Finders Resources Limited
www.findersresources.com
www.findersresources.com
Finders is an emerging low cost copper cathode producer, developing a high grade 25,000 tpa copper mine on Wetar Island in Indonesia, plus a highly prospective, advanced gold-silver exploration project in Sumatra.
Finders Resources – Indonesia’s first heap leach copper cathode producer
Back in 2004, three men with long experience of exploration and mining in Indonesia formed Finders Resources to take advantage of the opportunities which proliferate in this mineral-rich island archipelago.
Russell Fountain, Chris Farmer and Ian Neuss chose an exhausted gold mine on Wetar Island as their first project. Because under the mined-out gold lay millions of tonnes of copper-bearing sulphide ore....
Nearly five years on, two of the same three men have reinforced their commitment to the project. Piggy-backed onto a 3-year convertible loan facility with major shareholder Resource Capital Fund for US$1.5 million, directors have lent a further AU$700,000 to their company, thus satisfying short-term funding needs brought about by unfavourable exchange rates and current market uncertainty.
Wetar has been a particularly interesting project for Finders. Once the Contract of Work was terminated after approval of the closure program related to Billion Indonesia’s gold mining activities in 2004, an Exploration KP licence was acquired by Finders, in cooperation with its Indonesian partner, PT Batutua Kharisma Permai (“BKP”). It is a relatively rare type of subsea "smoker" deposit, comprising gold bearing barite sand (white smoker) overlying copper bearing massive pyrite (black smoker). Two open pits had extracted the gold at Kali Kuning and Lerokis, exposing the sulphide ore below. The upper level of copper ore has been subject to a degree of weathering and leaching, with a transitional layer separating it from the primary sulphide ore further down. Within the two pits, the JORC compliant copper resources are very high grade and are basin shaped, ideal for continued open pit mining, and now total 218,000 tonnes of copper, 98% of which is measured and indicated, in 8.8 million tonnes of sulphide ore grading 2.4%. The company are optimistic that the resource will convert almost totally to reserve, as it lies within planned pit outlines.
The copper had been drilled by Billiton in the early 90’s, as the gold operation was winding down, but they considered it uneconomic at the time, based on their chosen process route of flotation to concentrate and then bio-oxidation. Billiton didn't consider leaching, as the deposit was thought to be largely chalcopyrite, which does not normally respond well. However, re-assaying of the entire resource base in 2006 showed that almost three quarters of the copper at Kali Kuning, and 45% of the copper at Lerokis was hosted by readily leachable copper minerals, largely covellite and chalcocite.
This opened up a whole new ballgame at Wetar, as leaching of chalcocite is well understood world-wide, and can give recovery rates of 80-90% of the contained copper. Although copper concentrate production was not initially ruled out by Finders, a wide ranging programme of leach testing at laboratory scale has been undertaken, on both chalcocite and chalcopyrite. The conclusion was that leaching was technically viable, and more than 85% of the contained copper at Kali Kuning and Lerokis could be recovered economically. This led to a decision in 2007 to adopt a bacterial leaching process for the treatment of the Wetar ores, followed by solvent extraction/electro winning (SXEW).
But lab tests are only lab tests, and although tests were undertaken at column heights of 1-3.8m high, the operating parameters that must be determined in order to build and equip a successful mine at commercial heap heights are subject to variously accurate extrapolations. So Finders took the decision to build a demonstration process plant at Wetar as part of the final feasibility study, at a cost of US$8 million, including approximately $2m for a crushing circuit which now has proven 125tpd capacity. The plant is about one-tenth scale of the eventual full-size commercial plant, and comprises a 100,000 tonne bacterial heap leach feeding an SXEW plant rated to produce 5 tonnes per day of copper cathode. The intention is to operate the demonstration facility in line with the expected parameters of the full scale operation, so that accurate data can be derived from operations for the DFS. Originally scheduled to commence in mid-2008, operations at the demonstration plant were delayed for some six months beyond target by supply and logistical difficulties - which also led to a cost over-run of US$2 million - but by the end of December 2008, 21,000 tonnes of ore had been stacked on the first leach pad and the second pad was in progress.
On 6th February, Finders announced that plating had commenced at the SXEW plant, and bar a few days' interruption because of a defective component, has continued to operate ~16% above the nameplate capacity of 5 tonne copper cathode per day. This week brought another important milestone for the company with the maiden shipment of 61 tonnes of copper cathode. The intention is to operate the demonstration plant for some 15 months, to produce 1900 tonnes of copper cathode at a cost of under $1 per lb. The operation will thus provide useful cash flow for Finders, although at today’s depressed prices, somewhat lower than originally planned. If the anticipated recovery in copper prices occurs during the second half of 2009 and through 2010, the outlook is far rosier. All copper output from the demo plant, as well as 10% of the output from the main project, is spoken for by an offtake agreement with major shareholder Tennant Metals Pty Ltd, who – along with Meridian International Capital Ltd – provided US$5 million towards the funding for the demonstration facility. This is repayable at the end of 2009.
