Sihayo Gold intends to use some of the proceeds from a pro rata non-renounceable entitlements offer to optimise a 2014 feasibility study on the Sihayo/Sambung project in North Sumatra, Indonesia.

The company hopes to raise more than $4.5 million in the offer and intends to use 77.7% of the amount to repay loans, 4.4% for study optimisation and 11.9% for working capital. The remainder would cover the expenses of the offer.

With the passage of time since the completion of the feasibility study in January 2014 and the recent improvement in the gold price, the company believes there are a number of opportunities to optimise the project financial returns which warrant further investigation.

Sihayo has also held preliminary discussions with a large EPCM company looking to expand its area of operations to include Indonesia. Whilst discussions are still at an embryonic stage and there is no certainty of progression, this company has raised the possibility of providing a high proportion of the financing required to construct the project.

Potential availability of such project financing is an additional incentive to re-evaluate and optimise the assumptions in the original study, especially providing the opportunity to increase the throughput of the mill and plant.

The re-evaluation and optimisation work will focus on power supply, metallurgical recovery, and construction capital and consumable prices.

Discussions with the local and regional power supply regulator indicate progress is being made to increase the grid power generating capacity in North Sumatra. Some preliminary site investigation work is required into the potential sizing, location and layout of infrastructure that may be required to provide grid power to the project. If grid power were to become available, the overall power cost of the project may be materially reduced.

The company intends to undertake an investigation into alternative treatment strategies associated with near surface (regolith) ores and geo-metallurgy to understand opportunities to improve project economics.

Sihayo has been able to study the construction costs and operating costs of two other gold projects under construction and recently commissioned in Indonesia. It would like to take the insights gained from studying these projects and apply them to the project.

There has also been a material and sustained reduction in the price of diesel fuel and other consumables since the completion of the study. The company would like to perform a detailed analysis of these lower prices to determine the overall impact on the feasibility study.