"there's gold in them thar mills !" - cluff gold

Algy Cluff is a happy man. Two of the four properties the Aim-listed Cluff Gold owns, Kalsaka in Burkina Faso and Angovia in Cote d'Ivoire, are moving to development stage and a third - "hopefully the largest" - the Baomahun project in Sierra Leone is being valued.

An updated resource estimate for Baomahun was published in September and reported an increase of 70% and the resource now stands at 880,000oz and with strong potential to yield more with further drilling as the majority of the strike length is still yet to be defined.

Cluff Gold prefers to stick to digging in West Africa. Kalsaka should be producing within 12 months, and is expected to yield about 60,000 gold ounces per year, at "not below $300/oz", and Cluff Gold has started buying key equipment as well as recruiting management personnel for the project.

Research from Ambrian when Cluff was at 73p and moving from explorer to producer "hopefully in 2007" was upbeat: "The gold intersections are frequent and consistent. This infill drilling programme is aimed at proving up the continuity of the mineralisation that has already been defined and while it should add to the resource base of the project, it will also serve to increase the quality of the resource."

Cluff expects to develop Angovia, which it bought from the French uranium group COGEMA, and at which it expects to yield gold at $250-$275/oz, from Cluff's existing reserves. Cluff hopes to gain 40,000oz pa from Angovia and, it being debt free, money from its sales would feed straight to Cluff Gold's bottom line.

Being able to buy much of the plant equipment for $400,000 from COGEMA, also helped Cluff says. COGEMA sold Angovia in order to concentrate on uranium exploration for the French government.

Cluff, capitalised at £36.3m, raised £15m earlier in 2006, mainly through US institutions. This leaves it $23m cash-positive and Cluff Gold hopes to be in production at Angovia by the end of next year.

Cluff notes it is relatively easy to gain project finance, "but it's getting difficult to raise exploration money" - setting apart those who are or will be extracting minerals when the next financing crunch comes.

The present price of gold makes Cluff happy, he adds the prices of energy and wages have also risen, and he echoes his peers' words on difficulty of finding skilled labour, a fact some of his peers see as advantageous in keeping demand above possible bullion supply.

While Cluff acknowledges there is political risk in West Africa on top of geology risk, he notes that all the countries in which Cluff operates benefit from English or French law, "and you know where you stand."

In more than 30 years' mining in West Africa, Cluff has not had to shut a mine nor had labour-relations problems. "I would argue the worst political risk is not in West Africa, it is in Russia - that's where company after company is coming into problems, which can be devastating," Cluff says. Of all his time in exploration and mining, Algy Cluff picks out more developed nations as being potentially difficult to work in.

"West Africa's geology is excellent and we also believe that all the countries in which we operate want and need foreign investment. The volatility is not to do with the foreign investors. It's an internal issue. It doesn't seem to impact on one's operations, whereas the political risk in Russia or South Africa involves your licence."

Cluff says the current spur to bullion's price was 1997's Asian crisis and concomitant currency crash, "but now people are worried about the level of offshore and off-balance-sheet money and people still want part of their portfolio represented by something that is immutable."

China, which has around 1.3% of its reserves in gold and is in cash surplus, may also be looking nervously at the dollar's long-term decline.

Algy Cluff concurs with his colleagues that mining, and particularly junior mining where "companies are pilotfish for the big companies", can be an merger and acquisition game. A lot of smaller companies will have to be rationalised, he concludes.

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