Tag Archives: Allied Gold

Solomon Islands mine boss paid for children’s schooling

Mining executive Mark Caruso, involved in Solomon Islands allegations. Source: Supplied

Mining executive Mark Caruso, involved in Solomon Islands allegations. Source: Supplied

Ean Higgins | The Australian

THE mining magnate at the centre of an alleged corruption scandal in Solomon Islands has admitted he arranged to pay for the children of an influential Solomons politician to attend a top Brisbane boarding school.

Mark Caruso, executive chairman of Perth-based Mineral Commodities, denied the schooling was paid for in exchange for politician Matthew Wale greasing wheels in government to get a series of permits for a goldmine.

Mr Caruso, who was the chief executive of Allied Gold, which owned the Gold Ridge mine at the time of the alleged corruption, also attacked the company that took over the mine, St Barbara Ltd.

Mr Caruso implied St Barbara had leaked the report on an ­internal investigation it carried out that alleges corruption on Allied Gold’s watch.

He claimed St Barbara was trying to make him a “scapegoat” to divert attention from the failure of the mine, which is to be transferred to the government.

Speaking for the first time about the allegations, which are under investigation by the Australian Federal Police and Solomon Islands authorities, Mr Caruso said:

“Is this the best ­St Barbara can do after they ­destroyed $1.3 billion of shareholder value … be bothered about two children being educated?”

In October, the Solomon Star newspaper ran an extensive story on the alleged corruption outlined in a report commissioned by St Barbara and conducted by a Melbourne law firm.

The report alleges that in 2010, Mr Caruso got to know Mr Wale, an accountant by ­profession and prominent MP, and asked him to help Allied Gold in its dealings with the ­government.

Mr Wale is alleged to have helped arrange for a “letter of comfort” from the Solomons ­Attorney-General confirming the legality of blasting at the mine site; for the Minister for Mines to grant a special prospecting licence; and for immigration officials to lift visa restrictions on Allied Gold expatriate employees.

St Barbara, which took over the Gold Ridge mine after buying out Allied Gold in 2012, launched the investigation after being invoiced for more than $100,000 for the Wale children’s fees to attend Brisbane’s Anglican Church Grammar School.

The report also alleged that $13,500 was transferred directly into Mr Wale’s account for ­“office set-up expenses”.

Mr Caruso did not remember the payment but said the schooling of Mr Wale’s children was done through a selection process as a benevolent gesture, for which Allied Gold received no special favours.

Mr Caruso was scathing of St Barbara’s inability to reopen the mine after massive rains damaged access roads, and squatters moved in to pan for gold and looted plant, equipment and supplies, events that have contributed to the company’s share price tumbling from about 40c in March to about 10c now.

“They are leaving the country on the grounds it was raining — are you serious?” Mr Caruso said. “You wouldn’t let them manage the Mr Whippy van in the beach carpark. The electricity would go off and the ice cream would melt.”

A spokeswoman for St Bar­bara said:

“St Barbara identified the provision of benefits to a foreign public official that may violate anti-corruption laws. St Barbara reported the matter to relevant authorities. As the matters are under investigation by the AFP, St Barbara does not intend to comment further.”

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Mining companies under investigation for payments to politician

payment of cash

The company said it disclosed the matter to the AFP on July 30 and that it continued to cooperate with the AFP’s investigation.

Solomon Islands payments under investigation

Tess Ingram | Sydney Morning Herald

Payments made by miners Allied Gold and St Barbara to a Solomon Islands’ government official are being investigated by the Australian Federal Police.

Allied Gold, which was acquired by Perth-based St Barbara in 2012,­ ­allegedly provided benefits to the ­Solomon Islands’ outgoing opposition leader Matthew Wale from 2011.

St Barbara then continued to pay the benefits until earlier this year, ­according to a report in the Solomon Star newspaper on Friday.

St Barbara said in a statement to the Australian Securities Exchange late on Friday that through its internal ­mechanisms it became aware of the payments and had reported the issue to authorities including the AFP, the UK Serious Fraud Office and the Solomon Islands Attorney General.

The company said it disclosed the matter to the AFP on July 30 and that it continued to cooperate with the AFP’s investigation. St Barbara declined to comment further on the issue at this time. Documents compiled by St Barbara’s legal counsel and reportedly obtained by the Solomon Star allegedly reveal that numerous executives from both Allied and St Barbara maintained relationships with Mr Wale that were of mutual benefit.

The companies allegedly paid for Mr Wale’s children to attend the Anglican Church Grammar School in Brisbane, with annual fees reportedly as much as $113,000.

