SALAM
HARY$
Dear Sir,
Please find attached a summary of how AVL can work with prospective
partners in Indonesia I hope you can understand this clearly enough,
please feel free to discuss any particular issues with us.
While you have sent through lots of info on various deposits over the
last weeks, it is very difficult from this info to see exactly how
much ore there may be and at what grade with the various owners
perhaps you could discuss the minimum 30,000,000 tonnes of ore at
>1.1% Ni with some of the owners, once we have established this
minimum amount and a willingness to work with AVL we can talk further
hopefully on a visit to Indonesia.
While many owners may be planning smelters the reality of building
these plants will be interesting, as they are expensive to build and
perhaps more importantly require lots of energy to operate, whereas
the heap leach route has a much lower capital cost and generates its
own power when making the sulphuric acid needed in the process.
The development cost spend will depend on the nature of any joint
venture deal and also on the status of the deposit, but one example is
AVL spends 0.5-1.5 M USD to bring a project to PEA in return for 50%
equity in the project. After this all costs are shared 50/50 or the
parties dilute accordingly, there is free carry for any owner.
If owners have funds to spend then the costs could be shared earlier
with AVL earning less of the project.
If owners are interested in further discussions then we'll arrange
some phone calls as a start.
All the best
Hary Setiawan
Action Mining Services Indonesia
( Oregon - Sydney - Surabaya )
QQ PT. Imperium Centrebiz (PTICB)
Pantai Mentari W3, Kenjeran 60000
Surabaya
Telp / Fax : 031.3896159
HP : 0878.52319.717 / 0857.3111.0739
Pin BB : 2A3C85AA
Email : pticbiz@gmail.com
www.mesinemas.blogspot.com
www.indonetwork.co.id/pticb
www.ayobikinhotel.blogspot.com
www.besitua.wordpress.com
www.danainternasional.blogspot.com
FOR
Mark & Anne Oxley
Owner A. Ventures Ltd UK
GSM: +32 474 521xxx
Fax: +32 80 600 xxx
1. Introduction
PT. Imperium Centrebiz
(PTICB) & A. Ventures Ltd (AVL) is focussed on
developing nickel laterite heap leach operations in which it has a direct
ownership; providing the technology, access to funding and a
team experienced in project implementation.
The route to production for a nickel
laterite heap leach is well mapped out but takes time, this is not a “quick
buck” scenario, however the returns are substantial once a project is in
production.
This note sets out in broad terms a
potential project’s characteristics and how AVL and its partner could cooperate
on bringing an Indonesian nickel laterite into profitable production.
2.
Project Scope
The development and operation of an
integrated mining and heap leach nickel laterite project based on a licence(s) on
for example Halmahera or Sulawesi.
·
Minimum size of deposit 30
million tonnes of nickel laterite ore at minimum 1.1% Nickel.
·
Target production level 20 to
25 kt of nickel per annum in a 30+% nickel intermediate product.
·
The product can be sold to
nickel refineries in Australia, Europe and elsewhere, or to Ferronickel
smelters or directly to stainless steel producers
Key components: Mine, heap
leach area, precipitation plant, sulphuric acid plant, port
3.
Preferred status
·
Clean and current title
·
Geological mapping completed
·
At least some drilling or test
pitting
·
Not located in a protected
forest area
·
Ideally with a completed
resource estimate to JORC inferred status
4.
Project Development
Approximate development costs and schedule:
·
Stage 1. Preliminary Economic
Assessment (PEA) US$ 0.5-1.5 M* 6-10 months
·
Stage 2. Pre-Feasibility Study
(PFS) US$ 2-3 M 12
months
·
Stage 3. Bankable Feasibility Study
(BFS) US$ 20 to 40 M 18-24 months
·
Stage 4. Construction & Ramp-up US$ 400 to 600 M 36 months
*M = million
Stage
1 would encompass establishing a JORC inferred
resource and metallurgical test work
Stage
2 is drilling to JORC Indicated, further
metallurgical test work, consultant studies for mining/infrastructure/logistics
etc and start of the Environmental and Social Baseline Study (ESBS).
Stage 3 builds on Stage 2 and is the document used to raise funds from banks and equity to build the project. It includes further drilling for some Measured Resources, conversion to Proven and Probable Reserve, demonstration heaps & plant, completion of EBS and Environmental and Social Impact Assessment (ESIA).
