Operations

Background

Finders is the operator of the Wetar Copper Project (in which Finders has a 74.1% economic interest) located on the north coast of the remote and lightly populated island of Wetar in the Province of Maluku Barat Daya of eastern Indonesia.

Location of the Wetar Copper Project

The Wetar Copper Project comprises the development, open pit mining and processing of high-grade, massive sulphide deposits at Kali Kuning and Lerokis located within 3 km of the island’s coast. Despite its remote location, the Project benefits from having existing infrastructure in place, including a wharf, camp and roads and partially exposed copper deposits from a prior gold mining era.

The ore bodies comprise precious metal-rich volcanogenic massive sulphide and barite deposits. The massive sulphide deposits are dominated by pyrite, with minor chalcopyrite, covellite, chalcocite, tennantite–tetrahedrite, enargite and bornite. The barite ore bodies are developed on the flanks and can locally overlay the massive sulphide deposits.

Finders has been operating a sulphide heap leach and solvent extraction-electrowinning (SX-EW) copper cathode demonstration plant on Wetar Island since 2009, which was upgraded to 3,000 tpa in 2014.

The SX-EW copper cathode demonstration plant validated the economics for the expansion of the Wetar Project to 28,000 tpa, as detailed in the revised Bankable Feasibility Study released by Finders on the ASX on 20 November 2013 (Wetar BFS).

The Wetar BFS demonstrated robust economics and estimated life of mine cathode production of 155,000 tonnes of copper assuming an average copper recovery of 74% over the project life with a projected life of mine cash cost of US$1.05/lb copper.

Layout of the Wetar Copper Project showing main deposits and exploration targets

Development and construction activities for the 25,000 tpa SX-EW expansion project commenced in late 2014. The new plant was commissioned in May 2016 with first copper plated and stripped in June 2016. By late 2016, the plant was operating around nameplate capacity.

To date, both plants have produced over 37,000 tonnes of over 99.99% pure copper cathode. The average sale price for all copper sold to date has been at a premium to the LME price and as it is a refined product it remains unaffected by current Indonesian regulations restricting ore or concentrate exports.

Operational milestones achieved to date

Since late 2013 significant progress has been made in the development and operation of the Wetar Copper Project. This has included the complete financing of the project via a US$162 million finance facility and a US$45 million project equity investment, then project construction and more recently ramp up of production to near nameplate capacity and material progress towards repayment of debt under the Wetar Facility Agreement.

Ownership structure of the Wetar Copper Project

Finders has a 74.1% economic interest in the Wetar Copper Project, which is made up by a 78% interest in PT Batutua Tembaga Raya, the smelting and refining company for the Wetar Copper Project (“BTR”) and a 54.6% effective interest in PT Batutua Kharisma Permai, the mining entity for the Wetar Copper Project (“BKP”). BTR comprises 95% of the economic benefit of the Wetar Copper Project, giving Finders a 74.1% economic interest in the project.

The structure chart below illustrates the ownership structure of the Wetar Copper Project.

Wetar ownership structure

Indonesian law requires staged divestment of BKP so that, by the 6th year of Wetar Copper Project production (production having commenced on 8 March 2014), Indonesian interests own 20% of BKP, and at the 10th year of production Indonesian interests own 51% of BKP, with intermediate divestment milestones during that period.

Currently, as indicated in the chart above, 30% of BKP is held by Indonesian interests. The remaining divestments in BKP will be required in 2021 (-7%), 2022 (-7%) and 2023 (-7%), by which time 51% Indonesian ownership is required.

Development

Both the Kali Kuning and Lerokis deposits were previously mined for gold by conventional open pit methods during the 1990s. The copper bearing massive sulphide mineralisation underlies or is proximal to the gold mineralisation and results in the former open pits being subsumed by the current and planned open pit operations.

The mine plan for the Kali Kuning and Lerokis massive sulphide deposits is based upon conventional open cut mining using hydraulic excavators and trucks. The geology and morphology of the two deposits is very similar and the mine plan assumes a similar style of operation at both deposits.

