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ong Kong-based mining company G-Resources Group Limited expects to begin commercial production at the company’s gold and silver mine in Martabe, North Sumatra, in July after a delay in March.

“In July, we are confident we will kick off production in our Purnama pit,” G-Resources Martabe communication manager Katarina Hardono told The Jakarta Post by phone. She said that the company expected to produce 250,000 ounces of gold per year and 2.5 million–3 million ounces of silver per year.

Katarina said that the production was initially scheduled for March but it was delayed because of late completion of engineering, procurement and construction activities. The company had to raise its capital expenditure for the development of its gold and silver mine to US$678 million from $576 million due to the delay.

Purnama and five other unexplored pits have an annual production capacity of 500,000 ounces of gold. The engineering and construction activities in Martabe site had reached 95 percent, she added.

 The soaring costs were due to an additional $31 million of direct project financing, $21 million for tailings storage facilities, $29 million for four months pre-production expenses and $21 million foreign exchange losses due to the weakening of the US dollar.

Previously, the publicly-listed firm had increased its capital expenditure by 30.9 percent from $440 million to $576 million in March 2011, due to estimated higher operating costs.

G-Resources estimated the total cost of pre-production, from April 1 to July, at $154 million. As of March, the company had $176 million in cash to finance the pre-production costs.

“We have benefited from Sibolga Port, which is located about an hour from our site. Given that facility, we can achieve lower production costs of $280 per ounce of gold,” said Hardono, adding that G-Resources was currently establishing a warehouse by the port.

In October 2011, the group, through its subsidiary PT Agincourt Resources that operates the mine, signed an agreement with state mining company PT Antam to process its gold and silver at Logam Mulia, Antam’s business unit.

Under the agreement, Agincourt will send its mixture of gold and silver in the form of bullion to Antam’s processing plant to be refined into gold and silver with a high purity level. The finished products will be sold on the international market.

“The delay does not affect our deal with Antam. For the upcoming production, we will pay $1 million per year for Antam’s refining services,” she said.

The Martabe mine covers a total area of 1,639 square kilometers and has potential resources of 6.5 million ounces of gold and 66 million ounces of silver, the company estimated.

The firm holds 30 years of contract of work (known as kontrak karya or KK) for the Martabe site, which can be extended for a maximum of another 20 years.

G-Resources has been a publicly listed company in the Hong Kong Stock Exchange since April 1994. The Martabe mine marks the first G-Resources operation in the mining sector, the firm is better known for its mine-products trading. (yps)