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 in the final straight as it waits for the go-ahead for Wetar Project
Finders has done all it can to prove the potential of its copper project on the Indonesian island of Wetar
Finders Resources (ASX: FND, LON: FND) has done all it can to prove the potential of its copper project on the Indonesian island of Wetar.
Its demonstration plant produced five tonnes of high quality copper cathode per day that was sold at a premium to the spot price.
Crucially the recoveries from the heap leach were 70% and sometimes as high as 80% before the operation was closed down at the end of last year.
Management, led by managing director Christopher Farmer, plans to bring Wetar into production in two stages, starting at 7,000 tonne per year from the second quarter of next year, ramping up 23,000 tonnes in first quarter of 2013.
Before that, however, it has two hurdles to clear. It has to find an estimated US$130 million needed to finance the project, while at the same time securing the go-ahead for Wetar from authorities.
Finders has lodged formal applications with the various regional and local government departments for a mining licence, which it hopes to receive by the middle of this year.
The only potential wrinkle is that recent regional elections have failed to return a winning candidate, leaving a political vacuum. That said, the interim regime has the power to issue the various permissions needed, analysts say.
The project also requires a forestry permit. “Indonesia differentiates between forests that have protected status and those that do not,” said Joe Lunn, of City broker FinnCap.
“The forests of concern are not protected so we believe it is a question of when, not if, the re-zoning occurs and the forestry permit is awarded.
“We understand that the forestry permit may be issued three months or more after the mining permit.”
It recently took full control of Wetar, which comprises two high grade copper deposits at Kali Kuning and Lerokis with a proved and probable ore reserve of 8.2 million tonnes at 2.5% at 0.5% cut-off grade.
The two are brown-field developments, though there are also a number of other exploration targets elsewhere on the island, including Meron, which is just 1 kilometre from where Finders plans to put the Kali Kuning leach pads.
The Wetar deposits are of the black smoker variety that typically have a black cap surrounded by a copper halo. Billiton mined out the caps at Kali Kuning and Lerokis, but left the copper.
The life of mine operating cost are expected to be US$1.06 per pound, which puts the project right up there with the world’s cheapest producers on a unit cost basis.
This of course is the result of the higher average copper grade, the low waste-to-ore strip ratio and the low cost heap leach flowsheet.
In 2013, FinnCap expects the company to be post EBITDA of US$146 million based on production of 23,000 tonnes of cathode copper at a price of over US$9,230 per tonne.
The figures are just as impressive out to 2016 when the analyst then reverts back to a price of US$6,500 per tonne of copper, which equates to the long-term price of the metal.
The capital cost of developing the fully-fledged Wetar project are put at comparatively modest US$130 million based on a November 2009 feasibilty study by Ausenco. FinnCap expects 60% of that figure will be funded by project finance.
“Finders is confident that sufficient information is available for the banks to conduct due diligence to their satisfaction,” FinnCap’s Lunn said.
“We understand that a number of banks have expressed an interest in project finance and have previously financed other mines in Indonesia so are comfortable with the geopolitical risk.”
The high copper grades, meanwhile, means that Wetar will be strongly free cash-flow generative.
“We estimate that, once the initial capital outlay has been sunk into the project, payback will be in about 12 months assuming current copper prices,” Lunn adds.
“We have assumed a relaxed debt repayment schedule over five years at an interest rate of 8%.”
Finders also owns a 72% stake in the Ojolali project in Sumatra with an initial resource of 175,000 ounces of gold oxide and plenty of exploration upside.
However, the current price of $0.43 a share in London fails to fully recognise the worth of the copper, let alone the gold assets.
The stock is currently valued at less than 0.4 times net asset value. FinnCap’s Lunn reckons Finders should be trading at closer to 0.8 times NAV, or $0.77 per share.
The analyst reckons the copper assets alone are worth $0.67, and Ojolali $0.05, leaving another $0.05.
“We continue to believe that Wetar is one of the best undeveloped copper projects in the world,” Lunn added.