Based on a deposit with 40 million tonnes
at 1.3% Ni an initial estimate of
project attractiveness has been made.
·
Resource base : 40 Mt at 1.3% Ni
·
Life of mine : 15 to 18 years
·
NPV(10) : US$
600 to 800 M
·
IRR : 30%
·
Annual Cash Flow : US$ 160 to 220 M
(all above
assuming a long term nickel price of US$ 8/lb)
6.
Project Valuation
Project value is based on the expected
project NPV and increases as the project moves through development stages.
Typical project valuations by banks and financial institutions are as follows:
Table
1. Value Factors for projects as a percent of NPV10per stage
Project
Stage
|
Value
|
Geological
basis
|
Metallurgical
basis
|
Concept
|
1%
|
Non-JORC geological estimates
|
Initial lab scale
|
Preliminary Economic Assessment
|
4%
|
JORC Inferred Resource
|
Lab scale
|
Pre-Feasibility Study
|
12%
|
JORC Indicated Resource
|
Large lab scale
|
Bankable Feasibility Study
|
50-70%
|
JORC Proven & Probable Reserve
|
Demo plant
|
Permitted and ready to construct
|
100%
|
As above
|
As above
|
While value is added at each stage of study
it is possible that a sale could made at any point after a PFS, the mostly
likely point for sale, or at least involvement of a major partner, would be
after BFS.
Projects with no development plan are
clearly therefore worth less than those where technical and economic studies
for a heap leach have been completed. Similarly the value of a project increase
with the amount of geological work undertaken. For concessions where no study
work has been done, and no professional geological work undertaken, then values
will be very low.
Essentially value and risk are inversely
proportional – the greater the risk or uncertainties, the lower the value.
It is worth considering that typically a
concession with no geological work completed upon it has less than one chance
in a thousand of becoming a profitably operating mine.
7.
Project Structure &Funding
·
AVL would want to “earn-in” to
equity in the company actually owning the licence to a level dependent upon the
financing brought by them.
·
AVL will develop a programme
and budget for the completion of a Preliminary Economic Assessment (PEA)
including required drilling and preparation of a JORC inferred resource. (AVL
currently estimates this would cost US$ 1 to 2 M).
·
AVL will fund all or part of this
cost in exchange for equity in the project holding company.
·
AVL will thereafter manage the
completion of the PEA and each party will fund further work according to their
shareholding or dilute.
·
Thereafter the partners would
prepare the project holding company for Initial Public Offering on an
appropriate stock-exchange (Jakarta, ASX or TSX)
·
The JV Company should then be
valued at 4% of NPV or around US$ 20 to 30 M
·
The JV Company would issue
further shares to fund a PFS and then a BFS.
·
After successful completion of
a BFS the JV Company would raise bank debt and issue new stock to fund the
construction and working capital of the producing project.
Project value at end BFS would be around US$ 300 to 400 M AVL and its partner could elect to contribute further funds in place of attracting some or all of the new equity and would thereby maintain a greater level of participation.
AVL assumes all the initial risk of the
heap leach project until the first metallurgical test work is completed. If for
some reason the results were negative AVL would walk away and our partner would
retain full ownership of the project.
AVL would provide the technical training
and heap leach know-how to the JV team and would mentor the team through each
project stage.
By establishing a flexible funding
structure the partners will be best able to respond to challenges and changes
in the business environment.
In addition, the structure avoids any free
carried interest which has been the cause of many projects failing to reach
production. Instead, project success is defined as its ability to attract
funding at each stage. The more attractive the project, the less dilution
required such that ultimate ownership will be maximised.
Moreover, by setting up a JV Company, the
project will be run by a dedicated team who are focussed solely on the best
interests of the project itself.
8.
Standards and Governance
AVL at all times conducts its work
according to:
·
The highest standards of health
and safety (OHSA)
·
International Finance
Corporation (IFC)’s Policy on Social and Environmental Sustainability, 2006,
including the IFC Performance Standards (PS)
·
The Equator Principles (EPs),
2006
·
International Labour
Organisation (ILO) conventions
·
The technical standards of Canadian
National Instrument 43-101
·
United Nations “Guidance on
Good Practices in Corporate Governance Disclosure”
·
All applicable local laws
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