Special Situation February 2013 Update

Transcription

1 Goldletter I N T E R N A T I O N A L the international independent information and advice bulletin for gold and related investments Special Situation February 2013 Update Sumatra Copper & Gold (A$ 0.22) ASX : SUM H+L prices (12 months) : A$ Net shares issued shares Fully diluted shares: Market Capitalization : million : million : A$ 55.6 million Next price target: A$ 0.50 Company profile Sumatra Copper & Gold ( Sumatra ) is an emerging producer and minerals exploration company with 100% ownership of 7 exploration licences covering 3,219 km² in Central Sumatra, Indonesia. The Company s projects are located in the central and southern parts of Sumatra, a region known for substantial mineral endowment where more than 3 million ounces of gold and 25 million ounces of silver are reported to have been produced. Sumatra has 3 principal projects comprising two gold-silver projects (Tembang and Tandai) that were previously in production and a third project, Sontang, which is a Greenfield discovery (gold, silver, lead, zinc and copper). On April 10, 2012, Sumatra announced a JORC compliant Ore Reserve of 513,000 ounces gold equivalent for Tembang. The ore reserve is based on the Mineral Resource published in August This followed on a 5,618 metre infill drilling program with a total combined resource of 22.6 million tonnes containing 976,000 ounces of gold at a grade of 1.35 g/t gold and million ounces of silver at a grade of 17.6 g/t silver being defined. 73% of the Measured and Indicated vein Mineral Resource has been converted into the Reserve category, further strengthening the Tembang Project s robust economics and on track for production in the first half of On December 18, 2012, Sumatra announced the granting of the In-Principle Borrow and Use permit or Pinjam Pakai signed by the Minister of Forestry and is targeting the final Pinjam Pakai to be granted late first quarter The tenure of Indonesia s Borrow and Use Forestry Permits are now used for 5 years rather than 20 years as was the prior case. Goldletter International 1 Special Situation February 2013 Update

2 Sumatra has found significant gold mineralization at Tandai, which has a historic high-grade production of 1.4 million ounces gold. Under a joint venture with Newcrest Mining, Sumatra is currently exploring the Tandai Project (30% Sumatra 70% Newcrest). Newcrest has already met its minimum expenditure portion of US$ 1.75 million and has an option to earn a 70% interest by spending US$ 12 million over 5 years. Overview of Projects Tembang Gold-Silver Project, Central Sumatra 100% owned A two-stage development plan for Tembang was announced in October The plan allows for reduced up-front capital costs and a shorter lease time to production. Since then Sumatra has been pursuing a parallel strategy of completing the Definitive Feasibility Study and the permitting of the Tembang Project. To this end, the Belinau underground Pre-Feasibility Study ( PFS ) was announced in February 2012 and the approval of the Environmental Impact Assessment and Environmental Management Plan ( AMDAL ) in April The initial Stage 1 production plan is a low-cost, high-grade operation, targeting 200,000 to 400,000 tonnes per annum. In February 2012, Sumatra announced that the PFS for Stage 1 for the Tembang Project, consisting of the Belinau Deposit, and comprising about 13% of the total Project, has delivered a positive outcome and the remaining resource base to be developed during Stage 2 of Tembang. In September 2012, Sumatra announced the completion of the Definitive Feasibility Study (DFS ) for Stage I and the completion of the PFS for Stage 2. Stage 2 significantly improves the total Tembang Project economics and increase the scale of the operation and will be primarily funded from cash flow from Stage I profits. Goldletter International 2 Special Situation February 2013 Update

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6 PROCESSING The processing plant design will utilize conventional Carbon-in-leach process technology which was operated successfully in the previous mining operation. The location proposed for the new processing plant is at the previous plant site location, which will be re-commissioned for the first year s production. A metallurgical test work program has been completed with results confirming previous recoveries at +90% gold and +80% silver, amenability to SAG milling, low reagent consumptions and a high gravity recoverable gold component. Goldletter International 6 Special Situation February 2013 Update

