Companies: AR.   

Environmental approval delays have forced Archipelago Resources to suspend construction at its Toka Tindung gold project in Indonesia.

AIM-quoted Archipelago, headed by entrepreneur Colin Loosemore, said Toka Tindung, with an estimated gold resource of 1.7 million ounces in the North Sulawesi region, has the blessing of Indonesia’s Minister for Energy and Natural Resources. The company further maintains the deputy to the State Minister for the Environment has pronounced the company’s ‘environmental documents’ for the project as ‘acceptable’.

However, Archipelago said local delays in approving these documents are preventing it from drawing down a syndicated project finance facility arranged by Investec Bank to complete construction of the project. The company said it has taken 20 years and more than £50 million to establish Toka Tindung and refers to its ‘bitter disappointment’, a sentiment that might be shared by the local community and government, which were to have shared in revenues and economic benefits from ‘one of the biggest new gold mines in Indonesia for a decade’.

Archipelago has other fish to fry, including a farm-in deal for 60 per cent of a project in Guangxi, China, for four small mines. The company pointed out that the Toka Tindung delay is strictly temporary and means it has not had to hedge other production, which has thus been able to reap the full benefits of a strong spot gold price.

Nevertheless, the delay can only be seen as a setback, however limited its duration, and something of a warning about doing business in Indonesia. Floated at 23.5p in 2003, Archipelago shares, which hit 50.5p last year, are 1.5p off today at 29p, valuing the company at £59.6 million, and must be seen as speculative until the Toka Tindung picture becomes clearer.