The design of each of the open pits is as two independent operations as the deposits are located approximately 4km apart and are separated by rugged topography. Scheduling, on the other hand, will be conducted in sequence as both pits are to supply ore to the same heap leach operation with the Kali Kuning open pit leading development and Lerokis to be commissioned as the Kali Kuning production tails off. Lerokis production is scheduled to commence in 2019 and the current plan requires a 13km one-way haul to deliver ore to the current Kali Kuning Valley leach pads.

Aerial View of the Kali Kuning Open Pit circa December 2017

Neither of the planned open pits will extend to more than 75m below the lowest point on the pit crest. At Kali Kuning, the north-eastern wall cuts back into a steep slope resulting in a highwall rising 125m above the main pit crest.

Total monthly material movements peaked during the development period when the mining fleet was also deployed on construction earthworks. For the remaining period of steady state mining to 2021, material movements are expected to average between 35,000 and 90,000 bank cubic metres per month over the life of the mining operations.

Exploration

Volcanogenic massive sulphide (VMS) deposits form at, or near, the sea-floor where circulating hydrothermal fluids driven by magmatic heat are cooled through mixing with seawater or porewater in near-seafloor lithologies. Therefore, stratiform massive sulphide lenses vary widely in shape and size depending on the structure and morphology of the sea-floor environment. The Wetar VMS deposits are geologically young (approximately 4.7 million years) and the most striking similarities to the mineralisation have come from the recent discoveries on the sea floor of “black smoker” deposits.

Many VMS deposits occur in clusters or provinces (<50km) that can contain many deposits with one or several containing more than half of a province’s resources. Finders exploration strategy is centred on this understanding, however discretionary exploration expenditure is currently restricted under the Wetar Facility Agreement for the 25,000 tpa SX-EW expansion project, with funding only available under certain specific conditions. Exploration is also subject to reaching agreement with local communities to permit necessary access to enable drilling to commence.

Exploration activity since the Wetar Facility Agreement was executed in late 2014 has therefore been limited to the compilation of historic data, field mapping, deposit-scale geophysical surveys (and historic survey reprocessing), extensional and sterilisation drilling of the Lerokis deposit and characterisation of existing mineralisation at Lerokis and Kali Kuning for geo-metallurgical modelling purposes.

As announced by Finders on the ASX on 21 November 2017, however, recently completed pre-development drilling at the Lerokis deposit has resulted in a 29% increase in Ore Reserves (17,200 additional tonnes of contained copper) and a 34% increase in Mineral Resources (20,800 additional tonnes of contained copper) at Lerokis.

The massive sulphide bodies or “mounds” at Kali Kuning and Lerokis are two, well defined deposits in a local cluster and comprise coarse grained, copper-poor pyrite which is fractured and overprinted and cemented by a later, copper-rich phase of massive sulphide mineralisation. A third large and partially drilled sulphide deposit known locally as Meron and the adjacent re-interpreted geophysical anomaly at Baru Manu (“BMU” in the map of the Wetar Copper Project that is above) are walk up drill targets for potential additional copper-rich sulphide mounds in the immediate vicinity of the Kali Kuning open pit. Both targets have drilling proposals awaiting approval and completion. Finders is also currently in negotiations with the local communities to obtain necessary access to the Meron deposit to enable drilling to commence.

Heap leaching process

Copper is processed at the Wetar Copper Project by way of a heap leaching process.

After mining, the crushed ore is stacked (or heaped) on heap leach pads, aerated and irrigated. The liquid (acid or lixiviant) that irrigates the heaps carries copper metal in solution and is extracted by way of a standard solvent extraction electrowinning (SX-EW) plant to produce over 99.99% pure copper cathode that is sold directly to consumers.

This process is illustrated below:

Wetar Copper Extraction Process

To enable the operation to run at full capacity, a large inventory of ore has to be initially built up on the heap leach pads to supply the required copper bearing solution to the SX-EW plant. Once established, the heap leach pads are regularly topped up with new ore as required to provide consistent feed of copper rich solution to the SX-EW plant to maintain the copper cathode production at the required rate.

