Nusantara Resources Ltd. Managing Director Mike Spreadborough has dismissed market concerns that it would struggle to fund its now development-ready Awak Mas open-pit gold project in South Sulawesi due to negative perceptions around Indonesia, saying Australians are notorious for misunderstanding their nearest northern neighbor.
The definitive feasibility study announced on Oct. 4 has triggered more discussions with strategic partners for long-term funding, and Spreadborough told S&P Global Market Intelligence on the sidelines of the Precious Metals Investment Symposium in Perth, Australia, after his presentation that the partner would most likely be an Asian mining house, though not necessarily a "bigger fish," many of whom take a long-term view.
This would come in handy given Nusantara locked in an agreement in March which ensured it would not have to divest any of the project to an Indonesian party until the end of the 10th year of production, and secures title out to 2050.
Yet despite putting a target price for Nusantara of 49 Australian cents per share, above its current 20 cents, Patersons Securities' Oct. 4 note on Nusantara that "given the Indonesian location which is not a favored jurisdiction for all investors, we see gaining the support of a strategic partner as a key catalyst for the stock in the short-medium term."
The project needs US$146 million up front capital and US$16 million for mining pre-production, with payback in four years after tax.
Thus Spreadborough stressed in his presentation that "we need to talk about Indonesia", which he described as an "economic powerhouse," with 5% per annum economic growth, with an experienced workforce and contractors, business and consultants that "know mining" in a broader business community which is in a growth phase, with a stable economy, government and regulatory environment, "despite what you might hear down the pub or anywhere else."
He said the permitting is the same as that in Australia, and later said in an interview that he finds it ironic that while Australians might know Indonesia well as a tourist destination, with Bali particularly popular, "I think we've lost touch a bit on the business environment, particularly on the mining side."
"There are some very successful mining operations in Indonesia that are world class, and we are continually telling Australian investors that this is a good place to consider compared with maybe Africa," he said.
Upside potential
Spreadborough added that while the company has done modelling on a 50-50 debt-equity split, it depends on the strategic partner, but believes the case has been strengthened by the DFS, which detailed plans for 11-year open pit mine as a base-case with annual production of around 100,000 ounces, generating about $40 million a year of after-tax cash. With approvals already in place, the project is construction-ready with targeted production in 2021.
He said that "there aren't too many quality projects" in Asia Pacific where the operators have a desire to grow their business, so he is confident of a partner being secured by early 2019 with a partner that will stick around for at least that coming decade.
The partner will also help progress exploration which had not been done outside of the known deposits in the area for 18 years, after an 11,000 meter resource drilling program over the Awak Mas and Salu Bulo deposits completed in April not only facilitated the maiden JORC reserve of 1 million contained gold ounces, but also highlighted the potential for resource expansion of both deposits and the corridor between the two.
The DFS also identified options to improve the DFS' net present value estimate of US$152 million by a further US$45 million as the project is moved from indicated to measured, and Spreadborough told delegates that it's not unusual for epithermal gold deposits to have that grade uplift as they go through into production.
He said the project is driven by significant exploration potential, and the Contract of Work area also has exploration potential with a number of brownfield prospects already identified in the mine and east corridors, prioritizing the area within 3 kilometers of the processing plant for quick mill feed.
However, the Tarra deposit also has significant potential with a 100,000 ounce resource that was not included in the DFS as it's still in the inferred category, and around it are also other previously-discovered prospects.