They also allegedly arranged employment for a relative of Mr Wale’s and other smaller benefits, including a $13,500 payment to Mr Wale for “office set up expenses”.

Allied Gold was reported to have ­initially benefited from the arrangement, allegedly gaining a letter ­confirming the legality of blasting at its Gold Ridge mine, now owned by St ­Barbara, the issuance of a special prospecting license for a tenement, and the removal of certain travel restrictions.

St Barbara did not confirm or deny any of these allegations in its statement to the ASX, including the involvement of its former managing director and chief executive officer Tim Lehany and then secretary Ross Kennedy.

It did however correct the article’s reference to the “dismissal” of Mr ­Lehany and Mr Kennedy on the grounds of the payments, stating that Mr Lehany left the company this August as part of an “agreed departure” and Mr Kennedy was made redundant in March.

At the time of the Allied Gold transaction, the newly combined group boasted a market capitalisation of roughly $1 billion but a series of ­operational difficulties has seen ­St Barbara’s market cap fall to around $70 million. In the same period, its share price has fallen from $1.75 to 14.5¢.

St Barbara entered the gold ­industry in 2005 via the acquisition of several West Australian gold assets from the liquidators of Sons of Gwalia, before branching out into the Pacific with the $556 million acquisition of Allied Gold in 2012.

The Gold Ridge mine in the Solomon Islands and the Simberi mine in Papua New Guinea promised strong growth opportunities for the miner, but neither operation has performed near ­expectations.

Simberi remains beset with technical issues and mining at Gold Ridge has been suspended since April due to serious flooding and illegal mining.

St Barbara said it does not expect to resume production at Gold Ridge this year and has begun talks to potentially transfer ownership of the mine to the Solomon Islands ­government.

In August, St Barbara reported a $501 million full-year loss for the 2014 financial year, including a $411 million hit for the non-cash impairment of its Pacific operations.

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St Barbara posts K409 million net loss

The National aka The National

GOLD producer St Barbara Ltd, which owns the Simberi mine in New Ireland, has posted a full-year net loss of A$192 million (K409 million).

Business Advantage online reported that the net loss was due primarily to a lower gold price.

However, managing director Tim Lenahy reported an increase in gold production by 8% over the year to 364,601 ounces.

St Barbara’s acquisition of Allied Gold last September brought the Gold Ridge mine in the Solomon Islands and the Simberi operation in Papua New Guinea into the merged company.

The company’s profit before tax for its Australian operations was A$116 million, (K247 million) down from A$154 million (K328 million) last year.

The Pacific operations reported a loss of A$30 million (K64 million).

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St Barbara underwhelmed by Allied assets

Nick Evans, The West Australian

Nearly a year after St Barbara closed its takeover of Allied Gold, the miner remains disappointed about its progress in turning around the performance of the assets it acquired.

Speaking at Kalgoorlie’s Diggers and Dealers conference today, St Barbara chief operating officer Alistair Croll said the former Allied mines, in the Solomon Islands and Papua New Guinea, were still performing below the company’s expectations, despite millions of dollars in capital investment and substantial work on performance issues.

St Barbara was criticised for overpaying for Allied when the bid was launched last year, with the cash and scrip offer putting a more than 90 per cent premium to Allied’s then share price.

The friendly tie-up was to form a miner worth about $1 billion. Now St Barbara is worth about $215 million.

Mr Croll said St Barbara still believed in the long term future of its Solomon and PNG mines, but the company was disappointed with the slow rate of progress in turning them around.

St Barbara shares were down 2.5c to 44c in early trading today.

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Be Wary Of St. Barbara Ltd.

Gary Bourgeault | Seeking Alpha

St. Barbara Ltd. is gold miner based in Melbourne, Australia, which is facing a possible writedown and a stoppage in spending after a terrible performance of its Papua New Guinea and Solomon Islands gold mines in the most recent quarter.

Soaring production costs at Simberi and Gold Ridge mines during the quarter ending in June also generated questions as to whether or not the company should have acquired Allied Gold in 2012. The growing sense is the $556 million price tag was too high.

Since the last time St. Barbara surpassed the $12 per share mark on October 17, 2012, the share price has plunged to under $2 per share in June, and closed at $2.31 per share on Friday, July 26.

With a trailing P/E (TTM) of 1.98, I don’t see that as a positive or that there is little downside risk, but rather it being a reflection of the fact the company is in trouble. It has dropped to as low as $1.68 per share in the last year, and it could definitely fall much further if costs aren’t brought under control.

Price of Gold
Even the rebound in gold prices hasn’t been able to help St. Barbara find support. While it did rise in conjunction with the bottom in gold price on June 28, when it hit $1,192, the share price plunged on the news of the underperformance at some of its projects, along with the high costs.