7 Tembang Permitting Update On December 18, 2012, Sumatra announced the granting of the In-Principle Forestry Licence for the Tembang Project which outlines the key conditions that need to be met prior to the approval of the final Borrow and Use permit ( Pinjam Pakai ) and is a crucial milestone for the development of the Tembang Project. The In-principle Pinjam Pakai letter signed by the Minister of Forestry outlines the following steps to be taken by Sumatra prior to the granting of the final Pinjam Pakai, namely: The completion of the baseline survey for the Borrow and Use area The payment to the Forestry Department for any trees that may be used during the Borrow and Use period The adjustment and finalization of the Forestry rehabilitation Work Plan which is dependent on the base line survey The appointment of a Forestry Policy Advisor The notarization of all formal documents for the Pinjam Pakai Permit The base line survey will include the delineation of the Pinjam Pakai boundary and an inventory of forestry contained therein. This work survey and the inventory compilation for forestry under the supervision of a technical inspection of Forestry Planning is already underway. Sumatra expects to complete all activities for the submission of the final Borrow and Use permit or Pinjam Pakai in early 2013 and is targeting late first quarter 2013 for the granting of the final Pinjam Pakai. The Tembang Project is on track for production during Goldletter International 7 Special Situation February 2013 Update

8 Tandai Project Newcrest Joint Venture The Tandai Project is located within the northern part of Benkulu Utara IUP, in the Kabupaten of Benkulu Utara, approximately 100 kilometres north Bengkulu. Tandai has a long history of formal mining from the early part of the 20 th century post World War II. Sumatra s tenements control a district in which at least three Dutch companies worked portions of the system. The old Dutch mining town at Tandai still remains, and was re-furbished by PT Lusang Mining (in a joint venture with CSR, then Billiton) when the mine was redeveloped and worked between 1985 and Under the arrangements agreed with Newcrest Mining of Australia in August 2010, Newcrest has the right to earn a 70% interest in the Tandai tenement by spending US$ 12 million on the Tandai Project over 5 years. In the December quarter of 2011, Sumatra s exploration activities have been focusing on diamond drilling at the highly promising Lusang North prospect, as well as the continuation of the Phase II drilling program targeting areas derived from the CSAMT ground geophysics. A total of 7 holes have been completed for a total of 2,205.8 metres during the quarter. The Phase I systematic regional exploration program of the whole tenement is now complete with several coherent multi point anomalies identified which have returned values up to 278 ppb gold in stream sediments and bulk leach extractable gold results of up to 127 ppb gold. Rock assays of up to 9.05 g/t gold have also been returned. This program has been successful in generating a prospect area named Ulukau, which is located approximately 10 kilometres south-southeast of Tandai. This prospect was first identified during the regional sampling program with three outcrop samples returning assays of 1.53 g/t gold, 2.81 g/t gold and 3.72 g/t gold. Lusang North & Ulukau Prospect Goldletter International 8 Special Situation February 2013 Update

9 Hole TDD was designed to test the down dip extension of the high-grade Lusang North prospect. TDD intersected a total of 6 significantly mineralised zones of multiphase base metal rich vein breccias with the best intercept of 21.0 metres grading 4.74 g/t gold and 36.2 g/t silver from a depth of 85.9 metres, including 1.9 metres grading g/t gold and 28 g/t silver from a depth of 91.3 metres. Results from TDD were equally as good as from TDD 11024, despite the width and intensity of brecciation being not as strong. Seven zones of significant mineralization were encountered with the best intercept of 4.0 metres grading 20.0 g/t gold and 19.5 g/t silver from a depth of 31 metres, including 2.1 metres grading 37.0 g/t gold and 35.6 g/t silver from a depth of 32.9 metres. With Sumatra continuing to maintain an aggregate district scale intension program testing a combination of geophysical, geochemical ad geological targets, particular emphasis will be placed on step-out drilling at Lusang North. Ulukau Prospect The Ulukau prospect is located approximately 10 kilometres south-southeast of Tandai. This prospect was first identified during the regional sampling program with three outcrop samples returning assays of 1.53 g/t gold, 2.81 g/t gold and 3.72 g/t gold. A follow-up mapping and sampling program commenced in mid-december The program to date has comprised of tape and compass surveying, detailed geological mapping, rock outcrop and channel sampling. Cutting of grid lines for a grid based soil sampling and ground magnetic survey is ongoing. The Ulukau prospect will be advanced towards drill status, should results warrant, at the same time as maintaining follow-up of the best exploration targets from the IUP wide regional exploration program. The target for 2012 was to drill out one new mineralised vein system and to identify one new green discovery and drill test it at a budget for of A$ 4.3 million. Goldletter International 9 Special Situation February 2013 Update