The rate of topping up of the pads is determined by the different percentages of copper minerals that exist in the ore. This is because different copper minerals leach at different rates. Ore with higher percentages of slow leaching copper minerals require more ore or topping up of the pads to maintain production levels.

As a consequence, mine life is a factor of the total copper ore tonnes stacked (stacked inventory), the terminal recovery, the rate of copper recovery from the stacked inventory and the capacity of the SX-EW plant.

Aerial view of the Kali Kuning Leach Pads looking towards the 25,000 tpa copper cathode SX-EW plant

Metallurgy and copper recovery

Modelled recoveries

Current copper extraction/recovery models for the Wetar BFS are based on metallurgical testwork and the information gathered during trial mining and processing between 2009 and 2010. During this process of trial mining, a 100,000 tonne bulk sample of ore was crushed and stacked into four trial heaps, with variable heights, to allow for testing of different leaching variables in each heap to assess optimum parameters such as crush size, aeration and irrigation rates.

The following graph shows the modelled recovery curves that formed the basis of the Wetar BFS.

Wetar BFS assumed copper recovery rates

There are a number of recovery models applied for the Wetar Copper Project for different purposes.

During the financing process to obtain the bank debt for the construction of the 25,000 tpa SX-EW plant (expanding the Wetar Copper Project production capacity to 28,000 tpa copper cathode), a further financial model was developed for the purposes of the financing group. This financiers’ model applied more conservative copper recovery rate assumptions than the Wetar BFS applied to demonstrate the robustness of the project.

The updates of the Ore Reserve estimates also applied more conservative recovery rate assumptions than the Wetar BFS.

The various modelled total recovery rates used for the Wetar Copper Project are:

Recoveries achieved in testing

During the Wetar BFS process of trial mining (discussed above), one of the four trial heaps (“Heap 3”) achieved a particularly encouraging copper recovery rate of 87.5% copper for Kali Kuning ore. Further details about this testwork is set out in the Wetar BFS released by Finders on the ASX on 20 November 2013.

As announced by Finders on the ASX on 20 November 2017 (and resubmitted on 24 November 2017), recently completed testwork by Finders on core samples from the Lerokis deposit has delivered encouraging results, achieving recoveries either higher than previous testwork or in line with the Wetar BFS. In particular, there were two samples that have achieved copper recovery rates of 88.0% and 82.6% in under 250 days, significantly greater than the 66% Lerokis recovery rate assumed by the Wetar BFS. Further details about this testwork and the parameters under which it was conducted is set out in Finders’ ASX announcement of 24 November 2017.

These test results illustrate the potential recovery rates that testwork has indicated may be achievable for Kali Kuning and Lerokis ore, however there is no guarantee that these recovery rates will be achieved in a production scenario.

Actual recoveries

Actual copper recoveries from the heaps are dependent on time, mineralogy, particle size, heap height, aeration, irrigation and most critically temperature.

To date, actual recoveries achieved at Kali Kuning have varied above and below the modelled curves.

As the project proceeds and the understanding of the leaching cycle is better understood, it is expected that the recoveries should improve above those assumed by the Wetar BFS and the Ore Reserve estimate. If the recoveries do improve there will be a positive impact on both total copper cathode production and project life.

However, none of the existing heap leach pads have reached the time period required to achieve terminal recovery, so Finders is not able to predict the terminal recovery rate that will ultimately be achieved.

Tenure

The mining licences (“Izin Usaha Pertambangan” or “IUP”) for the Wetar Copper Project are held by BKP, which in turn is 70% owned by BTR, the company undertaking smelting and refining for the Wetar Copper Project. BTR is 78%-owned by Finders through its wholly owned subsidiary Banda Minerals Pty Ltd.

Notes:

1: PT Batutua Barit Wetar (BBW) has merged with BKP and tenements previously held by BBW are in the process of being transferred to BKP.

