ASX-listed Nusantara Resources is nurturing big ambitions to build the next gold mine in Indonesia – a renowned mining jurisdiction which remains one of the most underexplored jurisdictions in the world. The company’s Awak Mas Gold Mine on the island of Sulawesi is well advanced at the pre-construction stage and has been estimated to have a 16-year mine life with an average production of 100,000 ounces per annum.
“We intend to build the next gold mine in Southeast Sulawesi, and we intend to improve it in everything we do to add value through optimisation, with the optionality of expansion and further exploration,” says managing director Neil Whitaker. “As a company, Nusantara has the project, the partners and is now actively progressing the financing to develop Awak Mas and to grow our business in Southeast Asia. Our strategic ambitions are BIG: Build, Improve and Grow.”
In terms of the aforementioned objectives, Nusantara has done exactly that this year, expanding the Awak Mas resource by 18% to 54 million tonnes (Mt) at 1.35 g/t Au for 2.35 million ounces (Moz) in April, and increasing the ore reserve by 34% in June to 35.6 Mt at 1.33 g/t Au for 1.53 Moz. “We also built a new financial model and economics that we reported in an addendum to our feasibility study in July. It now shows a very attractive value proposition for this next gold mine in Indonesia with an increase in average production for the first four years of 128,000 oz, an NVP of over US$500 million, an IRR of 45% and a payback of less than two years.”
An invaluable partner
As always, operating in an overseas jurisdiction requires a certain level of in-country expertise and this was not lost on Nusantara in 2018, when it formed a strategic partnership with Indika Energy – a leading Indonesian company with a track record in mining and other energy services.
In December last year, Nusantara deepened its relationship with Indika, securing the company as a strategic cornerstone investor in the Awak Mas project. This was a move that Nusantara considered a significant milestone in the development of the project.
“Indika’s investment demonstrates their commitment and ‘skin in the game’ to see this project through successfully. You wouldn’t want to do this without a partner in-country who is familiar with the environment,” Whitaker says.
“What they bring to the equation are relationships, strong governance and business acumen. In addition to their own investment, they have established connections to the Asian mining market. They are well connected to the people that we need both to finance the project and to ensure it is permitted and delivered successfully.”
The MD reveals he has previously been a director with Indika and for Petrosea –a construction subsidiary of Indika – and jumped at the opportunity to work with the outfits again through Nusantara.
Whitaker moved to Indonesia last year after taking on the role of CEO and helped set up the firm’s small corporate office in Jakarta. Nusantara has since relocated the project office from Perth to a shared facility with Petrosea in the Indonesian capital. “We have all the ingredients of local partnership to make this successful,” he exclaims.
At home in Indonesia
Nusantara’s approach has always been to build in-country relationships and an in-country team, safe in the knowledge that Indonesia has the perfect blend of high-level mining services and talented people.
This is, of course, a country that produces 7% of the world’s gold and hosts the world’s largest gold mine and second largest copper mine; Grasberg in the province of Papua. Therefore, its credentials as a world class mining hub are not to be dismissed.
Whitaker and project director Matt Timbrell have substantial experience in Indonesia and in developing gold projects. Local president director, Boyke Abidin is a London economics graduate with extensive experience in external affairs, and has been with the Awak Mas project for over 20 years now.
On-site, up to 300 Indonesian nationals have been working intensely and safely throughout the COVID-19 pandemic and the associated lockdown this year. “This is a perfect example of the history of mining and competence in-country,” says Whitaker.
“We have an established exploration and community presence but there is now considerable additional project activity taking place with numerous contractors at and around the site with a fleet of drill rigs covering project geology, geotechnical and hydrological work in preparation for construction next year.
“Our overseas engineering consultants, DRA Global, Australian Mining Consultants, Coffey, Golders and others, together with Petrosea, have been able to manage the site remotely from Jakarta and Australia. Of course, there have been inefficiencies but we’ve been able to manage through the pandemic with a level of business continuity that I think is remarkable.
“Our people in Southeast Sulawesi remain COVID free today thanks to the commitment of our people and the high standards that you would expect of an ASX–listed company.”
The funding pathway
Earlier this year, Nusantara established a two-phase funding pathway along with its investment partners that is designed to progress to a final investment decision (FID) and rapid contract awards for EPC construction and early mining next year.
Indika initially contributed $15 million in return for 25% project equity, while Petrosea have made up to $15 million available through a deferred payment arrangement. Nusantara also provided $6 million in equity after a successful recent capital raise.
“We’ve got cash in the bank and are well funded this year for the front–end engineering design (FEED) stage. It’s an extended final stage of design which will take us through to an investment decision next year. This year we have added to our resources from exploration success and we improved our mine design with optimisation and the benefit of gold price to deliver a significantly improved set of economics.
“We’ve also just received an independent technical expert report from SRK Consulting Perth. It confirms that all the work we’re currently doing through this FEED stage is on track to support a final financial package sometime next year.”
Project upside potential
Nusantara has also identified near-mine and regional exploration opportunities at Awak Mas which suggest that the currently defined resources are part of a larger mineralised system.
“Our mining lease is extensive. My geology GM tells me there are over 14,000 hectares and we’ve probably explored 60%, and only half of that seriously. There are gold anomalies all over the mining contract of work, which is the name for the lease locally.”
The company had success in 2019 with a geophysics programme which clearly identified the geophysical response of the known high-grade Salu Bulo satellite deposit while demonstrating open-ended extension possibilities. The inclusion of this near surface, higher grade ore body has positively impacted project economics this year and Nusantara has recommenced a new geophysics programme that will identify, rank and prioritise additional targets for exploration drilling.
Furthermore, the likelihood of being able to gradually grow its resources at the project has encouraged Nusantara to explore the possibility of expanding the Awak Mas processing plant from the 2.5 million tonnes per annum (Mtpa) throughput proposed in the 2020 addendum, up to 3.9 Mtpa.
“We are now finalising a scoping study to look at the value of an expansion. With a payback of less than two years, and access to an early revenue stream, we must be seriously looking at expansion opportunities.
“I think it’s the optionality with exploration and optionality with expansion which probably will make this project a little more exciting,” says Whitaker.
The full package
‘A little more exciting’ may perhaps be a slight understatement by Nusantara’s boss, particularly when you look at the progress made by the company this year in respect of growing the resource and reserve of the Awak Mas project.
Coupled with the gold price movement of 2020, which has soared to record highs in all major currencies, and you are looking at a project with a substantially higher NPV when compared to its overall value 12 months ago.
However, Whitaker is keen to stress that the long-life, low AISC and operating costs of the project provide inherent security against volatility in the gold price. “That de-risks the gold price regardless,” he says.
“I’m not relying on the high gold price to deliver this mine. We need to keep a balance between leveraging the technology that the gold price will bring to the table with a low–cost structure and a level of profitability that shareholders expect.”
Overall, Nusantara has this year taken several decisive steps towards delivering Indonesia’s next gold mine, with the foundations of its recent success provided by a high functioning internal team and the relationships fostered with well-credentialled local partners, Indika Energy and Petrosea.
“Indika has a tremendous reputation for ESG policies. Their commitment to sustainability, education, and medical advances is first class. They have cared for our people through this pandemic and supported our development in ways we could not have done alone.
“At a time when we are ‘stepping up’ in anticipation of construction next year, Nusantara now offers an opportunity for investment in a gold company that is still undervalued. And yeah, the gold price is nice, I’m not complaining,” he quips.