10 In the third quarter of 2012, exploration activities have focused on drilling and exploration of the Ulukau Prospect. Several holes completed during the quarter for a total of 1,594.3 metres (UDD ). Final results for the first four holes were also received, UDD yielded the highest result of 0.7 metre at 2.95 g/t gold and 5.7 g/t gold from 6.5 metres down hole. A 2.45 metre composite for this hole from 5.75 metres returned 1.40 g/t gold and 3.6 g/t silver. The drilling program was concluded in November A total of 3,110.9 metres was drilled in 12 holes. Final results were received from all holes. UDD returned the highest result of 1.4 g/t gold and 2.19 g/t gold from 47.4 metres to 49.0 metres. Regional reconnaissance and follow-up sampling was completed in the northern block. In the southern block, a new target area was outlined at S9/Asa Prospect. Preliminary results of all samples collected in this area gave highly encouraging results ranging from 0.88 g/t gold to as high as 10.5 g/t gold. Sontang Project Sumatra s wholly-owned Sontang Project is located approximately 160 kilometres north of Padang, within the Pasaman IUP. Sontang comprises the virgin discovery of a high-grade polymetallic manta, made by the Company s geologists in ground previously explored by other companies. Systematic exploration, including stream sediment sampling, mapping and ridge and spur soils have been used to better define the zones of anomalous gold mineralization in the Simpang Godang area (Barilos area) in the south west part of the licence. Although quartz veins have been found on the area, with float samples to 1.4 g/t gold and 39 g/t silver, Sumatra has yet too locate significant in-situ mineralization. However, a large area of gold anomalous soils have been discovered in the headwaters of the main drainage. These discoveries will be followed up by ongoing exploration work to locate the high-grade epithermal gloat, running up to g/t gold and g/t silver. Sumatra is well advanced in the process of selecting a joint venture partner to assist in exploration of the Sontang Property and the Northern IUPs of Kotanopan and Mandailing Mining. Strong interest has bee registered by a number of exploration and mining companies. Management Warwick George Morris BSc (Hons), MSc, MAusIMM, Non-Executive Chairman, has more than 30 years experience in the resources industry. He was recently an executive director of Macquarie Bank, where he was Chairman of the Metals and Energy Capital Division and head of Metals and Mining. Julian Ford BSc(Eng), BCom, Grad Dip (Bus. Mgt), Managing Director, has more than 25 years within the global resources industry. He has held senior positions within several major resource companies including Alcoa, British Gas London and Western Metals and co-founded Zambezi Resources in Don Harper B.Eng (Mining Engineering), B.Surv (Surveying), Chief Operating Officer, is a qualified mining engineer with more than 21 years industry experience in the mining industry. He has extensive senior operational, engineering and project management experience; most of this in Indonesia. Prior to Sumatra Mr. Harper was COO of ASX-listed Tanami Gold. Goldletter International 10 Special Situation February 2013 Update