2: The renewals for 317.a & 317.b are currently in progress, and an application for renewal for 28.b will be submitted shortly.

In addition, BTR holds a business licence for processing and refining (IUP Processing and Refining No. 543-125 Tahun 2011) for a 20 year period expiring on 9 Jun 2031. This IUP allows BTR to process ore from the Wetar Copper Project to produce a refined copper cathode.

BKP also holds a production stage forestry use permit (“Pinjam Pakai”) which allows it to carry out development, mining and production activities at the Wetar Project through to expiry in December 2031.

Finders notes that five IUP exploration permits located on the south coast of Wetar and previously reported by Finders as the “Wetar South Coast Exploration” tenements, expired on 1 March 2016, in accordance with their expiry dates. Applications for extension of these tenements were made (as disclosed in Finders’ 2016 Annual Report), however those extensions were not granted.

Project Ore Reserves and Mineral Resources

Wetar Copper Project December 2017 Ore Reserve Statement

The Proved and Probable Reserve as at 1st December 2017 on a 100% equity basis stands at 9.3 million tonnes at 2.1% copper for 196,000 contained tonnes of copper metal (Table 2).

A 12% positive reconciliation in copper tonnes mined versus the Ore Reserve for the period from 1st July 2016 to the 1st December 2017 demonstrates the robustness of the Mineral Resource and Ore Reserve estimates.

Table 2 : Ore Reserve Statement

Notes – Rounding errors may occur. The Ore Reserve estimate for the open pit mines is derived from the Mineral Resource block models for the Kali Kuning and Lerokis deposits. The tonnes and grades are stated to a number of significant digits reflecting the confidence of the estimate. Since each number and total is rounded individually, the columns and rows in the above table may not show exact sums or weighted averages of the reported tonnes and grades. “Stripping Ratio” refers to the ratio of the waste to the ore tonnage.

Wetar Copper Project December 2017 Mineral Resource Statement

The Measured, Indicated and Inferred Mineral Resource as at 1st December 2017 on a 100% equity basis now stands at 9.6 million tonnes at 2.1% copper for 206,000 contained tonnes of copper metal (Table 1).

Table 1 : Mineral Resource Statement

Note – Rounding errors may occur. Mineral Resources which are not included in the following Ore Reserve compilation do not have demonstrated economic viability.

Wetar community development

Finders and its partners are committed to responsible social management, and Finders believes that building relationships with local communities based on trust and mutual respect is paramount to business success and sustainability.

Church construction in Uhuk Village

Finders acknowledges its social responsibility such that its projects should bring benefits to the surrounding communities. Stakeholder engagement includes information meetings and site visits with various Government officials, community leaders, elders and landowners.

Finders community development programmes assist with health, education and sustainable development and include:

agricultural initiatives, including growing spices and vegetables, producing honey and farming chickens, cows and pigs;
a community employment initiative, which was extended to island villages further afield of the Wetar Copper Project following the successful recruitment program from three local villages. At the end of October 2017, Finders employed 271 Wetar local residents out of 538 employees, not including those employed by contractors who employed 104 employees from Maluku Barat Daya out of 299 and those who supply goods and services to the project, comprising 46% of the Wetar Copper Project employees and contractors;
education initiatives, including school and teacher funding, provision of scholarships for Wetar children to attend higher schools off Wetar Island and the supply of boarding houses in Kupang for off Wetar students;
infrastructure projects, such as building school buildings, meeting houses and churches (the Wetar Copper Project is currently building a large church in Uhak for the community);
staffing of the local health centre and two medical posts and training and funding nurses, midwives and immunisation programs;
operation of an emergency airstrip for medical evacuation of both employees and local residents; and
allocation of 10% of the available passenger seats to the local community on marine vessels servicing the Wetar Copper Project.

As part of Finders annual commitment, many of these community programmes are constantly reviewed to ensure that they remain effective and appropriate, and produce long lasting results after the mining operations have ceased. An external, independent consultant is engaged for this purpose.