amount of ore placed and irrigated on the leach pad in the first half was 11 per cent below the corresponding period in the previous year. This was partly compensated by ore grades 8 per cent above the corresponding period in the previous year, but recovery was 5 per cent lower. This was in line with expectations as the mine is increasingly moving from oxide to transitional/sulphide ore with depth. First half gold production was therefore 9 per cent down on the previous year. The greater focus on waste last year means that stripping in the coming year will be lower.

The mine made the decision to hire articulated dump trucks for ore and waste haulage, and a fleet of six contractor Volvo ADT trucks started operation in the first quarter of 2007. With larger and wider tyres, these trucks are able to operate in very wet weather. This helped place more ore on the leach pad in the second half of the year which was some 35 per cent higher than in the first half. This was still 18 per cent below the corresponding period in the previous year, and although grades were 15 per cent higher than in the second half of the previous year, recoveries were 9 per cent lower. Leach recoveries reduced partly due to a higher proportion of transitional ore leached in the last quarter. Significantly higher levels of material were placed on the pad in the final quarter, which has benefited gold production in the first quarter of the new year. For the year as a whole, gold production of 48,170 ounces was 12 per cent below the previous year. Total operating costs were affected by the abolition of government funded fuel subsidies, which significantly increased diesel prices, while higher amounts of transitional ore leached meant a significant increase in the usage of hydrated lime which is used to control the leach alkalinity. Combined with lower gold production, these factors resulted in cash costs for the year as a whole increasing from US$201/oz last year to US$354/oz.

Decreasing recoveries and the higher costs associated with transitional ore mean that unit costs will continue to come under pressure. The new haulage fleet will help by making production more reliable in wet conditions. Drill and blast will benefit from a new Tamrock Pantera 1100 blast hole drill received and commissioned on site in May, and from the use of emulsion explosives anticipated from August. In addition, the economic benefits of crushing transitional ore are being assessed, with significant recovery improvements expected; engineering has progressed from conceptual to detailed design, and much of the facility can be used at Bakan when mining at North Lanut is complete.

Importantly, and despite the heavy rainfall experienced in the year, environmental compliance was maintained throughout the year. Rehabilitation has been ongoing, with trees being planted around the new second stage leach pad following its completion in February and around the waste dump areas. Revegetation minimises erosion in newly established dump areas. Sediment ponds are being well maintained with regular cleaning, which is an important control for sediment loadings to maintain water discharge compliance.