11 Graeme Smith, BEc, Bachelor of Economy, Master of BA, Chief Financial Officer and Company Secretary, is a finance professional with more than 25 years experience in accounting and company administration. He has held CFO and Company Secretary roles with a number of Australian and overseas mining companies and is part of DW Corporatre, an independent corporate advisory firm focused on the natural resources, energy and mining sectors. Matthew Charles Farmer, BSc, MAusIMM, Exploration Manager, is a British National and graduated with a Bachelor of Science in Geology from the University of Auckland New Zealand. Matthew is a member of the Australian Institute of Mining and Metallurgy and the Society of Economic Geologists (USA). Matthew has over 28 years experience in exploration and mining mostly focused in South East Asia. His experience spans a mix of major and junior companies including BP Minerals, Newmont, and more recently Tiberon Minerals and Triple Plate Junction. Adi Sjoekri Bsc Msc, MBA (Management), Director of Government Liason, Permitting and Forestry, Funder of Sumatra in 2006, has over 17 years corporate experience, working for major companies such as CSR and Newmont. More recently, he was a consultant for the mining industry. Jocelyn Severyn de Warrenne Waller MA (Hons) (Cantab), Non-Executive Director, co-founded Sumatra in Prior to this was CEO of Trans Siberian Gold plc, an AIM listed company which Mr. Waller established in He currently also serves as a Non-Executive Director of RusAnt, an unlisted company that is developing an antimony mining project in Siberia. Grant Harding, BSc (Hons) Geology, MAusIMM, FGS, General Manager Projects, has over 27 years experience in exploration and mining mostly focused on South East Asia. His experience spans a mix of major and junior companies including BP Minerals and Newmont. Ali Ahmid, General Manager Environment and Community Relations, BTEC (Chemistry), M.EnvMgm, is responsible for local and regional Government liaison, environmental compliance, liaison and communication with communities. He has over 20 years experience in the mining industry and previously 15 years at Kelian Gold Mine with Rio Tinto. Sahabuddin (Budin) Umar, General Manager Tembang B.Env (Science), B.Eng (Geology), MAusIMM is responsible for all activities at the Mine Site including Mining, Process, Environment, Community and Administration activities. He has more than 30 years experience in the industry as a Mining Geologist. Finance In April 2012, Sumatra announced the execution of a convertible debt finance facility for A$ 5 million, with Macquarie Bank to progress its wholly-owned Tembang Project. As part of the facility fee, Sumatra will issue Macquarie million options, each to acquire one CHESS Depository Interest ( CDI ) in the Company at A$ 0.16 per CDI at any time within 2 years of the date of issue to Macquarie. A further 5.7 million options were issued to Macquarie as part of the facility fee. In August 2012, Sumatra entered into an agreement with Provident Capital Partners, a local private equity group, for 28 million ordinary shares at A$ per share, and Provident to be granted an additional 40 million conditional purchase options. On December 12, 2012, Sumatra announced that Provident Capital had provided notice that it intended to exercise the call option in full at Cdn$ 0.14 per CDI for proceeds to the Company of A$ 5.6 million. In addition, having acquired Newcrest s interest in Sumatra, Provident has increased its holding in the Company to 26%. On February 21, 2013, Sumatra announced that it has received credit approval from Credit Suisse for US$ 30 million in senior debt finance facilities to fund the commercial development of the Tembang Project. In addition, Credit Suisse will provide up to US$ 5 million of cost overrun funding. Goldletter International 11 Special Situation February 2013 Update

12 Investment recommendation: Sumatra Copper & Gold ( Sumatra ) is an emerging producer and minerals exploration company with 100% ownership of 7 exploration licences covering 3,219 km² in Central Sumatra, Indonesia. Sumatra s projects are located in the central and southern parts of Sumatra, a region known for substantial mineral endowment where more than 3 million ounces of gold and 25 million ounces of silver are reported to have been produced. The Company has 3 principal projects comprising two gold-silver projects (Tembang and Tandai) that were previously in production and a third project, Sontang, which is a greenfield discovery (gold, silver, lead, zinc and copper). The JORC mineral resource for Tembang was further defined in August 2011 following a 5,618 metre infill drilling program. The Project has a total combined resource of 22.6 million tonnes containing 976,000 ounces of gold at a grade of 1.35 g/t gold and million ounces of silver at a grade of 17.6 g/t silver. In April 2012, Sumatra announced a JORC compliant Ore Resource of 513,000 ounces gold equivalent for Tembang, based on the published mineral resource. 73% of the Measured and Indicated vein mineral resource has been converted into the Reserve category, further strengthening the Tembang Project s robust economics and on track for production in the first half of In September 2012, Sumatra announced the completion of the DFS for Stage I and the completion of the PFS for Stage 2, which improves the total Tembang Project economics and increases the scale of the operation. Total Tembang Project gold production after Stage 2 is estimated at 395,000 ounces of gold and 4.83 million ounces of silver at a cash operating cost of US$ 431 over a mine life of 8 years. On December 18, 2012, Sumatra announced the granting of the In-principle Borrow and Use permit or Pinjam Pakai signed by the Minister of Forestry and is targeting the final Pinjam Pakai to be granted late first quarter Under a joint venture with Newcrest Mining, Sumatra is currently exploring the Tandai Project (30% Sumatra 70% Newcrest). Newcrest has already met its minimum expenditure portion of US$ 1.75 million and has an option to earn a 70% interest by spending US$ 12 million over 5 years. Sumatra has found significant gold mineralization at Tandai, which has a historic high-grade production of 1.4 million ounces gold. Based on the estimated net operating cash flow of US$ 71 million for the Stage I Belinau Deposit, which represents only 13% of the Tembang resource and Newcrest to spend US$ 12 million over 5 years on developing the Tandai Project to earn a 70% interest, in our view, at a current market capitalization of just A$ 55.6 million, Sumatra is strongly undervalued. We have increased our next price objective from A$ 0.40 to A$ Goldletter International 12 Special Situation February 2013 Update