On June 28, the miner was trading at $2.14, and climbed to as high as $3.02 on July 22. From there it plummeted to $2.31 as of July 26, 2013. The point is its performance was so bad even the upward price movement of gold wasn’t able to help the share price.

Since a higher price in gold can make any company look good, all the weakness associated with St. Barbara will be overcome if the gold price continues to rise. Now that the weakness has been identified, that will weigh on the company even in a strong gold price environment. The share price of the company will move up if gold continues to rise, but not to what it would have before.

Resources
Since St. Barbara flies under the radar of most investors, it could be considered an exploration miner or a company just starting production. That’s not the case, as the firm was launched in 1969.

It has approximately 16 million ounces of gold under its umbrella, with about 5 million ounces in ore reserves.

The changing dynamics of the gold industry no longer rewards resources and production as it has in the past, as the only real factors to consider now are the price of gold and how much the real all-in costs are to produce that gold.

So while St. Barbara is sitting on a nice stash of gold, its cost to produce it has risen, as has all the miners with significant exposure to gold. Increased production is a negative when it is done at a loss.

All of this is obvious, and yet miners like St. Barbara continue to emphasize the quantity of production, while trying to take the focus off of true production costs.

Increasingly it will be the quality of the ore grade that determines the value of resources, not the size of the projects. Astute miners have already started to shed assets with low ore grades while seeking out smaller projects with higher ore grades. Unfortunately, St Barbara hasn’t been one of them.

Production Costs
The takeover of Allied Gold in 2012 is a good example of what miners are trying to stay clear of these days.

When the company reported its first production costs at the Gold Ridge deposit in the Solomon Islands, it was an unbelievable $2,553 an ounce. In the latest quarter it has come down some, but it will be a challenge for St. Barbara for many years to cut costs down to profitable levels.

At its Papua New Guinea Simberi project, costs there were far less, but still a hefty $1,592 an ounce. The only thing that saved the company in the latter half of 2012 was the sales price from its Pacific operations came in at $1,675 an ounce. We’re not going to see those numbers again for some time.

Now after buying an asset for $556 million, St. Barbara will have to focus primarily on cutting expenditures in a major way. The better-managed companies would have seen the heavy risk associated with Allied Gold and passed on it.

Operating costs at the Simberi and Gold Ridge mines for its latest quarter ending June 2013, were still extremely high. While emphasizing the offensive production numbers, St. Barbara is actually in a defensive mode, one it will struggle to overcome for a number of years.

Gwalia Mine
If the company is to have a chance to rebound over the next year or two, it will depend on the performance of its Gwalia mine at Leonora. Being the flagship asset of the miner, it is projected to generate enough cash flow in full year 2014 to cover all costs of the company.
Guidance for 2014 at Gwalia is for 180,000 to 190,000 ounces of gold to be produced. Even at low spot gold prices the company believes it will be enough to support it.
Overall gold production at the company for 2014 is estimated in a range of 395,000 and 445,000 ounces. The fact that St. Barbara is counting on Gwalia reaffirms how high the costs are at its other production sites.

Conclusion
Along with the high costs at some of its projects, other factors are the delay in commissioning the Simberi oxide expansion, and the “lower-than-expected metallurgical recovery at Gold Ridge.”

Even though the company asserts its deal for Allied Gold will pay off in the future, there is no proof that will be the case. Already the costs and low metal recovery have crushed the company, and there is no guarantee Gwalia will be able to carry the company while it attempts to lower prices and boost production.

There is probably a big write-down coming, and that will further hit the share price.
Add to that the increase in production, which at most of its projects is done at a loss, and you can see why ST Barbara is teetering on the brink.

Delays in getting government permits at the Simberi project in Papua New Guinea, as well as in the electrical commissioning of the processing circuit, also continue to be a factor.

As long as the Federal Reserve continues to stimulate, the price of gold will probably continue to go up. I believe it’s going to shoot above the $1,400 an ounce mark, and probably be rangebound between $1,400 an ounce and $1,500 an ounce for a period of time.

That will take some time to achieve, and gold may not surpass the $1,400 an ounce until the latter part of 2013 or early part of 2014. It depends on how long it takes to break the $1,350 an ounce mark. If it does that soon, it could happen quicker than expected.

If the Fed does taper, we will see the price of gold correct for sure. The degree of the correction will be determined by how much stimulus is taken off the table.

Either way, the high cost of gold production by St. Barbara won’t be helped that much by that higher price, although the market usually rewards all miners when the gold price shoots up. The recent plunge in price confirms gold prices along won’t support a company that has multiple problems like St. Barbara has.

