Indo has executed a letter of intent with Kal and its wholly owned subsidiary Thatcher Mining, with the Perth explorer saying it has an exclusive period of due diligence on the Graha project.

Indo will pay Kal $US100,000 during this time and should a joint venture agreement be made will pay Kal another $US1.2 million with set payments to be made over seven months.

Graha has a JORC-compliant resource of 248 million tonnes of thermal coal, comprising 141Mt indicated and 107Mt of inferred, as of December.

Of the resource, Indo said 142Mt was at depths of less than 60m.

Located in the key coal producing region of East Kalimantan Province, power grid and road network infrastructure to the project is in place and Indo noted there were barge transportation options through the Mahakam River.

The project covers over 25,000 acres and studies are looking at a low-cost open pit thermal coal export operation.

In an added bonus for Indo, the company said such a mine could supply coal for its Jogjakarta liquid iron project’s processing requirements.

On the potential to integrate with the liquid iron project, Indo managing director Phil Welten said additional Graha coal could be sold to the domestic power market or meet possible demand increases from production expansion at Jogjakarta.

“This is an outstanding stand-alone project which supports our growth strategy in Indonesia, targeting low-cost production, large volume commodities with high domestic consumption potential,” he said.

“The demand for thermal coal continues to expand in Indonesia as the domestic market grows to meet increasing power demands.”