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REGIONAL NEWS - ASIA 24 E&MJ; • JUNE 2017 www.e-mj.com Macmahon Advances Service Agreement for Batu Hijau Macmahon and PT Amman Mineral Nusa Tenggara (AMNT) have signed a bind- ing agreement for mining services for the Batu Hijau copper-gold mine in In- donesia. The alliance-type agreement exchanges shares of Macmahon for one of the largest mining fleets in Indonesia. The agreement includes cost-plus pay- ments with upside and downside sharing over the 14-year life-of-mine plan with the potential to extend the scope of work to include significant future development options. Macmahon has successfully op- erated in Indonesia since 2008 with ex- isting projects at Martabe and Lhoknga, and sees this deal as a game changer for the company. "We are thrilled at the prospect of working with PT AMNT at Batu Hijau," said Michael Finnegan, CEO, Macmahon. "If completed, this transaction will see Macmahon's scale significantly increase and that brings with it a number of bene- fits, which will assist us in the execution of new and existing projects. It will make us a stronger and more robust business, and will provide us with a supportive and strategically aligned major shareholder which should help us to grow even further. "We have been working hard on this transaction for some time now, and are looking forward to achieving completion so that we can start operations at Batu Hijau and deliver the benefits of that to all of our shareholders," he said. AMNT acquired an 82.2% interest in Batu Hijau in late 2016 from Newmont and Sumitomo. The mine is a large, open- pit, porphyry deposit located on Sumba- wa Island, Indonesia. It's the second larg- est copper-gold mine in Indonesia behind Grasberg. There is potential to extend the scope of work to include the undeveloped Elang and Nangka deposits in the future. "This transaction is important in al- lowing PT AMNT to achieve important op- erational restructuring goals, which will allow us to more efficiently extract the resources from the Batu Hijau deposit, while simultaneously allowing us to ex- plore and develop other opportunities in the region," said Alexander Ramlie, direc- tor, AMNT. "Macmahon has a strong team in place, which we highly respect, and, which, we believe, will be invaluable to PT AMNT as we execute our longer-term business goals. We look forward to work- ing with Macmahon at Batu Hijau and to assisting Macmahon in growing its busi- ness regionally and in Indonesia." Production at Batu Hijau commenced in 2000 with remaining life-of-mine pro- duction of approximately 1.5 million met- ric tons (mt) of copper and 3.5 million oz of gold anticipated over 14 years (exclud- ing the other potential development op- portunities). AMNT's mine plan includes removal of waste to access the next stage of ore reserves, with processing of stock- piles thereafter. The life-of-mine mining services con- tract is expected to generate $2.9 billion in revenue over the 14 years. A total of $1.8 billion in revenue is expected over the first five years, once full operations commence. Macmahon described the agreement as an "alliance-style" contract designed to align interests. It includes cost-plus payments. It allows up to 12 months for the ramp up period (Phase 1) in which the performance targets will be agreed. Mac- mahon will then commence the full scope of mining services. The margin during full operations is based on higher rates of pre- agreed return on capital or margin on costs. During full operations, potential exists for upside and downside sharing based on per- formance against targets (but with a floor on downside at nil contract margin). The performance targets can be reset annually. Macmahon will acquire mobile equip- ment valued at $145.6 million from AMNT, which includes 111 haul trucks, seven rope shovels, three hydraulic exca- vators, four wheel loaders, seven blast- hole drills and 61 dozers. The majority of equipment has been maintained by Trakindo (a local Cat dealer) and subject to close inspection by Macmahon. The contract's pricing mechanism allows for the equipment value to be recouped via monthly depreciation charges over five years. AMNT has agreed to fund any sig- nificant additional equipment required in the future and provide the use of this equipment to Macmahon free of charge. If the Mining Services Contract is termi- nated, AMNT is required to repurchase the equipment at a pre-agreed value, which decreases to zero over five years. AMC Singapore, a subsidiary of AMNT, will be issued a 44.3% shareholding in Macmahon as consideration for the mo- bile equipment. The transaction needs support from Macmahon shareholders Macmahon's existing operations are spread across multiple projects in Australia and Southeast Asia, with the proposed Batu Hijau project to build on existing experience and presence in Indonesia. (Continued on p. 30)