It is totally unpredictable as to which way the company will go. If it continues to struggle it could even be a takeover target, although the problems it faces now aren’t of the type most miners would want to inherit. The only positive is the amount of gold the company has under its control. Yet when production is at best about breakeven, along with the high risk of gold prices falling further, this is a company I would stay away from.

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Environment audit report recommends a shutdown of Gold Ridge mining operations

Islands Buisness

An independent environment audit into Solomon Islands Gold Ridge Tailings Dam recommends that the Gold Ridge Mining Limited (GRML) should shut down its operations, install the water treatment plant and discontinue any further extraction of water from Chovohio River.

The audit report compiled by an independent environment auditor for Metapona Downstream Association, Kolobisi Tailings Dam Association and Gold ridge community and landowners council representatives recommends that the retained water is of good quality resembling those of the Tinahulu in terms of trace metal concentration.

The report recommends that GRML shut off pumps 1 and 2 from Chovohio River and pump in ‘return water’ to fill the tanks at the processing plant adding that the untreated water could be pumped to the returning water dam.

In addition, the water collection pond at the processing plant should be cleared off the silts and clay that is accumulated should be discharged. The pond should also be filled to its capacity which means the pumping rate should be increased from the current 234 cubic meters per hour.

It states the ore contains about 20 percent moisture which is a positive addition of water into the processing plant and eventually to the Tailings Storage Facility.

The report says the amount of ore feed into the processing plant should be reduced by 20 percent during the crucial period of 10 weeks from now.

It says if GRML does not implement any of these measures then it should shut down its operations immediately.

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The high-stakes world of Papua New Guinea mining

Ian Bickis* | The Northern Miner

Rising out of the sea at the collision of the Pacific and Indo-Australian tectonic plates, Papua New Guinea is the stuff of legend for both its geological potential and punishing working environment.

For miners and explorers, PNG has long presented a tough trade-off between the two, requiring major commitments to access the rich deposits.

In the early 1930s the rugged island was the site of the world’s first major air-supported mining project, when Canadian miner Placer Development used modified Junkers planes to fly in dredge equipment to its Bulolo gold project. With individual payloads of less than 3 tonnes, the Junkers hauled in almost 36,000 tonnes of gear. The determination paid off, with the company pulling out some 1.3 million oz. gold from the river over the next 10 years.

Fast-forward to today and logistics is still one of the biggest barriers to operating in PNG. The whole country has about 3,000 km of paved roads, plus roughly 6,000 km of dirt ones in varying states of repair. (Compare that to Sweden, which has 573,000 km of roads squeezed into the same-sized country.)

The PNG government is aware of the barrier, with Prime Minister Peter O’Neill committing to improve the transportation network in a speech to Australia’s National Press Club last year.

“One of our greatest needs is to repair, upgrade and most certainly expand our economically vital infrastructure,” O’Neill said.

But the lure of riches has been a strong motivator for miners to overcome such challenges independently and develop some of the world’s biggest deposits. These include epithermal deposits like Newcrest Mining’s Lihir mine, which has already produced 9 million oz. gold and still has 33 million in reserves, and Barrick Gold’s Porgera mine, which has produced over 17 million oz. gold and has over 6 million oz. in reserves.

The copper-gold porphyry systems are equally impressive, with the Wafi-Golpu joint venture between Newcrest and Harmony Gold sitting on 28.5 million oz. gold and 20 billion lb. copper; Xstrata’s Frieda River project hosting 14.8 million oz. gold and 20.7 billion lb. copper; and the Ok Tedi mine, now owned by the PNG government, already producing over 11 million oz. gold and 27 billion lb. copper since 1984, with years of mine life left.

Numbers like these put PNG as the third most geologically prospective place on earth in the Fraser Institute’s 2012 annual mining survey, at least when setting aside regulations and land-use policies.

The huge, untapped potential is what drew Marengo Mining) to the country in 2005.

“It was really just born out of looking for an opportunity for a junior company to do something quite exciting and have a project of significant value,” Dean Richardson, Marengo’s investor relations representative, said by phone.

In a few years the company has turned its Yandera copper-gold-moly project into a 4 billion lb. copper resource, with 486 million measured-and-indicated tonnes grading 0.37% copper. Marengo plans to release a feasibility study on the well-advanced project in March, with a development capital expenditure of around US$1.8 billion and anticipated annual production of 200 million lb. copper.

“We’re talking about a project somewhere around 30 million tonnes per annum. It really is a project that a number of medium- to large-size companies would be happy to get their hands on,” Richardson says.

