Indo gold play about to break it big

SIHAYO Gold is looking at production by 2013, boosted by the upside potential of its 1.4 million ounce resource, exploration across additional multiple prospects and security of its tenure in north Sumatra. By Blake Wilshaw - RESOURCESTOCKS*
Indo gold play about to break it big Indo gold play about to break it big Indo gold play about to break it big Indo gold play about to break it big Indo gold play about to break it big

These factors will propel the company in forthcoming months, and lead it to realise its objective of becoming a world-class, mid-sized Indonesian gold producer.

As chief executive officer Paul Willis told RESOURCESTOCKS, it's the overall prospectivity and security of tenure which sets Sihayo apart from the multitude of junior explorers operating in the country.

"Security of tenure is one of the most important aspects of working in Indonesia," Willis said.

"We work under a Seventh Generation Contract of Work [COW].

"The COW's have been modified over the years and the seventh generation is the last form and arguably the best form.

"The COW is a contract between the company and the government of Indonesia, signed by the president."

"It guarantees not only securityof tenure over the life of the project,it also very clearly dictates termsand conditions that you're working under, right through the length of the period you're working there.

"We have a COW which was signed back in 1998 and it goes through a number of different exploration phases then feasibility, construction and finally production phase. Once in production we have a set 30 year period of secure tenure and a very strong basis for operating."

Few of Sihayo's peers have the same arrangement with the Indonesian government.

"If you were not active in exploration in Indonesia prior to the end of the COW tenure system, then you must operate under thenew mining license regime," Willis said.

"It certainly gives us security in our assets, which is much better than a lot of other explorers in Indonesia."

Sihayo's long period of work in the country is close to paying off.

"It's only really been the last year and a half that we've been able to push our flagship Sihayo Pungkut gold asset to a point where we are looking at a production scenario," Willis said.

Currently, Sihayo's resource at its namesake deposit is 13.2 million tonnes at 2.8 grams of gold per tonne for 1,196,600oz indicated and 1.4Mt at 2.3gpt for 106,500oz inferred.

The nearby Sambung deposit contains a 100,000oz inferred resource, giving the company a total of 1.4Moz.

The Sihayo deposit, which is situated on a ridge, is open on two sides.

Step-out drilling is ongoing and will continue until "we find the end of the deposit," Willis said.

"We completed an updated JORC statement which came out mid last year. That was the result of our infill drill program which forms the basis of the DFS study we are now completing.

"Apart from the DFS study work, we continued on that exploration and resource definition and extension work.

"Very early this year we made a 43 per cent upgrade on that resource and the work we're doing now will continue on. And I suspect we'll have upgrades at least a couple of more times."

Regarding the potential size of the deposit, Willis would prefer to let forthcoming drill results speak for themselves, but he is confident that a definitive feasibility study will be completed soon, with a view to construction in 2012.

"Our strategy has always been to get the Sihayo deposit up and running as quickly as we can and that will give us the cash flow to go out there and test the rest of our landholding," he said.

"The plant will be somewhere between 1-1.25 million tonnes per annum that hopefully will give us the cash flow we need to go and have a look at some of the other targets."

And these targets provide a substantial premium to Sihayo's outlook.

After a final relinquishment of acreage, as set out in the COW, Sihayo will control 50,000 hectares of highly prospective ground in the region.

"What we will have left is a very fertile piece of ground to be able to do an enormous amount of exploration," Willis said.

"The Sihayo deposit represents a very small proportion of the total ground area and the other exploration upside that we have in the COW is huge and has massive potential as we go forward."

Most recently, the company followed up on some very early work at a prospect called Tambang Tinggi, 50 kilometres from the Sihayo deposit.

Some of the best results from the most recent campaign include 10 metres at 39.2gpt from 18m, including 2m at 193gpt from 20m; and 30m at 3.9gpt from 104m, including 12m at 8.6gpt from 122m.

Closer to the Sihayo deposit is the Hutabargot Julu prospect, where the company is undertaking pre-drilling reconnaissance work.

"A lot of our target areas are epithermals, fairly high-grade and some of the areas have historical exploration results, for example at Tambang Tinggi there was a five-hole scout drilling program completed four years ago and now we are following up with more sytematic drilling," Willis said.

"There's a whole raft of either epithermal or porphyry styles.

"Some of these very early stage targets are potentially large, we've got [to] just get out there and have a look at it."

To gain a better understanding of its landholdings, Sihayo has completed an aero-magnetic/radiometric survey over the whole COW.

"So we now are going through and interpreting all of that data to see what correlates and identify which targets are the intending ones," Willis said.

"The value in Sihayo Gold is the very prosperous ground within the COW which has had very little exploration work completed over it to date which Sihayo Gold is working to correct."

*A version of this report, first published in the August 2011 edition of RESOURCESTOCKS magazine, was commissioned by Sihayo Gold.


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