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After a series of battles with Newmont, Indonesian officials and NGOs keep up the anti-mine fight, this time targeting the Toka Tindung gold project.

Author: John Helmer
Posted: Monday , 31 Mar 2008

LONDON –

The boomerang is an Australian aboriginal word for a throwing stick; but the weapon itself isn’t indigenous to Australia. Its killer edge and return trajectory have been exploited on most shores of the Indian Ocean from East Africa to India and Australia.

On Indonesian islands like Sulawesi, game and trouble abound, but the rain forest is too thick for the boomerang to be a practical weapon. Single and double-edged knives and spears are the preferred type of throwing stick. When it comes to catching the underwater Hairy Octopus, the boomerang is useless.

The Hairy Octopus is one of dozens of creatures, which live on the sea bottom of the Lembeh Strait, at the northeastern tip of the Indonesian province of North Sulawesi. The seafloor is unique for “muck divers” from around the world. Their name distinguishes them from coral-reef divers.

But the muck is highly sensitive to the quality of the seawater, and so is the Hairy Octopus. Drop cyanide leached tailings from a goldmine on the seafloor, and you will kill everything — including the Lembeh Strait, Sulawesi, and the Molucca Sea as desirable tourist destinations, not to mention local fishing, hotels and recreation resorts, and the traditional tribal cultures pursuing their fragile survival in parallel.

That’s why the recent political boomerang tossed on North Sulawesi by AIM-listed, West Australia-based Archipelago Resources (AR) has proved to have returned with a vengeance upon its thrower, AR’s Chief Executive Colin Loosemore and his shareholders. AR’s principal project, on which 182.7 million shares depend for their value, is a proposed goldmine at Toka Tindung, five kilometres up a gentle slope from the Lembeh shore.

From August to December last year, AR’s share price fell 30% from 30 pence to 20 pence. In February it climbed 40%. In March, it fell 18%, then shot up 30%, and then started falling again. Last week, and this week, the share price is down to the 29.50 pence, and still falling.

Every penny movement in the AR share price adds or subtracts GBP1.8 million ($3.6 million) to and from the market value of the Toka Tindung project. Between December and mid-March, GBP27.4 million (US$55 million) was added — before the downturn started again. This was money AR’s current management and shareholders, led by Colin Loosemore, hoped to draw from investors, and spend on finishing mine works and ore-processing plant, which North Sulawesi Governor Sinyo Harry Sarundajang has tried to prevent.

The share price has been crucial to AR’s strategy because equity issues are necessary to keep the project in cash, for as long as the bank syndicate, with whom Loosemore has negotiated project financing agreements, has imposed conditions that must be met before AR can draw its money. These conditions require overcoming local resistance to the issuance of mining permits.

With bridging loans and share-issue equity finance, AR has been hoping to secure the right to resume construction of the mine — halted for more than a year now by environmental permit vetoes — and then to override the environmental objections to commence mining. Loosemore told Mineweb a few days ago the construction plan will be completed by the year’s end, and AR should be producing its first gold by February of 2009.

AR’s financing syndicate includes Investec, a South African institution which acquired NM Rothschild’s Australian business in 2005; WestLB of Germany; Societe Generale of France; and ANZ, an Australian house. Rand Merchant Bank’s London affiliate, RMB Resources, has loaned $10 million repayable a few weeks ago, and has promised another $10 million, linked to the issue of 6 million share options.

Mineweb first reported the story on March 5: http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=48656&sn=Detail

AR took exception, and Mineweb published a company announcement:

http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=48907&sn=Detail

Followed by this, after a mid-echelon official in a Djakarta government ministry — the Ministry of Energy and Mineral Resources, not the Ministry of Environment — had issued an approval to resume construction:

http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=49536&sn=Detail

In London, the share price gyrated around the news. In Manado, the provincial capital 35 kilometres from the proposed mine, there was a demonstration, and late last week, a chain of reactions from Governor Sarundajang and the Environment Ministry in Djakarta.

A report from a local environmental group, Friends of Lembeh, issued on March 22, reported: “the governor of North Sulawesi, S.H. Sarundajang, claims that the decree of the ESDM has no significance as the company still wasn’t issued an AMDAL which was approved by himself and the minister for environment.”