Marengo has several years on PNG Gold, which only started exploring in the country in 2011. But already PNG Gold has pulled some intriguing gold hits, and it plans to have a resource out later this year. Results from the company’s Imwauna project, sitting on an island just off the southern tip of PNG’s mainland, include 6 metres grading 111.97 grams gold per tonne, 4 metres of 49.86 grams gold and 6 metres of 36.16 grams gold.

The company found it rough-going at the start with slower-than-expected drilling, but it is now managing 4,000 metres a month with four of its own rigs, and is well on its way to a resource.

“We had some real teething pains at the beginning,” PNG Gold president Neil Halldorson says.

He adds that the company has had to carry a lot more spare parts and be careful about planning heavy equipment moves, as poor planning with either can set a project back.

“Over time we’ve learned to work with those issues, and with every month we get better at it,” he says.

But Halldorson embraces the challenge, because it keeps a lot of competing juniors away and gives any company that can overcome these challenges a real advantage.

“There are very, very few juniors in Papua New Guinea, and a good deal of that has to do with cost and logistics, and everything else. So it really does act as a barrier,” Halldorson says.

Explorers WCB Resources and Vangold Resources have also made an entrance, with active exploration programs in the country.

But some haven’t fared so well with the high costs, with New Guinea Gold shuttering its small Sinivit gold mine last year after it ran out of money. The company is trying to get itself going again, but with its shares trading at a penny, raising money isn’t easy. Papuan Precious Metals, hovering around 2¢, has also struggled in the country.

Size helps when developing projects in PNG: Newcrest and Harmony are running the Hidden Valley gold-silver mine despite a few operational issues; Metallurgical Corp. of China opened its Ramu nickel-cobalt mine last year despite years of environmental delays; and Newcrest is finishing up a US$1.3-billion expansion of its Lihir mine to expand designed output to a million oz. a year after spending A$9.5 billion buying the mine in 2009.

These projects, plus Exxon Mobil’s US$19-billion natural gas project, have helped keep PNG’s economic growth rate at close to 8% for the past decade.

And while growth has been strong in recent years, the country could see much more investment, thanks to sizeable projects in the pipeline. Australian bank ANZ released a study estimating that PNG’s natural resource sector, including mining, oil and gas, could quadruple by 2030, with some US$25 billion in annual export revenues, or as much as US$38 billion, using more optimistic assumptions. Achieving such an increase in output would require US$130 billion in capital investment.

But those estimates rest on projects going forward, even as several major miners have signalled plans to exit PNG, as companies worldwide look to contain costs and focus on core assets.

In mid-2012, Xstrata signalled its intention to offload its Frieda River project, while a feasibility study on the project at the end of last year added US$300 million to project capex, which totalled US$5.6 billion. In 2011, Inmet Mining bowed out of PNG after selling off its 18% interest in Ok Tedi Mining for US$355 million.

On a smaller scale, Newmont Mining told its junior partner Triple Plate Junction that it would end its search for big porphyry systems at Morobe after spending US$15 million to earn 75% of the project.

And Barrick informed joint-venture partner Coppermoly in mid-2012 that it was looking to sell its 72% stake in three tenements after spending US$22 million to earn-in on the properties.

And some smaller skirmishes with companies may make others wary of PNG. Last year Aldridge Minerals pulled out of PNG after the government declined to renew the junior’s Kili Teke copper-gold licence. And more publicly, Nautilus Minerals  has been stymied in its efforts to advance the world’s first major deep-sea mining project after getting embroiled in licensing and financial disagreements with the government. The company suspended construction of the $450-million project late last year.

While cost and operational risks worry some, mining analyst Cathy Moises of Evans and Partners, who tracks several operators in the country, said by phone that:

“as long as you do your groundwork in PNG, you’ve got the locals on side, and have done things the right way — then it’s actually a very good place to work.”

Good relations with locals are important in PNG, as landowners control 97% of the country, and there are no large tracts of government land.

Companies big and small have had trouble with landowners, with Barrick’s Porgera, Newcrest’s Lihir mine and New Guinea Gold’s ailing Sinivit mine all shut down by locals last year.

But Moises downplays the problems with landowners.

“It’s not a major issue. If the mine is shut down it’s usually short in duration, and minor,” she says. “PNG tends to be fairly stable.”

Moises still likes what she sees in PNG, even if it’s a country that doesn’t give up its deposits easily.

“I still think there are some big projects to be found. The terrain and working over there is difficult, so it certainly hasn’t had the attention of some other countries where it’s nice and flat, and you’re much closer to civilization.”

*Ian Bickis is a freelance writer and multimedia editor based in Southeast Asia, and a former staff writer at The Northern Miner. He can be contacted by email at ibickis@gmail.com.

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