Marcus Engelbrecht, Managing Director and CEO, said: "The production result we achieved during 2012 is pleasing, particularly as this is Archipelago's first year at full production.
"We not only delivered against our initial guidance on production, but did so at a cash cost well below that of many industry peers. This positive result is a testament to the quality of the Archipelago team, and I am confident that we can continue to meet our operational targets and sustain a superior performance at our Toka Tindung Mine into 2013."
The faltering gold price meant that - despite solid operational progress - Archipelago's share price is almost 20 per cent off its 12-month high. Nevertheless, with resource upgrades likely, rising production and growing free cash flow, we reckon that Archipelago's shares should be rated higher than just five times forecast earnings for 2013 (see table), especially as broker Westhouse Securities thinks there is underlying value of 75p assuming a long-term gold price of $1,250 and $1,600 in the current year.,..........but as always dyor and gl..
Archipelago does not hedge its gold production, so its share price is ultra sensitive to movements in gold's spot price. Consequently, it is especially important for potential investors to have a feel for where the price may be headed. Industry delegates at this month's London Bullion Market Association predicted the gold price would be $1,849 per oz by next September (against $1,725 currently). True, this figure is little more than glorified guess work, but it's lower than earlier estimates owing to a slowdown in Chinese demand and it helps underpin the notion that the gold price will stay high for the time being.
Prospective investors should also note that Archipelago's principal shareholder is Indonesia's largest conglomerate - the Rajawali Corporation - which owns 52.4 per cent of the equity. Although dedicated support from a heavyweight local partner reduces some risk, the limited free float of stock could make the share price especially volatile..........
Archipelago's production ramp up is another reason for further optimism. Record third-quarter output of 36,184 oz, leaves the group on target to meet full-year production of 135,000 oz-145,000 oz. In addition, cash costs have been trending down on increased production and a reduction in the volume of waste extracted from the mine. Archipelago expects cash costs to be between $580 and $640 per oz (£367 to £405). None of Archipelago's London-quoted peers can come close to that figure.
And concerns over Archipelago's ability to meet its enhanced production schedule should be set against the ease with which it hit initial planned capacity at its processing plant. This reflects good quality ore at Toka Tindung and a straightforward production process. Meanwhile, Archipelago is studying a low-capital, heap-leach operation that could allow it to raise annual output to 230,000 oz.
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