In the meantime, depending on the final outcome of the DFS, and the securing of appropriate project finance, a full-size plant will be constructed to produce 20,000 tonnes of copper cathode per year from mid-2010 over a ten to twelve year minelife. The company’s current pre-DFS estimates include capex in the region of US$75 million, although the availability of good-quality second hand process plant and equipment could reduce this significantly to around US$52 million. Operational costs will remain low: direct mining/processing/site costs are forecast to be US$0.65 per lb, whilst total production costs, which also include D&A, royalties, central administration and interest costs, will be around US$0.95 per lb. Finders anticipate completing the DFS by mid-year, and then going into the market for project finance after the project is fully permitted.
The company has plenty of positives in its favour:
- Wetar is be the first heap leach copper cathode producer in Indonesia, and as such, is aligned with the new Mining Law which includes a focus on “in country” metal production and the government royalty will remain unchanged at 4%.
- The awarding authorities for future permits within Indonesia are the same bodies which have worked closely and in support of the project since its inception, including award of the environmental permits required for the demonstration phase and permitting arrangements,
- Wetar is currently 92% attributable to Finders, and if they continue to sole-fund the project through to completion of the commercial plant, this will rise further, although a 5% net profit royalty will be payable to local partner BKP.
- Finders has strong board ownership, with almost 24% of the company in the hands of directors. Major shareholders are also very supportive, having provided loan facilities and equity funding as and when required.
- The company has other prospects, including epithermal gold in Sumatra, although in the current financial climate, non-essential expenditure has been reduced to a minimum and all resources are directed at Wetar.
So what’s it worth? As shown by current analysts’ dramatically different DCFs, calculating fair value on an earnings basis is inaccurate until the DFS gives clear guidance on capex, costs, revenue and – most importantly – a production start-up date. Reverting to the tried and tested rule of thumb for valuing resources in the ground, Wetar’s measured and indicated resource of 218,000 tonnes of copper could be fairly valued at 10% of the in-situ worth, particularly given the simple mining and processing route, high copper grade and low op costs. At today’s copper price of US$3,300 per tonne, that suggests a resource value of £50 million.
Today you can buy it for ten….
Russell Fountain, Chris Farmer and Ian Neuss chose an exhausted gold mine on Wetar Island as their first project. Because under the mined-out gold lay millions of tonnes of copper-bearing sulphide ore....
Nearly five years on, two of the same three men have reinforced their commitment to the project. Piggy-backed onto a 3-year convertible loan facility with major shareholder Resource Capital Fund for US$1.5 million, directors have lent a further AU$700,000 to their company, thus satisfying short-term funding needs brought about by unfavourable exchange rates and current market uncertainty.
Wetar has been a particularly interesting project for Finders. Once the Contract of Work was terminated after approval of the closure program related to Billion Indonesia’s gold mining activities in 2004, an Exploration KP licence was acquired by Finders, in cooperation with its Indonesian partner, PT Batutua Kharisma Permai (“BKP”). It is a relatively rare type of subsea "smoker" deposit, comprising gold bearing barite sand (white smoker) overlying copper bearing massive pyrite (black smoker). Two open pits had extracted the gold at Kali Kuning and Lerokis, exposing the sulphide ore below. The upper level of copper ore has been subject to a degree of weathering and leaching, with a transitional layer separating it from the primary sulphide ore further down. Within the two pits, the JORC compliant copper resources are very high grade and are basin shaped, ideal for continued open pit mining, and now total 218,000 tonnes of copper, 98% of which is measured and indicated, in 8.8 million tonnes of sulphide ore grading 2.4%. The company are optimistic that the resource will convert almost totally to reserve, as it lies within planned pit outlines.
The copper had been drilled by Billiton in the early 90’s, as the gold operation was winding down, but they considered it uneconomic at the time, based on their chosen process route of flotation to concentrate and then bio-oxidation. Billiton didn't consider leaching, as the deposit was thought to be largely chalcopyrite, which does not normally respond well. However, re-assaying of the entire resource base in 2006 showed that almost three quarters of the copper at Kali Kuning, and 45% of the copper at Lerokis was hosted by readily leachable copper minerals, largely covellite and chalcocite.
