With gold prices soaring, the Merdeka group is keen to tap the Hong Kong market for funds to develop a promising new mine, but the IPO pitch may be hard to evaluate

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Key Takeaways:

• Merdeka Gold Resources is highlighting the potential of its Pani Gold Mine in North Sulawesi, but revenues are scant for now and start-up costs are high
• The mine has a favorable ratio of gold ore to waste rock, compared with other miners, suggesting that extraction costs could ultimately be relatively low

The term "gold mine" implies the potential for abundant profits. But the value of an actual mine may depend on the amount of waste rock that must be excavated to access the precious yellow metal.

This extraction challenge is captured in a key metric – the strip ratio. The proportion of waste to ore helps to determine how viable and profitable a mining operation may be. And as such, it is a useful indicator for investors weighing up a proposed Hong Kong stock listing by Indonesian gold miner PT Merdeka Gold Resources Tbk.

The company forms part of the diversified Indonesian mining group PT Merdeka Copper Gold Tbk (MDKA.JA), which owns the Tujuh Bukit gold and copper mine in East Java and the Wetar copper mine. For this listing, however, the value of Merdeka Gold Resources is almost entirely based on its flagship Pani Gold Mine project.

Located in the Indonesian province of North Sulawesi, Pani is a large open-pit project that has begun initial mining operations and is set to ramp up to full production over the next few years. The gold ore is reported to be relatively concentrated and consistently deposited at or near the surface, making it well suited for open-pit mining.

According to the listing application, the geology of the Pani site gives it an average strip ratio of about 0.7:1 over the mine's lifecycle. That means only 0.7 of a ton of waste rock needs to be removed for every ton of ore extracted, compared with one or more tons of waste in typical strip ratios for Indonesian mines. In other words, most mines must handle much more superfluous rock to extract the precious ore.

The Pani project has the potential to become one of Indonesia's biggest gold mines, according to its owners. Based on available data, the site contains roughly 7 million ounces of mineral resources, of which about 5.2 million ounces have been classified as ore reserves, with a mine life of around 15 years.

On this basis, the company estimates that gold extraction will be relatively cost effective, offering profit opportunities in a rising market and a degree of resilience from price volatility. Using a common industry metric, Merdeka Gold Resourcesputs

the all-in sustaining cost (AISC) of extraction at the Pani project at about $794 per ounce, at the lower end of the global cost curve.

However, Merdeka Gold is still at an early stage of operations compared with mature mining companies. As of last year, all its revenue came from related-party transactions such as the leasing of heavy equipment. Revenue was just $1.39 million in 2023 and $1.75 million in 2024, before plunging to $132,000 in 2025. Meanwhile, losses have ballooned from $6.84 million in 2023 to $27.49 million in 2025.

Still, the mine achieved a development milestone in February this year with its first gold pour, when refined metal is made into bars, marking the start of commercial production.

On the asset side, the company has expanded rapidly over the past three years. Non-current assets jumped from $309 million to $679 million, while net assets grew from $155 million to $381 million. The company said the increase was mainly driven by spending related to the Pani mine, including investments in construction, infrastructure and production facilities.

Liabilities such as shareholder loans and finance to support the Pani project have also soared from $173 million in 2023 to $360 million in 2025.

Reliance on a single mine

This trajectory helps to explain the company's decision to pursue a Hong Kong listing, to broaden its financial channels to help meet the steep costs of developing the Pani mine. Hong Kong's equity market has a relatively mature investor base for gold and resource companies, which tend to command higher valuations during periods of rising gold prices. For Merdeka, listing in Hong Kong at this initial stage of production is both a financing necessity and a way to capitalize on a favorable market window.

Overall, the Pani mine offers advantages in the form of its relatively low strip ratio and operational costs. With gold prices elevated by geopolitical troubles, a gradual ramp-up in output could, in theory, translate into strong earnings potential. The company has outlined plans to raise annual production from an initial range of 110,000 to 200,000 ounces to a peak of around 545,000 ounces.

However, the proposed scale is much smaller than the output of other Kong-listed miners. Zijin Mining (2899.HK; 601899.SH) produces more than 2.8 million ounces of mined gold annually, while Shandong Gold (1787.HK; 600547.SH) reported about 1.24 million ounces last year, and Zhaojin Mining (1818.HK) produces roughly 630,000 ounces. By contrast, Merdeka Gold currently relies on a single project that has yet to reach full production, making direct comparisons difficult.

Moreover, the reported strip ratio is an average over the commercial lifespan of the mine. As deeper levels are mined, the actual costs could rise. The company also remains reliant on funding from its parent and related parties as it brings the mine into production. Under such circumstances, the market cannot value the company in the same way as established miners with stable cash flows.

After a round of rising valuations for Hong Kong's gold sector, investors have become more selective about new listings. While Merdeka Gold may show early promise, the ultimate test will be whether its low-cost advantage can withstand market scrutiny and translate into real profits.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.