Intrepid Mines Limited Chairman's Address: 2012 Annual General Meeting
BRISBANE, AUSTRALIA -- (Marketwire) -- 05/09/12 -- Intrepid Mines Limited (TSX: IAU)(ASX: IAU) -
Intrepid completed calendar 2011 with an 80% economic interest in a metal inventory totalling 15 billion pounds of copper plus molybdenum, 27.4 million ounces of gold and 80 million ounces of silver with an in-ground value at today's commodity prices approaching US$100 billion.
However, I am sure shareholders will understand a significant financial investment and time will be required to crystallise this potential. In the interim, management and the board are pleased that the high risk investment that the Company has undertaken over the past years and the application of its geological expertise has clearly delivered a promising opportunity for the Company.
During the past year there was a massive 230% increase in the copper inventory and a 160% increase in the gold inventory, marking the Tujuh Bukit deposit in East Java, Indonesia, as one of the fastest growing copper-gold projects in the world.
The property comprises a gold-silver oxide cap overlying the 1.7 billion tonne Tumpangpitu copper-gold porphyry system, recognised as one of the largest copper-gold porphyry deposits not owned by one of the world's major resource companies.
The rate of success through the 2011 year encouraged the board to approve a $50 million plus exploration budget for the current year, comprising drill programmes requiring a fleet of twelve rigs, including two with 2,000 metre depth capacity, helicopter support and the continuance of two studies - a Preliminary Economic Assessment on the porphyry and a more advanced pre-feasibility study on the heap leach.
Success was recorded early in the new year when the best intersection to date - 689 metres at 1.00% copper and 0.85 g/t gold, was not only recorded on the boundary of the known mineralisation but was drilled directly away from the known body. This is an outstanding result. The current drill programme at Tumpangpitu comprises a further 13 holes.
We also recently completed the first of a ten hole programme at Salakan, approximately 3km north east, following the grant of drill permits late last year. The first hole was a technical success, with a 604 metre intersection at 0.22% copper and 0.08g/t gold, but interestingly including a 276 metre intersection of 135ppm molybdenum, which is highly anomalous. The mineralisation which was continuous from surface to 925 metres is regarded as very encouraging for this target.
The continued positive momentum on the technical front has however been very much overshadowed by slow progress on direct equity discussions with our Indonesian partner and forestry re-zoning. During the latter half of 2011 there was indirect, but unconfirmed speculation that the local government entity might request an equity interest in the project. More recently, the new Indonesian divestment regulation, known as Regulation Number 24, announced on the 21 February 2012, has added a further layer of complexity for foreign companies operating in the country. Collectively, these uncertainties have taken a dramatic toll on the current share price of your Company.
The divestment news alone has seen a near 50% retreat in the share price. Shareholders who contributed over $100 million eighteen months ago are down over fifty percent on their investment. Similarly, non-executive directors who take their after tax fees in shares are today also down nearly fifty percent over the last twelve months.
How logical is this share price decline? Relative to the equity raise in November 2010, the metal inventory is significantly higher, the gold price is nearly US$250 per ounce higher and the copper price is essentially unchanged.
The independent Preliminary Economic Assessment study on the gold-silver oxide cap which was completed last year demonstrated robust economics - a $204 million investment in a heap leach operation would produce an average 143,000 ounces gold equivalent each year, for nine years, at a cash cost below $400 per ounce. The cash flow from this project alone would easily justify the current share price.
What is needed to put this project on the road to development? We must endeavour to re-establish the project's fiscal viability in the eyes of the international and local capital equity and debt markets, because without this support, project funding will be difficult. Our current attention is focused in three areas.
Foremost is a forestry reclassification, because at present, under the current forestry classification which is Protected Forest, open pit mining is not permitted and therefore the heap leach would not be able to proceed. I hasten to add, Protected Forest does not imply rare or endangered flora species. It refers to flora above a certain elevation which is deemed to protect soil stability against erosion.
What is the economic benefit of such a development for an area with little or no income, and only modest support from government? Firstly, employment for 400 people during operations. Annual operating expenditures comprising wages, power and consumables would total $60 million plus, with a high percentage incurred within the East Java province. Federal royalties would be approximately $9 million per annum. Profits would be subject to corporate tax payments. Of course, the porphyry project benefits will dwarf these statistics.
