MININGAIM.CO.UK

Long time followers will know my usual investing strategy — find a company with a strong investment case, which has been beaten down harder than any opponent of prime Mike Tyson — and invest big while sentiment is weak.

And then sit back and wait for the fundamentals to shine through.

This has worked out pretty well so far. But for balance, it’s probably fair to say that I have advantages others lack, including access to management teams and also being able to commit the required time to really get to understand a company.

The good news is that whether the lengthy chat with Tony Manini or the hours spent getting to grips with Asiamet, readers of MININGAIM.CO.UK get the key facts distilled in a handy article that will form the basis of work going into the future.

As someone who writes the occasional boutique FCA-regulated research note, the reality is that (a) you are expected to use formal, stiff language at all times and (b) you are limited in your ability to speculate.

On MININGAIM.CO.UK, you can get a more informal opinion piece, backed by all the facts but in an accessible and hopefully entertaining format — and my hope is that these first ‘initiation’ articles can be used as a reference piece where you can send potential new investors to get the good, the bad, and the risky.

As ever, before we get started there are the standard caveats:

This is not financial advice. Do your own research and make your own decisions.
There are some important first steps to consider before investing in AIM shares, or in mining shares. Generically, these centre around developing financial resilience and diversification.
Asiamet is a small cap. This means higher risks than those associated with larger companies, but with correspondingly larger potential upside.

These risk warnings may feel repetitive, but I think it is important for investors looking for lucrative returns within the junior resource sector to be aware that risks are often correspondingly magnified.

It was January 2021 — when the world was going GameStop crazy — where confidence in Asiamet took a beating. If you want to go through the RNSs from three years ago, then you can, and my perspective is that the fall in share price since then has been a combination of unforeseeable issues, a weak junior resource market in general — and yes, some management mistakes.

But you know what?

Asiamet’s management has built several mines before, and they will get this one online in time. And for would-be investors looking for a solid opportunity, the timing (and price) seems good.

Here’s why.

Copper updates

Over the past few years, I have repeatedly highlighted the copper supply gap:

Copper price: will the West face shortages in 2023? (investingstrategy.co.uk)

Copper supply gap: to skyrocket by 2030? (fxexplained.co.uk)

And have looked at some of the most up-to-date viewpoints here. I’d encourage you to read through these pieces as they show just how desperate the copper supply problem is becoming — every analyst, major, junior, investment bank and trading house has been sounding the warning bell for years and now the problem is here.

Perhaps the best signal for copper desperation is the increasing merger and acquisition activity in the large cap space. Newmont acquired Newcrest at least partially for its large copper portfolio. BHP bought out Oz Minerals. Anglo American is set to be chopped up BHP, Rio or Glencore — and we’re really just getting started.

But as one famous copper nut has made clear, it’s all just rearranging deckchairs on the titanic.

It doesn’t matter who owns the mines, we need more to come online. And the projects that command a premium are either those with exceptional exploratory tenure OR those close to shovel ready.

Enter Asiamet.

Asiamet’s flagship

As is common for many junior resource companies, there are several quality assets on the books — but only one is going to move the share price over the near term.

For Asiamet, this is clearly the BKM Copper Project:

located within the eastern area,
of the 390 square kilometre Kalimantan Surya Kencana (KSK),
Contract of Work (CoW),
which itself is wholly-owned by Asiamet,
and located northwest of Palangkaraya,
which is the regional capital of Central Kalimantan province,
in Indonesia.

I’ve put that into bullet points because it feels a bit like the titles of Daenerys — but in reality, behind the verbose grandeur, it’s simply a copper asset in Indonesia. I’m going to break it down as concisely as possible because Asiamet has put out a plethora of information and not all of it is required reading.

Just in case, if you are perhaps unfamiliar with some of the technical terms, this article here has all the generic mining words you need to understand.

It’s probably best to start with the key stats from the May 2023 feasibility study. Keep in mind that ARS has a market capitalisation of circa £30 million at present:

The asset has an updated May 2023 ore reserve statement consisting of:

19.0Mt @ 0.7% Cu for 137kt contained copper in the Proved Reserve Category.
21.8Mt @ 0.6% Cu for 135kt contained copper in the Probable Reserve Category.
40.8Mt @ 0.7% Cu for 272kt of contained copper in the Proved and Probable Reserve Category.

In terms of financials:

$162.8 million net present value, 21% IRR (post tax and excluding closure costs)
$1.4 billion initial Life of Mine revenues
EBITDA of $655.3 million
156kt LOM copper produceable
Capital cost of $208.7 million (excluding contingency)
3.4 years payback period
10 years of copper production
$1.91/lb C1 cash costs
AISC of $2.25/lb
5.95p NPV per share

And perhaps the key: an initial 9.2-year life of mine and 19.6ktpa of copper cathode production.

