Miner's Indonesian dig turns in a rolled-gold performance with production higher than forecast

While some analysts say the 12-year bull run on the gold market may be about to end as the stronger dollar dampens demand for the precious metal, many in the industry remain optimistic about its prospects.

Among them is G-Resources Group Ltd, a gold mining company based and listed in Hong Kong. Owen Hegarty, its vice-chairman, says the company aims to make the most of its cost advantage to become a leading gold miner in Asia with annual output of 250,000 ounces of gold and 2-3 million ounces of silver.

"Our strategic vision is to build a world-class Asia-focused gold company with the Martabe gold and silver mine as the company's core starter asset," Hegarty says.

G-Resources bought the Martabe gold and silver project in the Indonesian province of North Sumatra a little over four years ago for $220 million (166 million euros), and the former investment holding company is now looking to consolidate its position in the international gold market.

The Martabe mine is estimated to hold reserves of 8.05 million ounces of gold and 77 million ounces of silver, G-Resources says.

The company has been granted a 50-year license from the Indonesian government to mine the 1,639-square kilometer project, almost as big as urban London. The average ore grade of the deposits is 2.1 grams of gold a metric ton of ore, higher than the international average.

"The company's operation is actually going quite well, especially in a difficult gold market at a time when gold prices are coming down and gold liquidities are also down in Hong Kong and elsewhere," Hegarty says, adding that he is proud so much was achieved in Martabe's first year of production.

The company says that since trial production began last July, the mine has produced more than 200,000 ounces of gold and almost 1 million ounces of silver, far higher than the company's original target.

The company has raised its production target from 250,000 ounces to 280,000 ounces this year, and 63,633 ounces was produced in the first quarter, 83.8 percent higher than in the fourth quarter of last year.

The company's gold and silver revenue was $117.9 million, a significant increase over the previous quarter, Hegarty says.

This strong growth momentum has continued into the second quarter, with gold and silver production totaling 70,212 ounces and 382,320 ounces, respectively.

"Our focus at present is to gear up, to ensure Martabe mine operates at its full production capacity," Hegarty says.

G-Resources reckons its biggest strength is its low operating costs, estimated to be about $450 an ounce of gold in the first quarter this year, compared with an industry average of $750.

"Martabe has low production costs, favorable mining conditions, high-quality ore, as well as good logistics services, which has given G-Resources an edge over its competitors, making our products quite competitive in the international market," Hegarty says.

The company's minerals are refined in Jakarta and then exported as gold and silver bars of 99.99 percent purity to Singapore, where they are bought by an international bullion dealer, most of it eventually to be sold in Asia, including India and China, and some in Europe.

"Physical demand right now for all purposes, such as jewelry, hoarding, investment, is at all time highs."

To meet market demand, Hegarty says, G-Resources will keep raising its annual gold output by continuing to invest in exploring and exploiting Martabe, where he believes there are very good prospects for more gold deposits.

The mine has contributed greatly to the area's GDP and has also created many jobs for locals, he says. The mine employs about 2,500 workers, about 70 percent of who are recruited from nearby villages.

"Most of our mining employees are Indonesian and we put great emphasis on strong relations with the local Indonesia community," Hegarty says, adding that training and many other community and social programs have been offered to employees.

The company says it has also tried to be a responsible investor by undertaking community activities to improve local living and working conditions such as supplying clean water, improving infrastructure and religious structures, and building education and health facilities.

While optimizing its operations in Martabe, G-Resources is also seeking opportunities to expand by acquiring and developing other quality projects or producing assets in Asia, Australia and the Pacific region.

Although the company has no immediate plans to tap the Chinese mainland market, it is always looking at opportunities there, Hegarty says.

"China is the biggest gold producer now in the world, probably the biggest consumer too, so you always have to look at this market."

Hegarty, who has more than 40 years' experience in mining, is confident the price of gold will rebound after recent falls.

"It is getting harder to find gold, so new finds are not keeping pace with demand growth, and the production costs of this precious metal are also rising. So based on those fundamental factors, I am an optimist on gold and believe now is the best time to invest in gold."

liulu@chinadaily.com.cn