Agincourt MD open briefing on Martabe project
Friday, July 28 2006 - 12:54 AM WIB
Record of interview: corporatefile.com.au
Agincourt Resources Limited recently announced the purchase of the Martabe Gold and Silver Project in Indonesia from Newmont. What are the key elements of the transaction? What are the implications for Agincourt?
MD Peter Bowler
This is a company transforming transaction for Agincourt. We are effectively paying US$80.25m for 100% of Martabe, A$50m of which will be Agincourt scrip.
An A$100m equity raising was completed to fund the cash component of the acquisition and to take the project through to financial close for project finance.
That?s an acquisition price of less than A$18 per ounce gold equivalent and gives Agincourt immediate access to one of the world?s largest ?development ready? gold and silver projects. Martabe is an excellent opportunity to significantly expand our production profile and gain unhedged exposure to gold and silver. Silver is an important component of the Martabe story and has significant positive impact on operating cash costs and cash flow at the current silver price.
Our project area covers more than 2,500km2, with an initial resource of 5.3 million ounces of gold and 54.8 million ounces of silver as confirmed by RSG Global. This was compiled from interpreting mineralisation data supplied by Newmont.
To date we have been able to obtain an 80% conversion from Newmont?s mineral inventory into a JORC compliant resource. An ongoing review of Newmont?s data is expected to report additions to our resource base in the future.
The inclusion of Martabe has lifted total company resources to more than 7 Moz gold equivalent and our planned exploration work at Martabe, Brazil and Wiluna provides us with a clear platform for growth.
corporatefile.com.au
Why have you chosen to pursue growth opportunities in Indonesia?
MD Peter Bowler
To make the next step in our growth progression we searched globally for a robust development project. Finding Martabe, an exceptional project, in our time-zone and only several hours away by plane, owned by Newmont ? a group we have previously done business with met our key acquisition criteria. Indonesia hosts many successful local and international mining companies.
The economics of the project were immediately apparent because of the low stripping ratio (0.8:1), robust gold and silver grades (2.7g/t gold, 32 g/t silver) and the use of well proven mineral extraction techniques (Merill Crowe CIL).
Our business model indicates that annual pre-tax operating cash flow will be approx US$77m dollars (using base case prices of US$450/oz gold , US$6-8oz silver)
Martabe is covered by a 6th generation Contract of Work, the best form of mineral rights in Indonesia. We are also fortunate to have an Indonesian joint venture partner, the Dharmawangsa Group, who has tangible relationships with all levels of the Indonesian Government.
We also have strong support from all levels of government and local community for the development of this project. This will translate into a mutual benefit for the Indonesian people and AGC shareholders.
corporatefile.com.au
The A$1.15 per share placement to institutions (A$100m) and to Newmont(A$50m) was done at a 23% discount to the Agincourt 30 day VWAP of A$1.49.
Why was it necessary to have such a deep discount and how will you employ the funds?
MD Peter Bowler
We remain convinced it was important to complete this acquisition irrespective of the current volatility within the equity markets. Once shareholders become aware of the highly attractive acquisition price per ounce and the project economics we are confident market support will follow. The funds raised will cover all acquisition and working capital requirements at Martabe, the Bankable Feasibility Study and further exploration drilling on the project. In addition, the funds will be used for the pre-feasibility study at Andorinhas, ongoing exploration work at Wiluna and general working capital.
We also have a share purchase plan underway (Record date: August 7), allowing each shareholder to purchase a total of 4340 shares in Agincourt at A$1.15 per share. This allows our smaller shareholders to participate at the same price as the larger institutions.
corporatefile.com.au
Gold prices since January 1 2006 have averaged above US$600/oz (~A$800/oz).Why did Newmont want to sell?
MD Peter Bowler
Newmont inherited Martabe from its takeover of Normandy Mining in 2002 and after comprehensive review it became apparent Martabe did not meet Newmont?s internal hurdle criteria relating to minimum annual production rates and acceptable NPV to capex ratios. Basically, the annual ounces which Newmont insists on being produced resulted in the capex being prohibitively high compared with other Newmont projects worldwide. We have been able to successfully redesign the plant to produce ~270,000oz of gold annually which results in very attractive economics for Agincourt.
corporatefile.com.au
What are your forecast cash costs at Martabe?
MD Peter Bowler
With a very low strip ratio and straightforward flow sheet we are confident the project can achieve our Base Case cash cost objective of US$165/oz. If we used current silver prices, cash costs would be closer to US$135/oz after taking into account the silver credits.
Further cost improvements may be identified during the Bankable Feasibility Study with positive movements in the silver price likely to reduce our cash cost expectations.
corporatefile.com.au
What is the current working status of the Martabe project? What are your development timeline and production expectations?
MD Peter Bowler
Martabe is a fully staffed exploration and development site. The current design favours a 4 million tonnes per annum plant producing ~270,000 ounces of gold and between ~2.0-2.5 million ounces of silver annually, with an eight year mine life from an open pit operation.
We have the benefit of an extensive amount of data compiled by Newmont on the draft feasibility study, which measurably accelerates our ability to deliver a Bankable Feasibility Study.
The BFS should take 6 months and once project financing has been secured, construction should take around 15 months, meeting our first production target by December 2008.
corporatefile.com.au
In addition to the acquisition costs, the construction and commissioning of the Martabe project is forecast at approximately US$165 million. What funding options are available to you?
MD Peter Bowler
It is likely that a portion of this capital will be met by our Joint Venture partners upon exercising their 30% interest option on the project. The balance will be met through standard project finance arrangements, which may include a favourable debt facility and a silver-only forward sale program.
corporatefile.com.au
Since August 2004, more than 17,000 metres of drilling have been completed, but not yet included, in the global resource at Martabe. How long will it take to deliver an expanded JORC compliant resource incorporating these results? What is the potential size of this unclassified resource? Are there further resource expansion opportunities within the area?
MD Peter Bowler
Outside of this 17,000 metres of drilling, Newmont has delivered to us a mineralised inventory totalling more than 8 million ounces of gold and 85 million ounces of silver. It should take between three and six months to incorporate these additional drilling results into a JORC-compliant resource, which could add at least another 1 million ounces of gold and 10 million ounces of silver.
Additions to near-mine resources, in particular extensions to the pit outline at Baskara, could materially impact our current life-of-mine expectations and extend operational cashflow. Extensive reconnaissance and regional exploration work has also identified a number of prospective targets with similar epithermal-style mineralisation to Martabe. In particular, the Kapur-Gambir/Tegar Hill area has enormous scope for additional resources with rock chip samples returning values up to 182 grams per tonne gold.
corporatefile.com.au
Where are the opportunities within the Martabe project to increase shareholder value?
MD Peter Bowler
Martabe has the ability to develop into a world-class project and is the most significant transaction to date for Agincourt shareholders. The best value-add opportunities will be driven firstly by achieving our development milestones and secondly through further exploration success. At Martabe, there is considerable scope to increase existing resources, in particular from the East Baskara and East Purnama satellite areas, as well as areas north and south along strike from the main orebody.
Martabe combined with our current Wiluna operation (forecast ~120,000ozs gold full year 06-07) and successful ongoing exploration work at Wiluna and Brazil will be the key drivers of future shareholder value.
It is my goal to broadcast this story to our existing shareholder base and the market as a whole to generate genuine interest and excitement in this value accretive acquisition.
corporatefile.com.au
Thank-you Peter. (*)