Progress on financing requirements

Now I already know what most of you are thinking: these are decent numbers but even with copper rising, that capex requirement in a high rate environment is too high for the banks (and they all use similar parameters) to justify an investment.

It’s a fair point, and we will get to it shortly as that capex figure is based on figures released a year ago is almost certainly now an overestimation.

For perspective, the company has appointed well-known corporate advisors Grant Samuel (among other things, they recently compiled due diligence on Newcrest for Newmont) to ‘support the BKM project finance process,’ alongside China Zenith Capital which will help to ‘assist with China sourced funding including offtake, equipment finance, project construction and strategic sourcing relating to finance.’

It’s also worth noting that the May 2023 base case used a copper price of $3.98/lb —and the critical metal just rose above $5. If you’re getting 25% more value out of the metal that you’re selling this is going to have a significant impact of the overall economics, even if costs have inflated slightly over the past year.

It’s also worth noting that the company could consider a smaller plant to get revenues flowing in at first — and that it envisages the project as a strategic starter asset, establishing an infrastructure springboard for delivering future phases of development from the Beruang Kanan district and KSK Contract of Work.

Okay, so now we come to getting that capex figure down.

Investors got a corporate update on 1 March — the good news is that the debt finance progress with the ‘lead bank’ continues apace with ‘positive engagement,’ and with the financial modelling for BKM now complete. ARS has managed to conclude several items from the Independent Technical Expert review, ‘meeting the requirements for the initial phase of approvals.’ The Company is also actively engaged with a prominent Indonesian bank.

To me, this implies that there is already informal approval for financing on the condition they get the capex down — and that the remaining issues in the ITE review are what stood between Asiamet and getting the money to get shovels in the ground. The company specifically noted that:

‘The BKM Project execution model is being amended to reflect feedback over the ITE and bank financing process.’

That, and acquiring a couple of final permits — including a forestry permit, alongside an environmental permit for the limestone resource drilling programme to the north of the BKM Project. I’d note that permitting should not be an issue at this juncture (but equally, never a good idea to ignore them).

Potential takeover target?

Now before we delve into the joys of cost optimisation and engineering design, it’s worth considering the potential for a quick buyout of the BKM asset. Asiamet has made clear that there is elevated interest in the project from ‘multiple parties,’ including site visits and ongoing due diligence — including a data room.

Interestingly, ARS has also noted that to get over the financing hump, it’s considering divesting either all or at least part of the project, with a partner at project level being perhaps the better bet due to the obvious synergies and ancillary benefits.

Quality, advanced copper assets are already in high demand — but particularly in Indonesia, where they are relatively rare. For context, an outside observer might assume that the copper produced by any future mine would be shipped to China — but Indonesia has more than enough of its own domestic demand.

This makes the case for a buyout fairly strong, but perhaps only when it is announces it has attracted suitable finance in its own right.

Recent updates for the BKM Copper Project

17 March — results came in from the awaited KSK Biomass Feedstock Study, a crucial milestone in progressing a power solution for BKM. Delivered in partnership with Britmindo, the study addressed the ‘key parameters crucial for the development of a biomass power station in a remote mining region.’

Key findings included:

Abundant Biomass Feedstock Resources — ample renewable biomass feedstock sourced primarily from palm oil mills within a 100km radius of the proposed power plant location that could feed a biomass power station dedicated to the BKM Copper Project.
Remote Mining Power Solution — this proposed biomass power station offers a reliable, renewable energy solution and will contribute to increased economic empowerment in the direct project area.
Power Plant Location Assessment — proposing a unique cost-effective and lower carbon footprint transportation solution optimising available biomass transportation routes and significantly reducing the distance of the High-Voltage transmission line.
Partnership Model — the biomass power plant will be operated by a third party who will be responsible for its construction, operation and maintenance. Asiamet is actively engaged in advanced discussions with potential partners interested in fully financing the plant.

CEO Darryn McClelland noted that

‘By prioritising environmental stewardship and community engagement, Asiamet aims to set a benchmark for responsible resource development in remote mining regions…We are particularly encouraged by substantial interest from potential partners in financing the power plant. Further details will be shared in due course… Considering the recent material uplift in the copper price, our projects are being increasingly recognised for their strategic importance.’

28 March — the next major update, on the project’s engineering design and execution:

Early EPC Engagement — Asiamet had engaged project execution partners for engineering, procurement, and construction, optimising project integration and cost estimation accuracy.
Execution Partners Appointed — PT Rexline Engineering Indonesia selected for comprehensive engineering design covering materials handling and non-process related infrastructure elements such as the main accommodation camp, site offices, workshop and warehouses, in addition to the engineering design of the crushing and ore handling system.
Beijing Research Institute of Mining and Metallurgy engaged for process infrastructure engineering. The BGRIMM Group has over six decades of experience, specialising in technology and innovation in the mining sector.
Further contractor Engagement and Project Management — engagement progressing with a ‘highly reputable’ contractor for integrated operations of site earthworks, pre-production development, and mining services — instead of the previously proposed approach of using separate contractors.

