Indonesia’s mining industry has not always been kind to foreign investors down the years, with a string of high-profile incidents putting a blot on the sector’s copybook amongst potential investors. However, since the lifting of a raw ore export ban in 2016, investor confidence in the mineral resources sector is beginning to return. ASX-listed Nusantara Resources is one company that is benefiting from improving conditions for foreign investors in Indonesia, having made rapid progress at its Awak Mas Gold Project on the island of Sulawesi since its IPO in August 2017.
“Indonesia’s mining industry has had an interesting history, and there are many positive things about operating here,” says Nusantara’s executive chairman Greg Foulis.
“First and foremost, there is the mineral endowment in Indonesia from a copper and gold perspective. Following that, there have been plenty of recent examples of investors getting very positive development outcomes out of Indonesia.”
Foulis recounts Australian private equity firm EMR Capital’s US$1.2 billion sale of the Martabe gold and silver mine last year as a recent example of a foreign investor getting a strong return in Indonesia.
The executive chairman also highlights the vital importance of fostering strong in-country relationships to ensure those positive development outcomes he mentions.
Nusantara has achieved this by employing locally across the business and building an executive team with first-hand experience working in Indonesia. “We are a local employer, with local geologists and local people working in the business. Our model, and the Indonesian way of doing business, is to have Indonesians working in the company.
“On the corporate side, our director Boyke Abidin has been with this project for over 20 years, so he knows the local community first-hand and has good relations all the way through to government.”
Delivering the DFS
A little over 12 months after its IPO, Nusantara published a definitive feasibility study (DFS) for the Awak Mas project in October 2018. The company completed over 10,000 metres of drilling ahead of the study in order to prove its new geological model for the project.
Awak Mas was first discovered in 1991 but after a series of previous owners failed to take the project through to feasibility stage, Nusantara proposed a new geological approach based on an ‘intrusion related’ hydrothermal model.
This different approach to the geology is what has set Nusantara apart from its predecessors and allowed it to progress the project to feasibility stage, according to Foulis.
The DFS included a 2 million ounce (Moz) mineral resource with a grade of 1.4 g/t Au, as estimated by Nusantara’s partner Cube Resources. The company also engaged several other well-credentialled consultants on the study.
“AMC Consultants completed the mine planning, estimated mining costs and the ore reserve, DRA Minnovo helped with metallurgical testwork and an Indonesian company called Resindo worked with us on infrastructure and capital cost estimation.
“We have also an opportunity to work with an EPC mining business called PT Petrosea through our partner Indika Energy. We think there is an opportunity to work with them in the construction of this project.”
The DFS also outlined sound economics including a post-tax NPV of US$152 million with 20% IRR, based on a conservative gold price of $1,250 per ounce. The study also built in gold price sensitivity where a 10% rise would see the project’s NPV reach $217 million, with an IRR of 26%.
Prior to publishing the DFS last year, Nusantara achieved another key objective when it secured a contract of work agreement with the Government of Indonesia for the Awak Mas project.
“Firstly, we confirmed our licence with the Government of Indonesia and had the five-year period before we move into a mandatory sell-down extended to 10 years.”
“We have a very good licence situation, we’ve completed the feasibility and brought in a very respectable and significant local partner that is also looking to be diversified in the gold business in Indonesia.
Introducing Indika Energy
In December 2018, Nusantara announced that it had formed a strategic partnership with Indonesian cornerstone investor Indika Energy, who will provide a pathway to project level investment in return for a 19.9% interest in Nusantara.
“We don’t use the word partnership lightly, this is not just a business transaction. We are working very hard on our relationship with this partner, to make this a partnership where everybody brings something to the table.
“Our partner has financial capability and they also have a very good understanding of business in Indonesia. We also bring a lot of technical and gold industry experience to the equation.”
Nusantara is aiming to achieve a project level transaction that satisfies both parties and will look to be aligned with its partner to ensure both debt and equity capital is secured for the project, according to Foulis.
The company has engaged with project finance banks and observed a track record of multinational financiers and international banks supporting mining projects in Indonesia in recent years, including the large scale Martabe and Tujuh Bukit projects.
In addition, Nusantara received confirmation from an independent technical expert that there are no fatal flaws in the Awak Mas project, further strengthening the case for international investment.
“We understand our ability to project finance and are working through other complimentary options as well as what the various equity pieces may look like for this project. We are certainly confident that we will get this project banked, particularly given the current $1,400 per ounce gold price.”
The icing on the cake
While fast-tracking the development of the Awak Mas project towards the construction stage by 2020, an equally large part of Nusantara’s attention is focused on project enhancement and additional exploration in 2019.
Firstly, Nusantara will seek to enhance the project through what Foulis calls ‘mine level geology’ – wherein the company expects positive reconciliation on grade and will test this concept with additional close spaced diamond drilling.
“Essentially, in a mining situation we expect to pick up a lot more vertical structure than what we are seeing in the resource model and from the wide spaced drilling. That’s what we expect from the mine performance.”
Furthermore, the company recently kicked off its first ground-based electrical geophysical programme in the area surrounding Awak Mas. The programme is lighting up some fantastic structure over an existing satellite deposit along with extensions to that deposit, says Foulis.
“This is all about the icing on the cake. We believe we have an exciting base case development scenario, but like most gold operations we have an extremely high expectation of adding a lot of ounces, pre-development and or when we move into production.”
Based on the significant opportunity to add further resources through project enhancement and satellite exploration, Nusantara has strong reason to believe it could be sitting on a 5Moz mineralised system.
“We believe that ultimately there are a number of intrusives relating to our mineralisation that certainly have the potential to demonstrate that this is part of a larger porphyry–style system. We also have signs of copper mineralisation that we need to follow up.
“If you look at the scale and location of our satellite deposits, this is certainly what we call a ‘big system’. We are running a two-pronged approach. We want to get this into production, that’s our number one focus, but we also see very significant exploration upside over and beyond our existing footprint.”
Overall, Nusantara has developed into a well-credentialled business in Indonesia with strong community and government support and a local partner that is providing a pathway to investment for the large scale Awak Mas project.