JAKARTA (TheInsiderStories) – Australian mining services firm Macmahon Holdings Limited (ASX:MAH) has commenced Phase 2 of the Batu Hijau contact in Indonesia. Batu Hijau copper and gold mines located in Sumbawa Island and owned by local miner PT Amman Minerals Nusa Tenggara (AMNT).

AMNT operates Batu Hijau copper and gold mine on the Island of Sumbawa, Indonesia and has access to a several exploration prospects as well as the large undeveloped Elang discovery within its Contract of Work.

The CEO Michael Finnegan said in a press statement on April 19, moving to Phase 2 is a significant step forward for the company. As a result, he continued, the parties have agreed to adjust part of Macmahon’s remuneration structure from a percentage based margin, to an agreed management fee of comparable value, reset annually.

Previous structure Under the previous remuneration model, project costs relating to the provision of mining services (excluding fuel and explosives) were to be incurred by Macmahon and charged to AMNT at cost plus the higher of an agreed margin on cost or a return on capital employed. In addition, from 2019 onwards, the gain share or pain share will be determined every 6 months, rather than annually.

Macmahon has signed a three-year contract with AMNT. The agreement will see Macmahon assist AMNT to evaluate options to accelerate production from Batu Hijau. The parties will also explore options to potentially develop additional deposits in the same mining area, such as the large Elang resource.

In 2016, the Batu Hijau mine produced approximately 477 million pounds of copper and 800,000 ounces of gold. Between 2018 and 2020, the total material movement at the mine (both ore and waste) is expected to be more than 200 million tonnes per annum.

PT Medco Energi Internasional Tbk (IDX: MEDC) has completed purchase of a 50 percent stake in PT Amman Mineral Internasional, which controls 82.2 percent of AMNT in 2016 (include Mcmahon’s part 44.3 percent).

MedcoEnergi together with AP Investment joined forces last year for the transaction and received positive support from the three largest state-owned banks. AP Investment is led by Agus Projosasmito, former President Director of PT Danareksa Securities.

AMNT has previously signed a head of agreement related to the transaction with Macmahon. The agreement was disclosed on March 1, 2017.

The agreement also includes mining contractors for potential areas of expansion and development projects including the Eagle block and the Nangka block. On May 8, 2017, AMNT and Macmahon signed a binding documentation agreement.

Macmahon will issue 954 million shares at a price of 0.203 Australian dollars per share for Amman Mineral Contractors Pte. Ltd. (AMC). As many as 65 percent of AMC’s shares are owned by AMNT, and 35 percent is owned by PT AP Investment. AMC, a Singapore-based company will own 44.3 percent stake in Macmahon.

In Feb. 2017, AMNT secured a copper export permit from the Energy and Mineral Resources. The permit granted the company to export 450,826 wmt of copper concentrate for the period of Feb. 15, 2018 until Feb. 15, 2019.

Currently, AMNT’s unit PT Amman Mineal Industri is making progress with its plan to develop smelter plant with planned capacity of 2 million tons of copper concentrates per annum. The company plans to spend US$1.6 billion to develop the smelter plant, located in its Batu Hijau site.

The smelter plant will be built on 80 hectares of land. The development of smelter plant is in line with the government’s long-term policy to ban exports of raw materials.

The company expects the construction of copper smelter and its supporting facilities located at Mantun and Benete villages of Maluk sub-district to be completed as planned by end of 2021.

In Indonesia, Macmahon has a Martabe gold mine contractor in North Sumatra with a 5-year contract duration from January 2016 from PT Agincourt Resources. Recently, the Perth-based mining contractor has partnered with publicly listed construction firm PT Nusa Konstruksi Enjiniring Tbk (IDX: DGIK) on the development of a gold and copper mine at Mount Tumpangpitu in Banyuwangi, East Java.

The $9 million deal bumps the total contract value the companies have secured between them over the past few years to $190 million, following construction work at the Martabe gold mine in North Sumatra, scheduled for completion in 2020.

In Australia, Macmahon became a contractor of a number of quarries including the Tropicana copper and gold mines, the Telfer gold mine and the St. Louis gold mine. Ives in Western Australia. In addition, Macmahon is also a contractor of the Byerwen coal mine in Bowen Basin, Queensland Australia.

AMNT plan to launch initial public offering (IPO) this year, the company’s key shareholder Arifin Panigoro said on March 13. He, however, declined to disclose the total amount shares to be offered to the public through the IPO nor the date of listing on the Indonesian Stock Exchange.

Emali: linda.silaen@theinsiderstories.com