17 April — BKM High Grade Copper Rock Sample Results:

During one of several site visits to the KSK licence area ‘as part of due diligence processes by third parties in respect of proposals to either acquire or partner with the Company,’ four surface grab samples were collected, two of which assayed a stunning 24.0% and 23.3% Copper (and two from the nearby BKZ asset).

These high-grade results are consistent with previous surface sampling and reinforce the upside potential of BKM. The samples were taken from within the central location of the pit where the initial Starter Pits are to be mined according to the current mine schedule. These starter pits have been designed to mine high soluble copper grade material early in the mine life.

For context, the samples were personally selected and taken from the project by one of the interested parties, and they requested Asiamet get detailed analysis of them at an accredited laboratory in Indonesia.

The real implication is that this party is seriously interested — I’d liken it to getting a house surveyed before making an offer.

14 May 2024 — Positive results from optimisation work completed for the BKM heap leach project and compiled by heap leap experts, Mineria & Servicos SPA, Chile (this is not just a heap leach study, it’s an M&S heap leach study).

Context is important: the heap leach facility was the largest capital cost item in the 2023 feasibility study — get that cost down and you’re far more likely to get banks to lend to you. The key changes are:

a revised location for the BKM HLF was assessed, with updated HLF pad designs completed by M&S. The overall bulk earthworks volumes for the new pad are less than half that of the 2023 design.
the revised location allows the HLF pad to be constructed in two stages, with the first stage development to enter production delivering a bulk earthworks volume of approximately one-third of that required for the 2023 FS design.

What does this mean? A large reduction in bulk earthworks = large reduction in capex + faster construction timeline. In other words, the project has just become massively more attractive to financers — and the share price has barely moved since this RNS.

The specifics are perhaps important here as this is so critical to the investment case: under the May 2023 feasibility study, the total excavated earthworks volume for the BKM HLF was 3.2 million cubic metres.

Now, the update is for:

Stage 1: Excavated Volume - 1.1M cubic metres, Fill Volume - 1.3M cubic metres
Final Stage: Incremental Excavated Volume - 1.0M cubic metres; Fill Volume - 0.74M cubic metres

It’s also worth noting that ARS thinks the new location will be easier to complete construction work on (though was light on details as to why) — and in addition, that it will have improved water management potential and enjoy close proximity to excavation/fill materials, delivering a lower overall construction risk profile for the new HLF design.

McClelland enthused that this was:

‘one of the most critical elements of the BKM project infrastructure. This work has delivered a far more optimal approach to BKM's development from both a physical and financial perspective. We can now pursue development of a smaller, initial stage heap leach facility to get into production and defer capex to later in the project life. The revised design for the HLF will also deliver lower construction risk compared to our original project design.’

Beutong Copper Gold Project in brief

While Asiamet has other exploratory assets, the other project that matters most to investors is arguably Beutong. It’s described by ARS as a ‘large porphyry copper-gold system located in Nagan Raya Regency, Aceh on the island of Sumartra, Indonesia.’

It comprises:

Beutong East Porphyry
Beutong West Porphyry
Beutong Skarn

Beutong has JORC compliant Resources containing 2.4Mt copper, 2.1Moz gold and 20.6Moz silver on a 100% basis and 1.95Mt copper, 1.69Moz gold and 16.73Moz silver on an 80% attributable basis.

Back in January 2018, ARS and partner PT Emas Mineral Murni (an Indonesian company) were granted the key production licence, Izin Usaha Pertambangan Operasi Produksi IUP-OP, required to advance the project to the development stage.

The IUP-OP provides for an initial 20 years of licence tenure which may be extended twice, each for a period of 10 years, and totalling 40 years. The Beutong license is held by PT Emas Mineral Murni in which Asiamet holds an 80% interest.

Beutong covers some 10,000 hectares and is located in Nagan Raya Regency, Aceh, Indonesia nearby existing infrastructure and only 60 kilometres from a large power station and seaport.

As part of the IUP-OP grant EMM is committed to meeting in-country processing requirements and will pursue opportunities for copper metal production via heap-leach, SX-EW while simultaneously commencing discussions with several companies that have pledged to build local smelters to process copper concentrate.

With all the focus on BKM, Beutong has fallen somewhat to the wayside — but a large JORC resource should not be overlooked, and investors should expect an update before long.

