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Mercator Gold says Indonesia associate Paniai Gold making progress

Mercator Gold (AIM: MCR, OTC: MTGDY) updated investors on the progress being made by its associate Paniai Gold Ltd, which is currently developing the Derewo River gold project in Papua Province, Indonesia. Paniai has been making progress both on the ground and at corporate level with permitting and a public listing slated for later this year.

Mercator currently holds 50 million shares in Paniai, which is expected to represent 16% of the company's share capital upon completion of the company’s AU$1.8 million underwritten listing on the National Stock Exchange of Australia (NSX) in the fourth quarter of 2010.

“Indonesia’s Papua Province is one of the most prospective areas for mineral exploration in the world, and is the subject of a great deal of interest from both Indonesian and foreign exploration and mining companies”, Mercator MD Patrick Harford commented. “Paniai is committed to the development of the Derewo River project and is investigating a number of opportunities that may allow it to expand its ground position in the region”.

Paniai holds a 50% interest in a joint venture with a local company over the Derewo River project.

The joint venture intends to mine sizable bodies of gold bearing gravels identified within the project area, and it will also carry out exploration work for new gold and copper-gold deposits. The Derewo River project area is located less than 100 kilometres from the Grasberg copper-gold mine operated by Freeport McMoRan Copper & Gold (NYSE: FCX).

According to Mercator, Paniai has made good progress at Derewo River with the initial base camp construction currently underway, along with purchase and transport of major capital items including a wheel loader and excavator.

Also the company has signed an agreement with the indigenous Wolami people, setting out terms in respect of compensation, access and other issues. Mercator noted that this agreement represents one of the first agreements of this type in the Papua Province. An environmental impact study (AMDAL) was completed and submitted by Paniai, for approval under the new Indonesian mining laws, as a precursor to the grant of Paniai’s 491 hectare mining/exploitation licence application.

According to Mercator, the new Indonesian mining laws have a number of positive implications for Paniai as they enable foreign companies to hold 100% of project - after 5 years of production, exploration licenses have been can now last up to 8 years and the maximum exploration landholding has been increased to 100,000 hectares. The new laws, initially agreed in 2008, became effective in February this year.

Disclosure: The author holds no positions in the company