We were keen to know more about the Company and its activities so we sent a few questions over to Chris Farmer, Managing Director, who was pleased to respond.
MM: It is clear that the current Company focus is the Wetar copper project in Indonesia. Can you provide a brief overview for potential investors as to why this project was selected (in particular covering the financial and/or logistical advantages of operating in Indonesia) and the progress that you feel has been made since commencement of operations?
CF: In the early 90’s, as a young geologist for Billiton, I worked on the Wetar Gold Project. The potential for copper beneath the gold cap were known at the time. When the area became available in late 2004, myself, Russell Fountain (originally involved with the Wetar discovery in the 1980’s) and Gerry Mbatemooy (Billiton’s Indonesian director) applied for tenements which covered the project area. Our attraction, besides the historical links, were the high grade nature of the deposit (2.5% Cu) which is essentially sitting at surface and the coastal location which greatly reduces potential shipping costs (a consistent bane of copper producers). We knew from the outset that finding a processing route to enable sales of a copper project were the projects biggest challenge since studies previously by Billiton indicated that a copper concentrate was poor quality. Hence, our biggest achievement has been unlocking the value of the project by evaluating and proving heap leach technology by means of the demonstration plant which has now been delivering LME grade cathode for the past 18 months.
MM: The Wetar demonstration plant is already producing copper on a small scale, could you briefly outline your plan to bring the Wetar project into full production and the operational steps, including the relevant general and environmental permitting, to achieve this?
CF: We have spent considerable effort optimising the Ausenco feasibility study released in November 2009. To maximise the timing benefits associated with the existing demonstration plant and the 18,000tpa SX-EW purchased from Straits Resources we have a adopted an expansion strategy which has two stages. Stage 1 development comprises the expansion of the existing demonstration plant from 1,800 to 7,000tpa copper cathode. Stage 2 incorporates the bulk of the Whim Creek plant and will increase the capacity to 23,000tpa. This approach has several advantages: firstly, that the time required to complete detailed engineering is now split allowing for a faster but stepped increase in production and secondly, that project finance risk is greatly reduced with what is essentially a brownfields capacity expansion for Stage 1. To this end, detailed engineering for Stage 1 will be complete in a few weeks time and the company is busy reviewing six terms sheets submitted for debt finance.
In late March, we received our full and final environmental permit (covering both stages) which then paved the way to apply for the mining licence. That application is on track and we are in the late stages of that process. There are a number of ancillary licence applications which are also proceeding in parallel.
MM: Ultimately, the ability to operate profitably is a function of cost effective financing, operational grades, sensitivity to the underlying commodity prices, operational costs and project longevity. How confident are you that Wetar is a robust project in these regards and how does the project compare to similar competing operations?
CF: All projects are different and from the technical side it can be quite difficult to compare Wetar with projects with different resources or those at a different development stage. There are a few factors which define the Wetar Copper project as being different from some of our peers. These include its high grade nature with average grades of 2.5% and a low (1:1) strip ratio, the fact that typical operational learning curves have been completed during the 18 months of demonstration plant operation and that the mine life is likely to be extended with at least one satellite deposit known within 2km of the project area. The feasibility study resulted in life of mine average operating costs of around $1.00 per lb Cu, which is about the global average so around 50% of the worlds copper mines are likely to struggle before us in the event of a commodity price collapse and clearly highlights that our profitability is leveraged to copper price performance over the next few years.
MM: The Ojolali gold‐silver project in Sumatra provides additional diversification for the company. Can you give your overall thoughts as to how you would seek to progress this project to generate additional value for shareholders?
CF: Finders’, and I think the markets’ focus, has been on the more advanced Wetar Copper Project which is a reflection on cash flow timing. At Ojolali, we have a potential follow-on project which at this moment comprises a mixture of established prospects with resources and the sort of blue sky exploration value from other named prospects in the tenement block which is harder for the market to assess in terms of value. We have just finished a ~4000m drilling campaign which was designed to identify higher grades at the Jambi oxide gold prospect and evaluate the potential for high grade silver oxide resources at the Tambang prospect. We expect to release these drilling results over the next few weeks and have commenced designing an additional metallurgical test work program which will lead to the completion of preliminary engineering and design studies. We believe that Ojolali has unrealised shareholder value at this stage, particularly compared to other gold projects in Indonesia, and there a number of alternatives available to us to unlock the current or perceived future value.
MM: Taking a longer term view, from your position as Chief Executive, where would you like to see the company in, say, two year’s time?
CF: Obviously in two years time, we are planning to have delivered the Wetar Copper Project to full production, so as a revenue generating company we have more options available to us than currently and need to consider shareholder returns derived from a balance of sustained dividends and growth. To fulfil our objectives we need projects or developments with similar or larger cash flow potential than Wetar. Ojolali may well fit that bill or other pipeline projects which are under assessment.
MM: Are there any aspects of the business that we have not discussed that you would like to bring to investors’ attention.
CF: Finders, as one of the few emerging copper plays, is poised to become a mid-tier producer and has a clear-cut value proposition based on the potential to deliver free cash flow on annual basis approximately equal to the current market cap. Our people have substantial Indonesian experience and close ties to the local community since the 1990’s. The Board has a track record with a mixture of Asian development experience (Rob Thomson), financial/corporate deals (Mike Stirzaker/Stephen de Belle) and in depth corporate/investment skills (Stephen Lonergan/Quinn Roussel).
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