According to the Manado Post report of March 28, the governor continues to oppose issuance of the environmental clearance known as AMDAL, and to disallow mining at Toka Tindung. He is backed by the Environment Ministry, which says it will defer to the governor.

Bankers to AR have revealed to Mineweb that no new loans can be issued until the Indonesian government issues the full permits required for mining. Nothing short of that will do, the bankers and their lawyers acknowledge.

AR’s position is that the construction go-ahead and the AMDAL are inextricably linked, and that you can’t have the one without the other; so that, in effect, the AMDAL has been approved. Once construction reaches 75%, Loosemore believes the AMDAL will follow automatically.

WestLB made its decision clear last December, when it confirmed in a letter that would not to renew its agreement with AR. The West LB letter, dated December 21, responded to a campaign by the German environmental protection organization, Urgewald. Signing for West LB were Foster Deibert and Marcus Rehn at bank headquarters in Dusseldorf; they head the bank’s department of sustainability management. They outrank WestLB’s mining finance branch in Australia.

Investec sources have told Mineweb they believe WestLB withdrew on account of the environmental objections to the project. Investec has a loan exposure to AR of $46.7 million, but Investec sources say their bank will not allow drawdown of the money unless AR obtains full mining rights.

AR responds that “based on the very robust economics of the Project at today’s gold price and the need to fund increased project capital costs arising from the delay to approval, that it is in discussion with its syndicate banks to increase the project loan facility to avoid or minimise the need for any additional equity raising.”

Investec was asked by Mineweb to say if the issuance of the construction permit is sufficient to initiate Investec’s project finance. It declined to say.

Stuart Greene, head of mining finance in London for RMB Resources, acknowledged there are two lines of credit, each of $10 million, with one drawn down, in his group’s exposure to AR and the future of Toka Tindung. He declined to say if RMB has given Loosemore an extension of time to repay the first loan due two months ago. Asked about RMB’s interpretation of AR’s mining permit, Greene told Mineweb he would have to ask Loosemore for permission to say.

Without the banks’ cash, Loosemore has gone to the investment market in London, arguing that if new share issues can fund construction of the mine plant, the Indonesian government will agree to authorize mine building; and that once construction is complete, the permits required to start lifting the gold are virtually assured.

Sources in Jakarta assert that Loosemore has attempted an end-run around the AMDAL requirements that will prove a boomerang. They claim that he and his colleagues may be personally vulnerable, if the Governor’s legal advisors should determine that the renewal of construction without the AMDAL licence is unlawful, and if environmental damage occurs as a result of the new activity.

Loosemore says the local government and the local population are in strongly favour of the project proceeding. According to AR’s interpretation of the law, it “denies that the company has undertaken any on-site activities without Government approval.”

On March 20, AR issued a notice warning shareholders that the management will shortly seek their approval at an emergency shareholder meeting to raise cash by issuing new shares. AR claimed in the notice that it “is in discussion with its syndicate banks to increase the project loan facility to avoid or minimise the need for any additional equity raising. Since last being granted shareholder approval, the Company has undertaken several placements of shares and now seeks approval to refresh its authority level in accordance with prudent corporate practice. While the Company currently has no immediate requirement to issue additional shares, it considers it appropriate to have the necessary authority in place in case this situation changes or if for any other unforeseen reason the Company wishes to issue shares including to take advantage of opportunities which may arise. Accordingly, a Notice has been issued to shareholders regarding the calling of a General Meeting to grant authority to the Directors to issue additional shares in the Company.”

What this notice does not acknowledge is that the original bank syndicate is refusing to disburse loan money until the AMDAL conflict is settled. Swiss bankers are reported to have been doing due diligence at the Toka Tindung site recently, but this has not been corroborated. A Credit Suisse investment bank source told Mineweb he could not say whether his bank is in negotiations with AR at present.

Loosemore said in London early this month that Governor Sarundajang’s opposition is tied to a conference on ocean environmental protection, due to be held later this year. According to Loosemore, there is a university-run study showing that 80% of the local population is in favour of the project, given the high unemployment levels in the area and the prospect of 640 new jobs.

The Friends of Lembeh report that the survey was rigged by a former provincial governor, who has taken AR’s side in the conflict. The NGO also alleges that the survey and petitions have misled locals.

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