A resource upgrade announced in July underlies Indochine Mining's aspirations to become a gold-silver producer in Papua New Guinea within two years.

The potential of Mt Kare, located in PNG's highlands, was first recognised by Indochine in 2011.

In a short time, the company has made significant progress, culminating in the identification of a new significant resource confirmed with high confidence, in an already prolific gold province.

The recent upgrade to 42.5 million tonnes grading 1.54 grams per tonne gold and 13.5 gpt silver for 2.45 million ounces of gold equivalent was built on the December 2011 estimate of 28.3Mt at 2.3gpt for 1.7Moz gold.

Positive outcomes from the upgrade include a high proportion of the resource being in the measured and indicated category.

With 1.53 Moz, or 73% measured and indicated, the Mt Kare resource can be easily converted to reserves.

Mt Kare also boasts a high-grade section of more than 400,000 oz at a grade of 5.4gpt. Chief executive officer Stephen Promnitz noted that this grade was considered conservative, with alternative modelling suggesting mineable zones of over 10 g/t.

"Taking into account the level of confidence in the resource and the presence of high-grade zones, Indochine will have low a cost entry into early gold production at high margins, Promnitz said.

"Notably, we anticipate a significant reduction in the capital costs than those outlined in the pre-feasibility study released in September 2012."

Production of 100,000 ounces per year at 5-10gpt gold, including zones of 20gpt gold, for the first few years, would lead to the transition into a larger open cut mine. A near-surface oxidised zone of 380,000 oz presents Indochine with an option of a staged open cut development at Mt Kare down to 160 metres depth at a low strip ratio of less than 4:1.

This could allow for the rapid development of an exploration adit to further drill high grade zones and potentially fast-track development at lower capital costs.

This approach draws comparisons to that which kick-started well-known neighbour Barrick Gold's 500,000oz per annum Porgera mine, located only 15 km northeast of Mt Kare.

Similarities between Porgera and Mt Kare have been noted by commentators including investment banks Macquarie and Wilson HTM.

A recent Wilson HTM's research note said: "The current drilling program identifying bonanza zones [at Mt Kare] has significant potential to grow the gold resource volume.

"As an example, Zone VII at the nearby Porgera gold mine led to a 1000 per cent increase in the gold resource over a six year period from 1982 - 1988." Macquarie has asked the question whether Mt Kare is another 28Moz Porgera deposit.

The potential of Mt Kare is also recognised by some of the world's largest institutional investors, with Baker Steel, Genesis Asset Management and BlackRock holding significant positions on the Indochine register.

In June, Indochine secured A$3.85 million in a private placement to existing holders.

Promnitz said the raising was a fillip for Indochine's stability and outlook in a turbulent junior resources investment market.

"The sector has suffered significantly in recent times, dragged down by poor sentiment and a correction in the gold price," Promnitz said.

"We have the support of some of the world's largest investment funds, and the message we tell all shareholders is that we raise capital as and when it's appropriate.

"We've taken a very different approach to many others in the junior sector, with small raisings just to keep the lights on," he said. "Our raisings are aimed to deliver a major project in a cost effective manner."

With the strength of the Mt Kare deposit and supportive institutional shareholders, Indochine has two boxes ticked.

The third aspect which Indochine is working to secure is its corporate social obligations.

Operating in PNG requires experience and expertise around landowner negotiations.

Promnitz said achieving shared outcomes and mutual benefit with local stakeholders was a major focus for Indochine.

"This will be our project manager's second time to deliver a landowner agreement when previous operators were not able to do so."

"We recently updated our landowner identification strategy, adopting the ‘Melanesian approach' and focusing on customary local, pre-colonial laws to identify stakeholders," he said.

"If you use this methodology, rather than some colonial construct, it goes a long way to securing long-term support for your mine, rather than resulting in a short-term fix.

"We have made a commitment to advance this project and having excellent dialogue and community engagement.

"We've shown the landowners that we can work with local communities, and provided them with a roadmap to development which has led to their support for Indochine."

Further strengthening Indochine's ability to deliver positive outcomes for landowners was the appointment of technical director Michael Leggo.

Leggo has significant recent PNG experience in the field as well as with government, which is increasingly important in the move to production.

"We continue to look for this kind of expertise at board level, to grow the company and help ensure we deliver the best outcomes for all our stakeholders.

"Project skills in many countries are different from those you need in PNG; which require familiarity with the logistical challenges, dealing with local communities, regulatory regime.

"It's definitely a key strength for Indochine to have that skill set on the board to advise others on how best to operate and achieve outcomes."

Against this backdrop, the federal PNG government has made it clear that it continues to support the burgeoning mining sector and foreign investment.

PNG Prime Minister Peter O'Neill recently reaffirmed this stance, noting the future of the mining industry is closely linked with PNG's broader long-term economic prosperity and affirmed support for miners and developers including Newcrest and Indochine.

"That sends a clear and positive signal that PNG is open for investment," Promnitz said.

During a July sitting of parliament, when quizzed by the local member for the Porgera and Mt Kare area, O'Neill publicly stated his governments' support for exploration licence extensions and mining grants at Mt Kare.

This affirmation from O'Neill boosts Indochine's outlook and provides security around its future mining licence application.

Granting of a mining licence is a crucial next step, which Indochine will progress alongside a bankable feasibility study, expected to commence in forthcoming months.

"Our focus will be on margins. In the BFS we want to concentrate on identifying the most efficient mining model and providing the highest possible return to our investors," considering high-grade zones and how these will be incorporated into the mining plan." Promnitz said.

"This will mean building on the considerable in-country mining expertise that we have in our team."

Indochine is keen to capitalise on its recent successes and momentum, and is committed to finding the fastest path to production.

"When we started here two years ago, we were taking on what was considered potentially one of the toughest minerals projects in PNG," Promnitz said.

"We've risen to the challenge to develop PNG's next gold mine and in little more than two years we look forward to celebrating the first gold pour with the

community."

Published in the August/September 2013 edition of RESOURCESTOCKS