This opened up a whole new ballgame at Wetar, as leaching of chalcocite is well understood world-wide, and can give recovery rates of 80-90% of the contained copper. Although copper concentrate production was not initially ruled out by Finders, a wide ranging programme of leach testing at laboratory scale has been undertaken, on both chalcocite and chalcopyrite. The conclusion was that leaching was technically viable, and more than 85% of the contained copper at Kali Kuning and Lerokis could be recovered economically. This led to a decision in 2007 to adopt a bacterial leaching process for the treatment of the Wetar ores, followed by solvent extraction/electro winning (SXEW).
But lab tests are only lab tests, and although tests were undertaken at column heights of 1-3.8m high, the operating parameters that must be determined in order to build and equip a successful mine at commercial heap heights are subject to variously accurate extrapolations. So Finders took the decision to build a demonstration process plant at Wetar as part of the final feasibility study, at a cost of US$8 million, including approximately $2m for a crushing circuit which now has proven 125tpd capacity. The plant is about one-tenth scale of the eventual full-size commercial plant, and comprises a 100,000 tonne bacterial heap leach feeding an SXEW plant rated to produce 5 tonnes per day of copper cathode. The intention is to operate the demonstration facility in line with the expected parameters of the full scale operation, so that accurate data can be derived from operations for the DFS. Originally scheduled to commence in mid-2008, operations at the demonstration plant were delayed for some six months beyond target by supply and logistical difficulties - which also led to a cost over-run of US$2 million - but by the end of December 2008, 21,000 tonnes of ore had been stacked on the first leach pad and the second pad was in progress.
On 6th February, Finders announced that plating had commenced at the SXEW plant, and bar a few days' interruption because of a defective component, has continued to operate ~16% above the nameplate capacity of 5 tonne copper cathode per day. This week brought another important milestone for the company with the maiden shipment of 61 tonnes of copper cathode. The intention is to operate the demonstration plant for some 15 months, to produce 1900 tonnes of copper cathode at a cost of under $1 per lb. The operation will thus provide useful cash flow for Finders, although at today’s depressed prices, somewhat lower than originally planned. If the anticipated recovery in copper prices occurs during the second half of 2009 and through 2010, the outlook is far rosier. All copper output from the demo plant, as well as 10% of the output from the main project, is spoken for by an offtake agreement with major shareholder Tennant Metals Pty Ltd, who – along with Meridian International Capital Ltd – provided US$5 million towards the funding for the demonstration facility. This is repayable at the end of 2009.
In the meantime, depending on the final outcome of the DFS, and the securing of appropriate project finance, a full-size plant will be constructed to produce 20,000 tonnes of copper cathode per year from mid-2010 over a ten to twelve year minelife. The company’s current pre-DFS estimates include capex in the region of US$75 million, although the availability of good-quality second hand process plant and equipment could reduce this significantly to around US$52 million. Operational costs will remain low: direct mining/processing/site costs are forecast to be US$0.65 per lb, whilst total production costs, which also include D&A, royalties, central administration and interest costs, will be around US$0.95 per lb. Finders anticipate completing the DFS by mid-year, and then going into the market for project finance after the project is fully permitted.
The company has plenty of positives in its favour:
- Wetar is be the first heap leach copper cathode producer in Indonesia, and as such, is aligned with the new Mining Law which includes a focus on “in country” metal production and the government royalty will remain unchanged at 4%.
- The awarding authorities for future permits within Indonesia are the same bodies which have worked closely and in support of the project since its inception, including award of the environmental permits required for the demonstration phase and permitting arrangements,
- Wetar is currently 92% attributable to Finders, and if they continue to sole-fund the project through to completion of the commercial plant, this will rise further, although a 5% net profit royalty will be payable to local partner BKP.
- Finders has strong board ownership, with almost 24% of the company in the hands of directors. Major shareholders are also very supportive, having provided loan facilities and equity funding as and when required.
- The company has other prospects, including epithermal gold in Sumatra, although in the current financial climate, non-essential expenditure has been reduced to a minimum and all resources are directed at Wetar.
So what’s it worth? As shown by current analysts’ dramatically different DCFs, calculating fair value on an earnings basis is inaccurate until the DFS gives clear guidance on capex, costs, revenue and – most importantly – a production start-up date. Reverting to the tried and tested rule of thumb for valuing resources in the ground, Wetar’s measured and indicated resource of 218,000 tonnes of copper could be fairly valued at 10% of the in-situ worth, particularly given the simple mining and processing route, high copper grade and low op costs. At today’s copper price of US$3,300 per tonne, that suggests a resource value of £50 million.
Today you can buy it for ten….