Our commitment to the area is on-going and substantial. Over four hundred locals are employed in the current exploration activities. Roads and bridges have been upgraded, school buildings refurbished, maths Olympiads supported, the Regency Government "Green and Clean" program supported, ecotourism projects supported, plus many other initiatives, too numerous to identify here.
Governments would do well to recognise that this is risk capital being committed and shareholders will not sanction a continuance for ever, unless there is a greater degree of certainty and the prospect of a return on the money invested. Our shareholders are domiciled around the world and will actively allocate and re-allocate funds as competing project opportunities become available.
Ownership re-structuring is also highly desirable. Intrepid holds an 80% economic interest in Tujuh Bukit, with our Indonesian partner, PT IMN, holding the balance. The new Mining Law legislated in 2009, post our financial and technical commitment to the project, and after ten years with the policy makers, permits foreign companies to own direct equity. Logically, Intrepid engaged with its partner to convert its interest to an equivalent direct equity position with our Indonesian partner retaining the balance.
These discussions have taken longer than expected. It should be understood, however, that our current 80% economic interest in this project is not in doubt, it is just that the present structure is not optimal for the financing of a multi-billion dollar investment nor its future operating status.
The demands of a new Government regulation has also provided delivered recent challenges. Regulation Number 24 has now been passed requiring a progressive divestment to Indonesian interests of up to 51% after ten years from the commencement of production, up from a previous requirement for there to be a 20% local ownership. As is always the case, the devil will be in the detail. Whilst the divestment implies 'at fair value', it still has implications for funding, particularly with the porphyry project, which will be a multi-billion dollar investment. Banks tend to be somewhat inflexible when it comes to wanting to know the underlying ownership, particularly where large loans are concerned.
As the economic woes of governments around the world continue, there is a growing trend to look to increase in the take from resource projects, which of course is then portrayed politically to be an equitable sharing of a country's natural wealth. Unfortunately, governments seldom recognise the inherent and substantial financial risks underlying such large and long lead time developments.
Indonesia has built a good track record with foreign investors and the country's economic management should be acknowledged. We will work with industry bodies and government to ensure that any new regulations such as Regulation Number 24 does not impede Indonesia's hard earned reputation as a destination for international capital.
At the date of this report, Intrepid has already invested $88 million in all aspects of the Tujuh Bukit project development and will clearly invest hundreds of millions more before the first dollar of revenue is received. Whilst we are currently well funded, with $135 million in the treasury, the board regularly debates the level, allocation and timing of on-going expenditures.
With such a significant investment in Indonesia, Intrepid will stay the course. As we continue to advance the technical aspects of the project we are stepping up our Indonesian presence.
Intrepid recently established its own office in Jakarta and will actively review additional project opportunities. We also anticipate the appointment of a very senior Indonesian national to manage our in-country business.
The Company's board and management has various thoughts on how things can progress in Indonesia, but these will require detailed discussions over a long period of time and any further comment is best left to when tangible statements can be made.
We will continue to secure the best possible advice in-country to advance shareholder value. Adrianto Machribie, an Indonesian national with exceptional experience in the development of his country's natural resources, joined the Company late last year, and has already become a valued member of the Board.
Your board is aware of the important issues facing the Company and with management we will deliver our undivided attention.
Colin G Jackson
Chairman
Directors
Colin G. Jackson (Chairman)
Brad A. Gordon (Managing Director)
Laurence W. Curtis (Non-executive Director)
Robert J. McDonald (Non-executive Director)
Ian McMaster (Non-executive Director)
Alan Roberts (Non-executive Director)
Adrianto Machribie (Non-executive Director)
Nyla Bacon (Company Secretary)
Stock Exchange Listing
ASX and TSX symbol: IAU
Substantial Shareholders
Taurus Funds Management 9.2%
Acorn Capital 5.7%
Van Eck Associates 5.6%
Issued Capital
524,456,741 shares
6,301,797 unlisted options
4,125,729 unlisted share rights
Shareholder Enquiries
Matters related to shares held, change of address and tax file numbers should be directed to:
Computershare Investor Services
GPO Box 2975, Melbourne, Victoria 3001, Australia
Telephone: 1300 805 505, +61 3 9415 4000
ABN 11 060 156 452
Contacts:
Intrepid Mines Limited
Colin Jackson
Chairman
(mobile) +61 417 929 107
www.intrepidmines.com