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Sihayo set to raise $40 million for Indonesian gold push

ASX-listed Indonesian gold hopeful, Sihayo Gold, is close to wrapping up a massive $40 million capital raise that will see it emerge debt-free and cashed up to fund an aggressive exploration program at its underexplored tenure in the world-class gold setting of North Sumatra. The cash injection will also allow the Brisbane-based company to step up plans for the potential US$144 million development of its namesake 1.5-million-ounce “starter” gold project.

The $40 million raise will be game changing for the $65 million market-capped Sihayo Gold.

It will give the ASX-listed junior deep enough pockets to bankroll a systematic exploration program at the Sihayo project in Indonesia, which will include testing of the exciting, drill-ready Hutabargot Julu prospect, and some early capital works at the advanced starter project.

Sihayo Gold has been buoyed by the recent issuing of an exploration forestry permit that clears the way for it to get the drill rods turning for the remainder of 2020, with an anticipated start date of as soon as next month. The company boasts an enviable land position under what is known as Indonesia’s “Seventh Generation Contract of Work” tenement system.

Total land held by Sihayo Gold in the project region is now 66,200 hectares. It comprises the Sihayo project area in the north block and Pungkut in the south block – with a multitude of gold prospects along the Sihayo gold belt straddling the auriferous Trans Sumatran fault strands.

The Sihayo gold belt, which hosts the Sihayo starter project gold resources, is a 15 km-long north-west-south-east-trending mineralised corridor of Permian calcareous volcano-sedimentary rocks and associated intrusions. The company says the rocks are highly prospective for sediment-hosted gold, epithermal gold-silver veins and porphyry-related gold and copper mineralisation.

Sporadic exploration undertaken over the past three decades by various parties identified numerous sediment-hosted gold, epithermal gold and potential porphyry-style copper-gold mineralised prospects within Sihayo Gold’s COW. Consequently, the company has a large pipeline of potential prospects including several “walk-up drill targets” which are yet to be tested.

Prime exploration gold targets the company has earmarked for drilling in the short term include along strike oxide mineralisation, near-mine extensions to the optimised pit shell for Sihayo and the epithermal gold-silver prospect, Hutabargot Julu, which the company says is potentially analogous to the multimillion-ounce Martabe gold and silver mine 75km north-west of the Sihayo project area.

Sihayo Gold recently appointed new Executive Chairman, Colin Moorhead, who has extensive experience in the Indonesian mining industry, to head up its operations. Fellow seasoned campaigners Rod Crowther, Gavin Caudle and Boyke Abidin join Moorhead on the board.

The company received a significant boost last week with confirmation it had received an exploration permit from the Indonesian Government, paving the way for the drill rigs to be mobilised.

Sihayo Gold already has an ace up its sleeve in the form of its 1.5Moz namesake project that has been the subject of a recently completed definitive feasibility study showing some very robust economics for a proposed gold operation.

The proposed Sihayo starter operation has an estimated CAPEX of US$144 million and, based on the DFS assumptions, is forecast to produce a total of 635,000 ounces of gold over an initial mine life of eight years.

Sihayo is also tipped to deliver an impressive EBITDA of US$746 million over that period – or $93 million a year on average – from projected gross sales of US$1.19 billion, assuming a gold price of $US1,890 an ounce over the life of mine. All-in sustaining costs have been estimated at just US$716/oz and the capital payback period at just over 2 years.

Latest stated JORC ore reserves at Sihayo stand at 12 million tonnes grading 2.1 grams per tonne gold for 840,000 ounces of contained gold within total mineral resources of 24Mt at 2.0 g/t for 1.5Moz of contained gold.

DFS figures are based on 100 per cent of the project, which is held under an Indonesian joint venture company, PT Sorikmas Mining, which in turn is 75 per cent owned by Sihayo Gold and 25 per cent owned by partly state-owned mining group, PT Aneka Tambang, with Sihayo Gold operating the project. Aneka Tambang has been loan carried since inception and is only entitled to 5 per cent of free cash from operations until debts are repaid, which means Sihayo will have 95 per cent of the free cash flows for the foreseeable future.

Sihayo lies south-east of and near the venerated Martabe mine, which has produced 1.9Moz of gold since 2012 and was purchased for a whopping US$1.2 billion by Indonesian interests two years ago. Martabe hosts estimated resources of 7.8Moz of gold and 64Moz of silver.

In our view the Sihayo starter project is very attractive in the current gold price environment and upcoming exploration has the potential to reshape the company.

Post completion of the capital raising, Sihayo will be in a materially stronger financial position to execute its near to medium-term strategy. In addition, the strong show of support from key existing shareholders as well as important new strategic and institutional shareholders is very encouraging.

In the next 12 months or so, Sihayo Gold aims to get cracking on the early capital works at the Sihayo project including building site access roads and bridges in the forested terrain of the Barisan Mountains, final permitting approvals and detailed mine and tailings storage design.

Indonesian copper-gold miner, PT Merdeka Copper Gold, who was formed in 2015, will emerge as a strategic shareholder in Sihayo Gold at the conclusion of all elements of the capital raise next month.

PT Merdeka Copper Gold will have skin in the game on two fronts, both as a 7.1 per cent shareholder and as the contracted project developer of Sihayo through subsidiary PT Merdeka Mining Services, who managed the Sihayo exploration and resource definition drill-out process while PT Merdeka Copper Gold oversaw the DFS.

Moorhead, formerly Executive General Manager Minerals with Newcrest Mining and a former Chief Geologist at Newcrest’s Gosowong gold-silver mine in Indonesia, was the first Chief Executive Officer of PT Merdeka Copper Gold, a position he held until August 2018. He remained on the Merdeka board until July last year and is currently also the Non-Executive Chairman at Xanadu Mines and a Director of Aeris Resources and the unlisted Coda Minerals.

He led PT Merdeka Copper Gold through the US$137 million financing, building and commissioning of the very successful Tujuh Bukit gold-copper mine in East Java that poured first gold in 2017 and achieved payback in a stunning 12 months without serious safety or environmental incident.

PT Merdeka Copper Gold has a market cap of about US$3 billion and a track record of developing, operating and financing gold projects in Indonesia.

Other key shareholders who speak for about 63 per cent of Sihayo Gold’s stock – Provident Minerals, PT Saratoga Investama Sedaya, Goldstar Asia Mining Resources and Asian Metal Mining Developments – have also thrown their collective weight behind the company, participating in the non-renounceable entitlement offer component of the equity raising.

Sihayo Gold’s shareholders have deep regulatory and domestic relationships in Indonesia from many years of experience in obtaining mining permits throughout the country, something that cannot be overstated.

If Sihayo Gold can successfully navigate Indonesia’s approvals processes courtesy of its heavyweight board, the project looks well capable of doing all the talking from there.

All eyes will be on the initial set of results from drilling at Hutabargot Julu.

Is your ASX listed company doing something interesting? Contact: matt.birney@wanews.com.au

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