13 Indonesia Indonesia is an archipelago of more than 17,000 islands straddling the equator in south-east Asia, with Sumatra located in the north-west end. A developing nation with an estimated population of more than 240 million people, making it the world s fourth most populous country, Indonesia s GDP per capita is around US$ 4,400 per annum. Indonesia is a republic with a democratically elected President who is both chief of state and head of government. Indonesia, South Asia s largest economy, outperformed its regional neighbours and joined China and India as the only G20 members posting growth during the global crisis. In the September 2012 quarter the economy expanded by 6.2%. The government has significantly reformed the financial sector, made changes to tax and customs, introduced the use of Treasury bills and improved capital market development and supervision. Indonesia s debt-to-gdp ratio in recent years had declined steadily because of increasingly robust growth and sound fiscal stewardship. Canada s Fraser Institute ranked Indonesia as the 4 th most mineralised region in the world, stating `Indonesia has some of the best geological prospectivity in the world and offers great potential for future exploration and development work``. Indonesia was ranked the world s 8 th largest gold producer in 2011, with production at around 100 tonnes. Indonesia is home to one of the world s largest gold mines, Freeport-McMoran Copper & Gold s Grassberg operation in Papua, where gold production is a by-product of copper mining. Other significant mining operations include Newmont Mining s Batu Hijau copper-gold mine in West Sumatra, and Newcrest s Gosowong gold mine in Halmahera Island. Many international mining companies have returned to Indonesia in recent times due to the improved exploration, investment and mining environment, including G-Resources, Kingsrose Mining, Sihayo Gold, East Asia Minerals, Intrepid Mines, Robust Resources and Finders Resources. With economic growth having slowed this year and increasing dependence on the commodity sector being hurt by slumping commodity prices and slower demand from China and India, Indonesia has issued a number of regulations, including an export tax on raw minerals, and might lead to requiring foreigners to reduce their stakes in the mining sector and other protectionist measures, but the country to remain mining friendly towards foreign investments. A new Ministerial decree (Minister of Forestry)-Permenhut No.38/2012, dated September 28, 2012, now has specific and detailed time constraints and is a cloud based process with online access to the public for review at Sumatra is applying for the permit under the 100%-owned subsidiary PT Dwinand Nusa Palapapa Sejahtera. The Ministerial Decree also stipulates that tenure of the Borrow and Use Forestry permits are now issued for 5 years rather than 20 years as was te prior case. This is to encourage and facilitate a continuous rehabilitation of disturbed ground rather than to wai until the end of a project befoe rehabilitation commences. The renewal of Forestry permits every 5 years will be carried out and approved by the Director General of Forestry. Lastly, the Decree also requires all mining companies operating within a Forestry approved Pinjam Pakai to employ a technically qualified Forester. Sumatra is one of the largest islands in the Indonesian archipelago and has a long history of gold mining dating back to the time of Indian trading activity approximately 1,000 years ago. Under Dutch administration, Indonesia s largest gold mines were underground operations on the high-grade Daniok and Tandai epithermal vein deposits in Sumatra. The majority of the precious metals production from the area was by Dutch companies, dating from the early 1900s until the Japanese occupation of Sumatra in 1942, with approximately 3.0 million ounces of gold and 25.0 million ounces of silver reported to have been produced. Goldletter International 13 Special Situation February 2013 Update

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15 Goldletter International, incorporated in France Postal address: P.O. Box 76988, 1070 KG Amsterdam, the Netherlands Marino G. Pieterse, Publisher and Editor Information and investment comments are independently and thoroughly researched and believed correct. No guaranty of absolute accuracy can be given however. Investment decisions are fully made for own risk tel.: