Sihayo Gold

Tangible near-term production and real exploration upside in Indonesia



ASX-listed explorer Sihayo Gold owns a 75% interest in Indonesian miner PT Sorikmas Mining, which provides it with access to the Sihayo-Pungkut 7th Generation Contract of Work (CoW) – a 66,000 hectares mining lease located in the Province of North Sumatra. Indonesia needs no further introduction to those working in the global mining industry, having secured its reputation as one of the leading jurisdictions for mineral extraction in Southeast Asia with several high-quality and high-profile mines developed in-country over several decades across a diverse range of commodities including: copper, gold, tin, bauxite and nickel. Sihayo’s executive chairman Colin Moorhead has played a key role in the development of four mines in Indonesia during his former stints with Australia’s Newcrest Mining and Indonesian-listed producer PT Merdeka Copper Gold Tbk. Possessing an unrivalled understanding of the lay of the land in Indonesia’s mining sector, there is no better person than Moorhead to propel Sihayo into near-term production at the Sihayo starter project before the end of 2023.  


“[The project] is in a geological environment which is prospective for porphyry copper-gold, for epithermal gold-silver and sediment-hosted gold deposits. We have a modest starter open pit project identified, which is based on a resource of 24 million tonnes (Mt) at 2 g/t for 1.5 million ounces (Moz). All of that resource defined to date is of the sediment-hosted variety,” he notes. 


Overcoming the pandemic  


The development of Moorhead’s fifth mine in-country has been complicated by the emergence of a global pandemic, which has restricted travel between Indonesia and Australia over the past year-and-a-bit.  


However, he hails the crew on the ground at Sihayo, along with the local government’s COVID-19 containment strategy, which has kept the company’s local team safe and able to press on with the starter project throughout the ongoing health crisis.  


During this challenging time, Moorhead has been able to draw on his vital experience in mine-building in Indonesia despite not being able to travel to the project, located in a mountainous area approximately three-and-a-half hours South of the world-class Martabe Gold Mine. 


“In terms of permits, approvals and financing, I’ve been down this well-trodden path before. I’ve found if you get the formula right you really can do well in Indonesia. you need strong, trusted local partners, solid legal tenure for the leases you’re on and you need the capability on the ground to execute.” 


Following in the footsteps of previous major foreign mining investors – including Newcrest, Newmont and Freeport McMoRan – Sihayo believes it has all the aforementioned ingredients in place for a successful long-term mining operation, starting with the attracting Sihayo starter project. 


Starting strong 


Sihayo’s most advanced project is estimated to generate US$1.14 billion in gross sales over an initial ~8 years mine life at a flat rate gold price of $1,800 per ounce, with cash operating costs of $632 per ounce and at a maximum funding cost of $153 million. 


The project is currently at the permits and approvals stage with a view to commissioning and first production in the second half of 2023. At the time of writing, the company is working through an AMDAL (an environmental impact statement type-document), which will be presented to the Indonesian Government for approval.   


“Probably the key now for Sihayo is getting the tailings storage facility signed off by the Dam Safety Committee in Indonesia. There is a new global standard on tailings which we seek to comply with as best we can. 


“We’re designing a state-of-the-art tailings storage facility and Knight Piesold out of Perth is helping us with that. They also look after Martabe’s tailing storage facility up the road, so have very good experience in that regard,” Moorhead declares. 


Another indispensable part of the process involves attaining a social licence to operate, amongst the other tenets of the now universally accepted environmental, social and governance (ESG) thematic. In fact, Moorhead reveals that ESG regulations relating to mine developments could be perceived to be just as rigorous in Indonesia as it is in Australia. 


The three-legged stool 


“I’m very much of the school of thought that there’s only one way to do mining and that is to do it properly. I liken it a three-legged stool. The community and the government trust you to sustainably exploit the resource and make sure the benefits are net positive for the country and community.  


“The employees trust you with their livelihoods and their safety, and those providing debt and equity need a decent return on the risk they are taking. If you get that balance right, you can be successful. If one of those legs of the stool gets too long or too short, the thing falls over. My job is balancing that stool.” 


This balancing act is something that Moorhead has previously undertaken with real pride at Tujuh Bukit in East Java and the Gosowong Mine in North Halmahera. That experience in thorough stakeholder engagement has shaped Sihayo’s approach to sustainable development in North Sumatra.  


The company is working with host communities to demystify its aims and responsibilities to the local people and natural environment, while also highlighting the new economic opportunities available to locals through the gold project. 


“It doesn’t matter whether its Indonesia, West Africa or Australia, you’ve got to treat people with respect if you want it back,” Moorhead stresses. “That respect is hard won by your actions, not what you say. If you do what you say you’re going to do, people will start believing you. It’s a journey and we’re on that journey now.” 


Three-tiered exploration 


Sihayo’s journey in North Sumatra is underpinned by a three-tiered exploration approach: 1) near mine exploration targeting extensions and repetitions of known sediment-hosted gold. 2) advanced exploration at the Hutabargot Julu prospect (located 6 km South of Sihayo as the crow flies). 3) target generation work over the broader CoW using big data and other modern techniques. 


While the company is working diligently across all three sections of the strategy, perhaps the most intense activity is currently taking place at Hutabargot, where a diamond drilling campaign is primarily focused on two targets called Sihorbo and Penatapan. 


“We did a 25-hole scout drilling programme earlier in the year across a 10 km2 area. That generated five or six specific areas for follow up. The first two of those are Sihorbo, which is a high-grade single vein target that we’re testing with 10 holes to see if we can discover a bonanza shoot there.” 


In the coming weeks, the rigs will move to the Penatapan (which translates to clear view) stockwork target, which would imply a larger deposit of more modest grade than the expected low tonnage, higher grade resource at Sihorbo. 


Drilling at Hutabargot is expected to be completed before the end of Q3 and is taking place concurrently with rigs at the Sihayo 2 target and starter pit, with the latter receiving engineering-type drilling along with geotechnical and hydrology work. 


All hands on deck 


This equates to a hive of activity on-site, with 50 people working diligently at present in the camp, which is located atop a steep hill. “At the moment, there are only two ways to get up the hill; walk or take a helicopter. And we don’t have a helicopter right now,” Moorhead quips. 


Sihayo’s drilling partner is renowned national outfit PT Indodrill, a company which Moorhead has a relationship with going back decades. “As usual, they’ve been excellent, responsive and able to do the task at hand,” he says. Other partners include Intertek (labs), Primero Group (engineering and flow design) and AMC Consultants (mining). 


“We’re now looking to get the starter pit into production, get positive cashflow from that operation and use that to grow the company organically on what is a really prospective piece of ground in Indonesia.” 


Tangible near-term production and exploration upside is the key formula for Sihayo’s long-term prospects in North Sumatra, along with the continuity of its high-quality local partnerships and commitments to sustainable development in line with the stringent ESG requirements of modern mining in Indonesia.