Management & Finances

I’m not going to list off every director — but there are four key positions to be aware of:

Executive Chairman Tony Manini — 30 years of experience as a geologist all over the world, with senior roles at Rio Tinto, Oz Minerals, Tigers Realm Group and EMR Capital. A bit overkill to list everything, but the man is somebody who has got several mines online in the past and is fully capable of getting this one up and running.
CEO Darryn McClelland — 25 years of experience and used to be COO of PT Agincourt Resources leading operations and exploration of the +300,000 ounce per annum (and 3,000 employees) Martabe Gold Mine in North Sumatera, Indonesia. I don’t even know 3,000 people.
CFO Leonard Aurlianus — more than two decades of financial dealings across Indonesia. Consulted to Indonesian miner Baramutiara Prima for eight years within executive positions including Managing Director, and also Chief Financial Officer at the same time Marketing & Business Development Officer.
CDO James Deo — more than two decades working for a number of global mining businesses in Australia and also Asia, Africa and the Americas. Previously consulted to Newcrest, and also spent a decade with Oz Minerals.

As a reminder, BHP bought Oz for AU$9.6 billion. I do tend to make sure there is operational competency across the geological, financial and PR spheres (there is), but what I also enjoy seeing is management names that have been attached to the same, successful previous employer — a similar situation is present at Greatland Gold.

These are serious people, who are in Asiamet for a big payday. And they have a proven track record of building and operating large mines.

In terms of the corporate structure, there are two key factors to consider:

Management holds circa 10% of the shares in issue. Skin in the game aligns company success to director wealth and is always a good sign.
Indonesian partner Delta Dunia Makmur (DOID) owns circa 35% of the company and is a well-known and very strong partner.

ARS recently appointed Non-Executive Directors Matthew Doube and Peter Chambers as representatives of this major shareholder. And it was through DOID that Asiamet completed its $4 million (£3.3 million) placing in November 2023.

Worth noting that the CEO took 4 million shares in the placing as well. Again, skin in the game — and at a discount of just 5.3% (though to be fair, at lows). While Delta went above 30% ARS is incorporated in Bermuda so the City Code regarding takeovers does not apply.

At the time DOID President Director Ronald Sutardja enthused that ‘we continue to support Asiamet as it continues to advance the important BKM Copper project through the next stages of financing and engineering. Copper remains an important strategic metal and is central to the energy transition initiative. Our various teams are working closely with the Company to ensure it every success. This placement supports that commitment by DOID.’

A bit of a steal for DOID, and much needed capital for Asiamet.

Now to finances — on 31 December 2023, ARS had £4,136,000 in cash and another £131,000 in receivables. The total comprehensive loss for 2023 was £5,174,000 — so you would assume the company is financed into Q4 2024.

But very obviously, there is a timer of sorts on getting a deal over the line — though I suspect DOID would happily hand over a few more million for a larger percentage of the company if the need arose.

Jurisdiction

Indonesia is clearly pro-mining — the endless nickel operations can account for that.

But individuals uprooted by mining are now consistently calling for a fairer future, including a relatively recent protest at the site of a notorious mudflow disaster in East Java province. For perspective, the Lapindo mudflow continues to impact thousands of residents with huge ongoing problems, including displacement, environmental pollution, and reduced access to education and health care.

Indeed, supply shortages caused by the country’s crackdown on illegal nickel mining forced the importation of large quantities of ore from the Philippines to keep smelters operating in 2023 — with Indonesia pursuing a corruption investigation across the government that has led to delays in the issuance of quotas for nickel mining.

But at the end of the day, the country has abundant mineral resources and remains a significant copper producer — and proposed a critical minerals trade deal with the US back in July 2023. In terms of taxation, the system seems well designed with a reasonable trade-off between maximising tax revenue while also encouraging investment; my view is that the country makes it easy to get started but will throw the book at you if you try to avoid paying your fair share once up and running.

The legal system is good in that there is a well established mining framework, but I would venture that it is comparatively complex, and the World Justice Project's Rule of Law Index consistently ranks the country fairly low. However, there are efforts being made to strengthen the law — and associated consequences for rule breakers.

What does this mean for Asiamet? Getting things done properly is incredibly important and also takes time. They have significant in-country backers and support but it is a jurisdiction where getting it right the first time is incredibly important.

The bottom line

For those of you who like to scroll to the end, here’s everything you need to know:

Among a portfolio of very interesting assets, Asiamet’s Indonesia-based and high quality BKM copper project is at a point where the key constraints preventing a financing package for the mine have been resolved, in a background of a rising copper price which rests more than 25% higher than the feasibility study of a year ago. The project is backed by some of the more serious names in the industry — and even in a world where copper falls to $4, is still almost inevitably going to get the go-ahead in 2024. At $5 copper, the NPV of BKM alone is $246.8 million and the market capitalisation of the company right now is a mere £30 million.

That’s my two coppers.

Asiamet Resources: time for the market to wake up?