Finders Resources Will Produce Copper Cathode From Its Demonstration Plant At Wetar Early Next Month
By Charles Wyatt
minesite.com
“When the going gets tough, the tough get going”. It may be a truism in these difficult times, but it certainly applies to Aim-traded and ASX-listed Finders Resource, even if the company’s shares are on the floor. Production from the company’s demonstration plant at its Wetar copper project in Indonesia will start next month. This is a slightly later than expected because, as Chris Farmer, the managing director explains from Indonesia, a ferry sank and the port was closed for a few days. That in turn delayed a boat which contained some last bits of equipment that were needed to get Wetar up and running. In the last week, therefore, a convertible loan note facility has been agreed with Resource Capital Fund (RCF) whereby Finders will receive US$1.5 million. Chris Farmer points out, “RCF is already a significant shareholder in Finders, but with the shares where they are we did not want to raise this amount of money by an equity placement. It is vital, however, as we wanted to be on a sound financial footing to complete the commissioning stage at the demonstration plant”.
Chris and three other directors also dipped into their pockets to provide a loan of A$714,000 to the company, which must have encouraged RCF. Of this total A$134,000 is interest free, but may be converted into equity at A50 cents per share when the time looks right. But the current share price is A29 cents so it may be a few months away. The rest of the loan is charged at a rate of 10 per cent and can be converted at market price when approved by shareholders. These rates compare with a 12 per cent coupon on the RCF convertible and a conversion price of A40 cents.
Equity shareholders tend to get worried about convertible debt in junior mining companies, but Joe Lunn of the company’s broker FinnCap makes some constructive points in favour. He reckons the dilutive effects of this US$1.5 million facility are relatively benign as far as existing shareholders are concerned, and less dilutive than other deals have been in the recent past. The deal proves that money on sensible terms is still available for the best mining projects. The major positive is that it ensures that Finders has enough working capital to get into production. In fact Finders raised A$5 million back in August. Most of that money was denominated in Australian dollars, however, and the Aussie dollar has since depreciated by around 25 per cent against the US dollar, in which currency the costs of the demonstration plant are denominated. RCF took a hefty slug of the August placing and is clearly happy to look on the convertible as a bridging loan to make up the foreign exchange shortfall.
When it is in production the demonstration plant is expected to produce five tonnes of cathode copper per day at a cash cost of around US75 cents per pound. This looks good when compared with the current price of copper at US$1.46 per pound, so once the project is cash generative the assumption must be that the rating of the company’s shares should show some improvement. At the moment over 15,000 tonnes of ore is under irrigation in the test heap. It’s percolating well, according to Chris. The initial take-up of copper into solution is in line with expectations, giving good grounds for assuming that the SX/EW plant that will turn this copper into cathode won’t run into problems. Finders expects to glean all the information relevant to full scale development within the first three months of the demonstration plant’s operation, and is even now seeking second hand plant for the full scale development of Wetar.
Wetar has copper mineralization from surface, is in a coastal location and is on the site of a gold mine previously operated by Billiton between1989 and 1997. So a lot of the basic infrastructure, such as roads and camp, was already in place and only needed to be refurbished. The total resources at Wetar amount to 8.8 million tonnes at 2.4% copper, giving 218,000 tonnes of contained copper. Almost all of this resource is likely to be moved up into reserves in due course. Mining will be by open cut, with a strip ratio of less than 0.6:1. The commercial plant is expected to cost around US$52 million, provided a high proportion of the kit is acquired second hand. Once up and running it will produce 21,000 tonnes of copper metal per year for a mine life of 10 years, and at an average operating cost of US70 cents per pound. This production figure includes the contribution from the demonstration plant, which is about one-tenth the size of the commercial one.
As with all its peers, in the current financial conditions Finders is taking things one step at a time at one project at a time. Once the demonstration plant has confirmed to investors and financiers that the commercial plant will be viable, Chris and his team will have to raise the capex. In these circumstances this should not be an insuperable problem, as every question will have been answered, and because there are signs, even now, that money is available for robust projects which run on proven technology and offer a good return. The copper price could even be advancing by that time, as current stockpiles are at a historic low. And there should be more to come at Wetar. Numerous other gold and copper prospects have been identified there, so exploration will be back on the menu once the commercial plant is running. |
