04/11/2019 - 15:55

Nusantara gains right to buy back Indo gold royalty

04/11/2019 - 15:55


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Indonesia-focussed gold developer, Nusantara Resources, has secured the right to fully extinguish a third-party royalty arrangement over future gold production from its Awak Mas gold project on Sulawesi Island. The company can terminate the existing net smelter royalty deal with Vista Gold Corporation, by paying a small consideration of cash and shares and then two payment tranches up to USD$4.9m before 30th April 2021.

Nusantara gains right to buy back Indo gold royalty
Nusantara Resources CEO Neil Whitaker (third from left) with the Jakarta Team.

Indonesia-focussed gold developer, Nusantara Resources, has had a significant win at its emerging Awak Mas gold project, securing the right to fully extinguish the third-party royalty arrangements over future gold production from its operation on Sulawesi Island.

Back in December 2013, the company entered into an arrangement with Vista Gold Corporation, whereby Nusantara agreed to grant Vista a royalty of 2% of net smelter returns on the first 1.25 million ounces of gold produced from Awak Mas and then 2.5% on the next 1.25 million ounces of gold produced.

Nusantara has secured the option with Vista by paying USD$100,000 and issuing Vista with 666,667 ordinary shares.

The option allows Nusantara to terminate 50% of the royalties by paying a further consideration to Vista of USD$2.4m by the end of April 2020.

For a further USD$2.5m paid before May 2021, Nusantara can then extinguish the royalty altogether, most likely making the financing of the project more certain.

Nusantara Chief Executive Officer Neil Whitaker said: “This is a significant step forward for the development of Awak Mas and in particular for the overall financing package, which is at an advanced stage.”

“These options increase our level of flexibility and represent a potentially significant cash saving to the company over the life of the mine.”

Only last month, the company nailed a 63.7-metre drill intersection grading 2.12g/t gold from 201.1m down-hole that sits just beneath its existing USD$1,400 per ounce optimal pit shell for its flagship Awak Mas deposit.

Perhaps more importantly, that new result opened up a nearly 1km wide, sparsely drilled, potential gold mineralised corridor, lying between the eastern edge of the proposed Awak Mas open-pit and the Salu Bulo deposit and gold resource, further to the east.

Nusantara’s geologists have long postulated that the Awak Mas gold mineralisation continues to the east of the existing ore reserves in a series of flat-dipping, but structurally disjointed lodes that could extend to the Salu Bulo deposit.

The current Awak Mas open-pit ore reserve totals 24.1 million tonnes grading 1.28g/t gold for just shy of a million ounces, based on a USD$1,250 per ounce optimised pit shell, used in last year’s DFS.

However, when the USD$1,400 per ounce pit shell is used, the mineral resources inside the Awak Mas optimal pit shell swell by 74% to 39.5 million tonnes grading 1.4g/t gold for 1.72 million ounces.

With the gold price sitting above USD$1,500 per ounce this week, the recalculation is both very encouraging and timely for Nusantara.

In fact, the new drill result supports the potential to add gold resources by defining extensions outside the current open-pit resource shells, according to management.

This should provide the impetus needed to extend scout exploratory drilling at depth and further to the east of the existing defined Awak Mas gold resources.

Mr Whitaker said at the time: “Nusantara is focussed on moving the Awak Mas project into production, however, it also has an eye on the scale game-changers of a larger main pit at Awak Mas and opening up the corridor to Salu Bulo.”

The global mineral resource for the project now stands at 45.3 million tonnes grading 1.4g/t gold for 2 million ounces, which incorporates the Awak Mas, Salu Bulo and Tarra deposits.

Nusantara is presently engaged in advanced financing discussions and aims to bring the Awak Mas project into development sometime next year.

This week’s initiative to potentially extinguish the historical net smelter royalty arrangement with Vista is a very positive development and one that will remove a potential stumbling block for the project’s development.

Nusantara is seeking to finance and progress Awak Mas after the delivery of a robust DFS in October 2018, which showed that an open-pit gold mining operation could produce at the magical 100,000 ounce a year mark and generate an impressive after-tax cash flow of about AUD$55m a year, or about AUD$1m a week, with payback in 4 years.

That work was based on a gold price of USD$1,250 per ounce, so the metrics would have improved somewhat in the year since given that gold prices have lifted by 21% in the intervening period.

Last December, Nusantara executed a “Relationship Deed” with major shareholder, Indika Energy, that provided a framework for the two companies to accelerate the development of the project, including provisions for Indika to acquire an interest in Awak Mas, by investing at the project level.

Under the terms of that agreement, Nusantara may offer to sell an interest of not less than 25% in the project to Indika.

According to the company, if mutually acceptable terms for the sale can be agreed, it is anticipated that proceeds from the project sell-down could be applied towards the company’s equity share that will underpin the financing requirements and ultimately fast-track the project.

The upfront capital costs to develop the project were estimated to be USD$146m in the DFS.

All project construction approvals for the mining infrastructure are already in place and Nusantara signed a “Contract of Work” with the Indonesian Government in March 2018, providing security of title out to at least 2050.

Given the lack of contemporary exploration targeting gold ounces outside the known Awak Mas deposits, Nusantara believes it could significantly boost its existing mineral resources in the district, starting adjacent to the known deposits.

With most of the boxes ticked now, including an ore reserve of over a million ounces, a projected near-100,000 ounce a year production profile, a low stripping ratio, at least 10 years of initial mine life and the opportunity to churn out around a million dollars a week in after-tax cashflow, Nusantara’s Awak Mas gold project seems to have plenty going for it.

It also appears to have lots of blue-sky exploration upside, which adds yet another dimension to this rapidly advancing story.


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