PT Merdeka Group: Indonesian mining on the world stage

Nye Longman
|Jun 3|magazine16 min read

Financially and environmentally sound, the Tujuh Bukit Project in East Java is set to be one of Indonesia’s finest mines.

With production already underway at Indonesia’s Tujuh Bukit Project in East Java, the company in charge, PT Merdeka Copper Gold Tbk, is already proving its worthiness for such an important undertaking. An Indonesian-owned operation, the company is set to oversee a profitable, safe, and sustainable mine that will pay dividends for shareholders as well as the local community. We speak to Merdeka’s CEO Colin Moorhead to discover how one of the country’s most promising mines in recent years will make the grade.

With an estimated Mineral Resource of some 99 million tonnes of ore at an average grade of 0.8 grams per tonne of gold, and 25 grams per tonne of silver, the near-surface ore deposits contain approximately 2.45 million ounces of gold and 79 million ounces of silver.  The underlying porphyry deposit has an Inferred Mineral Resource of some 1.9 billion tonnes at estimated grades of 0.45% copper and 0.44 grams per tonne gold making it one of the largest projects of its kind in the world. All told, the porphyry is estimated to contain 28 million ounces of gold and 19 billion pounds of copper.

“I come from 30 years mining experience working on some of the largest mines in Australia and PNG,” he explains. “I’ve been asked to build a technical team capable of taking Tujuh Bukit to those standards. I’m proud to say we could take anyone from Australia and they would be impressed with our construction and operating standards”.

Operations

Merdeka is listed on the Indonesia Stock Exchange following a successful IPO in 2015 and controls the companies that hold the Tujuh Bukit mining leases. These consist of PT Bumi Sukesindo (BSI), which is permitted for mining production, and PT Damai Sukesindo (DSI), which holds the adjacent exploration permit. The company is fully engaged in Indonesia’s mining industry and, working to international standards, is focussed on developing the country’s gold, silver, copper and other mineral deposits.

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Quotables

“What we’ve done is create an internationally respected, high standard and high integrity mining company”

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The company has three major Indonesian shareholders, one of which is PT Saratoga Investama Sedaya, Tbk – the country’s premier investment-holding company, PT Provident Capital Indonesia, a leading investor in Southeast Asia, and Pak Garibaldi Thohir. This winning combination ensures that the mine will remain liquid throughout its life.

“The technical mining potential in Indonesia is huge,” Moorhead comments. “It has some of the biggest gold and copper deposits in the world. What we aim to do is create an internationally respected, high standard and high integrity mining company. Tujuh Bukit has a typical epithermal gold oxide cap that has been developed as an open pit mine, overlying a two billion tonne sulphide porphyry copper deposit that could be developed in stages as a series of mass underground mines. This could set us up as a 30 plus year copper-gold producer.”

The oxide gold silver development commenced operations in December and produced its first gold in March 2017, just 18 months after construction work started. This mine offers low costs and high margins. Using conventional open pit mining, the ore is crushed and agglomerated before being stacked on a heap leach pad where the gold is dissolved in a weak cyanide solution.

The pregnant solution is them pumped to an ADR (absorption, desorption, recovery) plant where gold and silver is recovered and produced as doré. Initially the operation will process four million tonnes of ore annually and will produce on average 100,000 ounces of gold and up to 300,000 ounces of silver per year over the next decade.

Looking further ahead, Merdeka is also conducting a study on expanding the mine’s heap leach capacity to 50 million tonnes and its production rate from four million tonnes to six million tonnes per annum.

The second opportunity at Tujuh Bukit is to develop a series of underground mines to exploit the massive porphyry copper gold deposit that underlies the oxide mine. “We are currently doing the pre-engineering to put an exploration decline into the porphyry which sits below the oxide mine we are operating,” Moorhead adds. “That upper high grade zone (UHGZ) of that deposit is estimated to contain about 300 million tonnes at 0.8 percent copper and 0.8 grams of gold.” The decline will help Merdeka acquire the data needed to support a prefeasibility study for the first mass underground mine.

Sustainable mining

The journey to developing one of Indonesia’s best deposits, and with that, one of its most reputable mining companies, has not been easy. Issues over ownership and permitting slowed progress before a single brick was laid. And once that had been taken care of, the company had the weather to contend with. Having centuries of experience locked into its workforce, Merdeka has been able to shrug off these risks, and ensure that the project has a positive impact on local businesses, the community, and the surrounding environment. No small order. 

“We had the wettest year on record which hampered our earth works considerably,” Moorhead says. “We were able to handle those impacts and delays by using our status as an owner-executor. I think if we were using an EPCM arrangement we could have had a large cost blowout.”

Unlike many players operating in the country’s mining space, Merdeka is fully owned by locals, with expats making up less than one percent of its workforce. But the company’s commitment to Indonesia doesn’t end there, as Moorhead explains: “On the community side we have a commitment to invest 1.5 percent of our revenue on community social responsibility (CSR) projects.

“We are tailoring those projects to the needs of the people, which include capacity building, scholarships for kids, and helping businesses. We are in the early days of that.”

The company initially also granted 10 percent of its shares to the government of The Regency of Banyuwangi, which has effectively granted rights for local people to participate in these mining projects. The further intention of the share grant is to provide the community of Banyuwangi Regency with sustainable economic benefits from the gold mining project.

Protecting local water supplies is essential, and no fewer than six dams have been constructed with this specific purpose in mind. Moorhead adds: “We have two process water dams which take water from the catchment, one storm water pond which is a clay and plastic lined, and three environmental control dams that collects all the runoff. These can also handle the extreme rainfall events up to three times over. “We also have a detox system to manage cyanide and arsenic levels in excess process water, backed up by mercury scrubbers if required. Merdeka has also spent over 15,000 man-hours on safety training and continues to build skills and awareness in this regard.

With the Tujuh Bukit Project now in production, Merdeka has its sights confidently set on the future dividends that a mine of this size and quality is certain to bring. Its shareholders own and control a number of other Indonesian mining companies with assets and are looking for where it makes sense to consolidate those under Merdeka. “In three to five years’ time we will have that copper project to pre-feasibility level and ready to construct and potentially multiple operating mines producing a significant amount of gold per annum. If we are successful at that we could be a $3 billion company.”

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