Nusantara is dancing to the tune of higher gold prices

Gold prices have been trending up again and Nusantara is poised to capitalise on that with its low-cost gold project in a world-class mining jurisdiction.

The precious metal has recovered from its March lows in the US$1,670s an ounce range to current prices over US$1,850 an ounce, with The Felder Report noting that the outlook remained bullish as US inflation has risen much faster than interest rates.

Likewise, Kitco News quoted analysts as saying that gold is in a sweet spot as more investors look for an inflation hedge. TD Securities head of commodity strategy Bart Melek added that there is enough spare capacity in the global economy to accommodate this new bull-market cycle.

This is all music to the ears of Nusantara Resources (ASX:NUS), which has a gold inventory of 2.28Moz across its Awak Mas project in Indonesia.

Most of this is concentrated around the Awak Mas deposit where recent closed spaced drilling has defined a 2.2 million tonne (Mt) measured resource grading 1.58 grams per tonne (g/t) gold for 110,000oz of contained gold.

This diamond drilling has also upgraded the average grade of the indicated resource by 4 per cent to 36.5Mt at 1.41g/t gold.

Indicated resources typically have enough information on geology and grade continuity to support mine planning while measured resources represent an even higher level of confidence.

And there’s more to come. Assays are still to come from the satellite Salu Bulo deposit before the company provides a further update of its current resource that will in turn form the basis for an updated Ore Reserve estimate for the project along with an updated mine design and schedule.

Low cost gold project

Awak Mas already has a lot going for it.

The project currently has an estimated life of mine of 16 years and a low all-in-sustaining cost of just US$875/oz, which puts it squarely in the bottom half of the cost curve and ensures that it should be profitable at any point throughout the commodity price cycle.

This is due in part to a combination of open pit mining as well as conventional gravity and carbon-in-leach processing.

After-tax net present value and internal rate of return – both measures of a project’s profitability – have also been estimated at US$517m and 45 per cent respectively at an assumed gold price of US$1,700/oz.

This is likely to be improved further based on current high gold prices and positive outlook.

To top it off, historical exploration at Awak Mas has been focused around known mineralisation with very limited regional work carried out despite numerous occurrences of gold anomalism.

Still undervalued?

Despite Indonesia being ranked as a low-risk jurisdiction based on its score of 3.9 in the Marsh Country Economic Risk Ratings (scored out of 10 with higher ratings meaning higher risk), ASX investors appear to have discounted miners operating in the country.

Nusantara is a clear example of this “Indonesia Discount” with the company having an Enterprise Value to Resource (EV/Resources) ratio of about $31 per ounce of gold.

This compares with Capricorn Metals (ASX:CMM) with a EV/Resources ratio of almost $300 per ounce of gold and Emerald Resources (ASX:EMR) with $392.5 per ounce of gold.

EV/Resource divides the value of the business by the total volume of the resources it holds in the ground and is commonly used by investors to value mining projects.

Here it clearly highlights the discount that investors have attributed to Nusantara’s value despite its location in a low-risk country that also happens to be the world’s 11th largest gold producer with the 4th largest reserves.

Indonesia has also introduced policy changes aimed at further improving its attractiveness for miners with the latest omnibus bill designed to cut red tape and streamline the mine licensing process while providing incentives to miners for investing into downstream value-adding processes.

Despite this, the local partner and major shareholder Indika is set to highlight its confidence in Nusantara by proceeding with its second stage investment of US$25m for a further 15 per cent stake in the project.

This article was developed in collaboration with Nusantara Resources, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.