Silkroad Nickel signs definitive head of agreement to operate Sulawesi smelter

CATALIST-LISTED Silkroad Nickel announced after trading hours on Thursday that, together with its subsidiary PT Teknik Alum Service (PT TAS), it has signed a binding definitive head of agreement with Renewable and Sustainable Energy Holding (R&S), PT Artabumi Sentra Industri (PT ASI) and PT Anugrah Tambang Smelter (PT ATSM) to form a joint venture to build and operate smelter facilities for the production of nickel pig iron (NPI) on the group's mine site in Sulawesi, Indonesia.

Under the terms of the agreement, Silkroad and R&S will set up a joint venture known as "New.Co" and will enter into a shareholders' agreement. Silkroad will be the majority shareholder of New.Co.

New.Co intends to enter into an operating agreement with PT ASI to operate 12 blast furnaces and ancillary equipment for the production of NPI, with the option to purchase. The total amount payable by New.Co is US$30 million and the payment terms are to be mutually agreed by the parties. New.Co, Silkroad or PT TAS will have the option to acquire the blast furnaces from PT ASI, upon full payment of US$30 million, at no further cost or payment.

According to the PT ASI operating agreement, New.Co or Silkroad will acquire three 7.5 megawatt (MW) power plants and the corresponding ancillary equipment to supply power to the blast furnaces for a maximum price of US$20 million payable by way of new ordinary shares in the share capital of Silkroad at an agreed price of S$0.725 per share.

The Silkroad shares will be issued upon commissioning of each set of up to four blast furnaces required to power one power plant. The value of the power plants and the corresponding ancillary equipment to supply power to the blast furnaces will be determined by an independent third party to be mutually appointed by the parties.

PT TAS intends to enter into a nickel ore supply agreement with New.Co or if required, PT ASI, and PT TAS intends to provide a guarantee on the quality and quantity of nickel ore necessary for the operation of the blast furnaces.

Silkroad or PT TAS intends to acquire 100 per cent of the shareholdings in PT ATSM.

The signing and execution of the completion agreements are subject to conditions such as regulatory and corporate approvals.