Nusantara in $116m funding deal to build Indonesian gold mine
One of Indonesia’s largest integrated resources companies, Indika Energy, is looking to take a 40% stake in ASX-listed, Nusantara Resources’ two million ounce Awak Mas gold project in Indonesia, virtually clearing a pathway for the mine to be built.
Indika plans to invest up to AUD$58m in Nusantara’s wholly-owned project subsidiary, PT Masmindo DWI Area, to secure its share in Awak Mas, which is located in the Luwu Regency of Indonesia’s South Sulawesi Province.
Nusantara and Indika have signed a non-binding term sheet, whereby an initial payment of AUD$22m will give the Indonesian company 25% of PT Masmindo, with the remaining 15%, at a further cost of AUD$36.5m, to be committed subject to a number of conditions being met- including the final investment decision being made.
The Jakarta listed Indika, which entered into a “Relationship Deed” with Nusantara last December as the companies set out to accelerate Awak Mas’ development, is not only a key player in Indonesia’s coal sector, but also owns large interests in contract mining, construction, logistics, trading and investment.
In the first nine months of 2019 the company generated a consolidated revenue of USD$2.1 billion, a core profit of USD$61.2 million and finished the September quarter with a bank balance of US$754.5 million.
For its part, Nusantara is injecting a staged USD$10 million into Awak Mas to fund the cancellation of a third party royalty and conduct further exploration activities.
Meanwhile, Indika’s subsidiary, PT Petrosea Tbk, will be awarded the front end engineering and design contract for the project and will have the right to negotiate on the engineering, procurement and construction contract.
Importantly, PT Petrosea Tbk will look to defer around AUD$58m in costs across both the engineering and design contract and the construction contract to assist Nusantara and Indika with their up-front capital requirements to fund the mine.
As it stands, Awak Mas has a mineral reserve of 1.1 million ounces. It also has a global mineral resource of 45.3 million tonnes grading 1.4 grams/tonne gold for 2 million gold ounces that incorporates the Awak Mas, Salu Bulo and Tarra deposits.
According to Nusantara, the project is ready to go, with a definitive feasibility study carried out last year confirming an initial 11 year, low cost gold operation involving the processing of 2.5Mt of ore a year to produce around 100,000 gold ounces annually.
Awak Mas’ initial capital cost is expected to be about USD$146 million on top of pre-production mining costs of USD$16 million.
Landing an investment partner of Indika’s calibre has certainly been a God send for Nusantara which, like all international companies looking to do business in Indonesia, needed a strategic local company to help it get some runs on the board.
According to broker, MST Access, which initiated its coverage of Nusantara last month, an in-country strategic partner brings familiarity with all the local legal, operational and cultural requirements of any Indonesian project.
It also provides something of a window into the underlying quality of the project and its importance to its Indonesian partner, the local community and the Indonesian economy in general.
Perhaps just as importantly for Nusantara is the fact Indonesia is becoming an easier place for international companies to develop projects like Awak Mas, currently enjoying a ranking of 73rd out of 190 countries on the Ease of Doing Business Index.
Nusantara’s Executive Chairman Greg Foulis said: “We are confident that, with the support of major shareholders, Nusantara can complete the Indika Energy and Petrosea agreements in early 2020 and significantly ramp up its pre-build activities.”
According to Nusantara’s previously tabled definitive feasibility study, Awak Mas looks like churning out USD$36.25 million in annual free cash on average between 2021 and 2032.
With numbers like that, it is possible that the project could handle a fair bit of debt and the company said this week it was looking at a number of debt options that could see it avoid issuing bulk numbers of new shares.
These include mezzanine debt and subordinated debt and other structured debt options.
In any case, the market appears to believe this story with Nusantara’s share price almost doubling in the four month since newly minted CEO, Neil Whitaker was appointed.
Whitaker, who will base himself in Indonesia, has worked for multiple majors, including Anglo American, Western Mining Corporation and Newcrest Mining.
Importantly, he also previously worked for a subsidiary of Indika’s and no doubt will play a key role into the future in securing closer relationships with the ASX-listed company’s strategic and now funding partner.
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