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Epic & Msn data

Epic	FND
Time:	07:30:23
Mid Price:	13.00
Change Today:	0.00
Change % Today:	0.00
Fifty Two Week High:	51.50
Fifty Two Week Low:	13.00
Market Capital:	10.93

Period & price data

Period	Price
Now:	13.00
3 Months ago:	24.50
6 Months ago:	41.50
1 Year ago:	48.50

Additional information

Additional	Information
Market:	AIM, ASX
Sector:	General Mining
News:	Latest news
Web Site:	Finders Resources
Other Articles:	22-12-200815-10-200801-10-2008

Finders Resources: all eyes on Wetar Pilot Plant

by David Rowland

Indonesia: archipelago of 17,508 islands, 234 million people and some 150 volcanoes.  One of the most geologically active places on earth, Indonesia spans 5000km across the western rim of the Ring of Fire, straddling the equator as it does so.

Awareness of the area's profoundly unstable geology was brutally forced on the world by the 2004 Boxing Day tsunami that took approaching a quarter of a million lives.  The whole world now knows this, but few understand that these very same factors make Indonesia indecently rich in natural resources.  Resource companies excepted, that is.  Newmont, BHP Billiton, Freeport McMoRan, Avocet and many others have set up shop there.  To that growing list, add Finders Resources.

Capitalised at just £32.2m, Finders Resources is a small and scarcely known player among the larger outfits but has been around for a number of years.  It owns a 72% stake in two key projects on these islands, one at either end of the archipelago.  In the east is the development stage Wetar copper project.  On the western side is the Ojolali gold exploration project.

Wetar.
Wetar used to be the site of an old Billiton goldmine, but when it was originally mined out, copper was in disfavour and Billiton discarded the deep, principally base metal, sulphide deposits.  However, Kali Kuning houses 6.6MT at an attractive 2.5% copper.  There are also potential bonuses of gold, silver and zinc credits, which could in theory add another 20% to the worth of the copper, dependent upon recovery rates. More testing on the zinc and precious metal credits will be conducted this year. Nearby Lerokis is very similar, but at 3.2MT, about half the size. 

With a total resource of almost 10MT, of which 90% is measured and indicated, Wetar looks to have critical mass.  The strip ratio is miniscule (under 0.6), the ore body tightly defined and the location coastal so transportation presents no problem, not least because of Billiton's old wharf.  The old road system requires some rehabilitation but not a rebuild. 

One of the beauties of this project is that it essentially involves deepening the existing pits rather than digging new ones.  The environmental impact of this virtually tree-free site looks minimal so it was no surprise when the Environmental Impact Control Committee signed Wetar off in January.

Finders envisages a low-cost bacterial heap leach operation with solvent extraction and electrowinning (SXEW) to process the Wetar ore.  Some of the normal technical hurdles remain to be overcome; the usual issues like optimising grind size, heap height, temperature, duration and the like.  However, this coming April the company is setting up a 5t/day pilot plant at a cost of $6.25m.  A feasibility study should follow in the middle of the year, though tuning up the operation will be a work in progress until well into 2009.  At that point, Finders plans to launch the full 20-25,000t/day operation.  Average life-of-mine cash costs are estimated at $0.73/lb.

First equipment is already on-site, with more to follow.  Importantly, key major mine site management personnel have been appointed.  So far, everything is happening on time and on budget.

There is plenty of blue sky potential on Wetar Island.  There are five other known copper-gold targets to explore, besides the potential of the old Kali-Kuning waste dump.

Ojolali.
Ojolali is situated close to the main highway which bisects Sumatra, the main island of Indonesia.  It is therefore an easy step from Jakarta, and sits on a well-known gold belt which to date has been exploited to the tune of 5Moz.

The names to remember at Ojolali are Jambi and Tambang.  Jambi is a low grade oxide gold deposit with inferred resources at of 3.2 Mt at 1.0 g/t Au with a 6.9g/t Ag credit.  Although this amounts to only 100,000 oz of gold, Finders foresees comfortably doubling this resource and creating a 50,000oz per annum, open pit heap leach and/or CIL mine.  The oxide base and near-surface credentials should make this an easy low-cost operation providing nice cashflow from mid-2008 onwards.  The next stage is to upgrade Jambi to Indicated status, which will involve 8000m of drilling with a revised resource expected in April.
 
4km away, Tambang is interesting for its strong silver predominance – silver contributes 80% of the value.  Here, inferred resources amount to 7.9 Mt at 167g/t Ag and 0.7 g/t Au, giving 40m oz of silver and 170,000oz of gold.  In gold equivalent terms, this makes roughly 1m ounces.  Obviously this is considerably larger than Jambi, but awkward metallurgy pushes it into second place for the moment.

The Board.
All of the Board members have impressive CVs involving senior experience with major companies; Outokumpu, CBH resources, ABN Amro, Billiton and Phelps Dodge.

Speaking of Phelps Dodge, Russell Fountain was a former President and Chris Farmer Vice President.  This twosome became respectively Finders' Executive Chairman and Managing Director.  Of particular interest is that Chris Farmer was Senior Geologist with Billiton in Indonesia when the latter was operating Wetar, so he knows the district rather well.

All told, they look to have the clout to put their resource ounces to work, and so far, progress has not disappointed.

Financials.
For a year after the AIM listing in April 2006, Finders trod water within a 20-30p trading range, but last autumn it suddenly sprouted wings and doubled in value.  The summer 2007 ASX dual listing may well have helped.  It has since pulled back to 43p, capitalising the company at £32.2m.

The share structure looks healthy.  Of the almost 75m issued shares, 28% are owned by directors and another 56% by various institutions.  Options add up to just less than 5 million. 

Potential investors need not worry about dilutive share issues.  There will be no need to raise capital for a while.  Fund-raising completed last month brought A$15.8m into the kitty, A$5m of this as a secured loan.  The bulk was raised at around 50p per share in Sterling terms, a premium to the present price.  The last estimate of capex for full production at Wetar was US$68m, but one suspects this will rise…but watch this space, the cost of the pilot plant is expected to be approximately 1/10th of the full scale plant.

Since the vast majority of small miners and development companies are hopelessly undervalued at present, the resources investor is left spoilt for choice.  The art is in spotting the companies with the most absurd valuations.

Hanson Westhouse's thorough broker's note of January 2008 is helpful here.  It assumes delayed start-up of Wetar to 2010, and a discount factor of 10% pa.  Allowing for a variety of parameters, including capex variations and a copper price between $1.50 and $3.00/lb, they assign Wetar a conservative NPV of between 38p and 86p, with upside above £2, and reckon that the most parsimonious base case offers payback within two years.  Ojolali attracts a valuation of 12p per share based on around 5% of the in-ground resource at Jambi and 2% at Tambang.

Risks.
The main operational risk is of poor economics at Wetar.  By the autumn, we should have the feasibility study, but given the positive scoping study in 2006, the company is confident of dispelling market fears. 

Beyond that, political risks are moderate.  Indonesia doesn't have a great human rights record.  Its mining legislation is being redrafted, but few expect draconian changes.  It also remains the best of enemies with Newmont despite the Buyat Bay lawsuit being thrown out. 

Wetar is a remote small island and most importantly, the local Wetar Island community are strongly behind the company and trouble is unlikely for the foreseeable future.

Conclusion.
Finders looks to be a very interesting investment proposition.  If the feasibility is positive at Wetar, re-rating is likely.  Watch this space

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