Sumatra Copper & Gold has formed a strategic alliance with Indonesian gold producer Merdeka Copper Gold to extend the mine life and enhance production at its Tembang gold-silver operation in southern Sumatra.

Merdeka is expected to make an initial investment of $1.5m over the next six months as part of the new arrangement.

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Sumatra Copper & Gold chairman Jocelyn Waller said: “The potential to increase resources and reserves at Tembang has long been recognised, but to date the company’s focus has been on production.

“With this strategic alliance with Merdeka, the company now has a strong local partner to enable the discovery process to be expedited.”

Sumatra Copper is also set to issue chess depository interests (CDIs) to Merdeka at a price representing the five trading day volume-weighted average price (VWAP) before signing a formal agreement that entails specific details regarding the agreed exploration programme.

“With this strategic alliance with Merdeka, the company now has a strong local partner to enable the discovery process to be expedited.”

The CDIs will be issued in tranches, and are set to be based on the exploration incurred by Merdeka during each three month period (quarter) and within one month of quarter end.

Additionally, Merdeka is planning to invest up to $10m in stages for each successive approved exploration programme, based on exploration success and subject to corporate approvals.

Merdeka has also agreed with its shareholders Provident Minerals and PT Saratoga Investama Sedaya to expedite $2m of the $7.5m major equity raise planned for November this year, as part of a separate development.

The mine has total life-of-mine production of 2.1Mt ore at a process rate of around 400,000tpa at 2.8g/t gold and 33g/t silver, based on a feasibility study published in April 2014.

The study further noted that the mine has an aggregate of 169,000oz of recovered gold and 1.8 million ounces of recovered silver.