NEW YORK, Dec. 1, 2015 /PRNewswire/ --
BFS Highlights:
- Average Annual EBITDA of US$87m (A$121
million)
- Low Capex of only US$105
million
- Low Opex FOB barge of US$29.37 per ton
- BFS results based on executed sales contract with a major
Illinois Basin
utility
- All major environmental permits received to commence
construction
- US based debt and equity finance discussions progressing
rapidly
- Results of the Scoping Study for the Buck Creek No.2 Mine
due December 2015
Paringa Resources Limited ("Paringa" or "Company")
is pleased to announce the results of a Bankable Feasibility Study
("BFS") on the Buck Creek No.1 Mine ("Project"). The
BFS confirms that the Buck Creek No.1 Mine will be a world class,
low capex, high margin coal mine, and will generate EBITDA of over
US$87 million (A$121million) per annum, even at current
depressed coal prices.
Commenting on the completion of the BFS, Paringa's President and
CEO, Mr David Gay, said:
"The BFS has produced an excellent result and has confirmed
the Buck Creek No.1 Mine to be a compelling world-class mining
project, generating strong EBITDA margins of over 35% despite the
current depressed coal market in general.
"The 17% reduction in Capex to only US$105 million has also resonated well with US
funding providers, and with the Project's average annual EBITDA of
US$87 million (A$121 million) per annum, has resulted in a much
shorter payback period of upfront funding.
"Importantly for current funding activities and for
investors, the BFS is based on actual contracted sale prices from
the Company's binding agreement with a major Illinois Basin utility and a final bidding
process with a large pool of local contractors for all major Capex
items. In addition, we expect the Project's strong financial
returns to increase even further as domestic coal markets
recover.
"With the required environmental permits already in place,
the BFS was the final stage before we commence construction of the
Buck Creek No.1 Mine next year once funding has been
finalized."
For further enquiries:
David
Gay
Nathan Ainsworth
President
&
CEO
Vice-President of Business Development
Key Results from BFS
Table 1: Coal
Sales Price Sensitivity Analysis
|
Adjustment to Coal
Sales Forecasts
|
-10%
|
-5%
|
Base
Case
|
+5%
|
+10%
|
Annual EBITDA
(US$, Steady State)
|
US$69m
|
US$78m
|
US$87m
|
US$96m
|
US$105m
|
Annual EBITDA
(A$, Steady State)
|
A$96m
|
A$108m
|
A$121m
|
A$128m
|
A$146m
|
Note: assumed US$0.72
per A$1.0
|
|
Table 2: Strong
Project Fundamentals (to a maximum accuracy variation +/-
10%)
|
Initial Capital
Costs
|
|
Mine Site Development
and Infrastructure
|
US$61
million
|
CHPP & Barge
Load-Out Facility
|
US$44
million
|
Total Initial
Capital Cost
|
US$105
million
|
Production
(tons)
|
|
Average ROM Coal
Production Steady State
|
5.2 Mtpa
|
Total ROM Coal
Produced Life-of-Mine ("LOM")
|
86.3
million
|
Average Product
Yield
|
73.5%
|
Mine Life
|
18 years
|
Average Saleable Coal
Production Steady State
|
3.8 Mtpa
|
Total Saleable Coal
Produced LOM
|
63.5
million
|
Start of
Construction
|
Q1 2016
|
Start of Production
Ramp-Up
|
Q4 2017
|
Construction
Period
|
19 months
|
Cashflow
|
|
Average Sales Price
Received (per ton)
|
2018
|
2035
|
US$45.99
/t
|
US$55.63
/t
|
Average Annual
Operating Costs (steady state)
|
US$29.37 per
ton
|
Average Annual
Operating Cashflow (steady state)
|
US$87
million
|
Buck Creek No.1 Mine: A World Class Mining Project
Despite the challenging environment for the US coal industry,
the Project has a number of attributes that are consistent with a
world class mining project:
|
Low
Opex
|
-
|
Project's low opex of
US$29.37 (FOB Barge) is comparable to other newly developed
room-and-pillar operations in the Illinois Basin
|
|
|
|
|
|
Low
Capex
|
-
|
Project's low capex of
US$105 million is in line with the capital intensity of recent
Illinois Basin developments
|
|
|
|
|
|
High
Margins
|
-
|
Based on long term
contracted sales, the Project will yield over +35% EBITDA margins
at the bottom of the market
|
|
|
|
|
|
Established Coal
Industry and Transport Infrastructure
|
-
|
Project is located in
the heartland of the Western Kentucky coal industry and is adjacent
to similar mining operations, providing strong benchmarks for opex,
capex and sales
|
|
|
|
|
|
High Quality
Product
|
-
|
Project's WK No.9 coal
spec is a premium coal product that is increasingly being consumed
throughout most parts of the Eastern US power market
|
|
|
|
|
|
Fully Permitted,
First World Jurisdiction
|
-
|
All key environmental
permits required to construct the Project and its Green River barge
load-out facility have been approved
|
|
|
|
|
|
Stable Initial
Target Market
|
-
|
Paringa's initial
target market, the Ohio River Market, is a stable customer base
largely insulated from the impact of natural gas prices, consuming
around +55 million tons of coal per year
|
|
|
|
|
|
Growing Secondary
Market
|
-
|
Paringa's secondary
target market, South East Market, is a growing market for Illinois
Basin Coal as it continues to displace the high cost Central
Appalachian coal basin
|
|
|
|
|
|
Organic Growth
Potential
|
-
|
Paringa has completed
the BFS at Buck Creek No.1, is nearing completion of the Scoping
Study at Buck Creek No.2 and is assessing the potential for a third
mine development (Buck Creek No.3) in the western half of the Buck
Creek Mining Complex
|
|
|
|
|
|
Experienced
Management
|
-
|
Paringa's US based team
are highly experienced in developing and operating coal projects in
the US
|
Introduction
The BFS has been prepared in accordance with JORC Code 2012
Edition ("JORC Code") and National Instrument NI 43-101
'Standards of Disclosure for Mineral Projects' ("NI
43-101").
Utilizing the Project's Marketable Ore Reserve Estimate of 63.5
million tons of coal, the Project can support production of 5.2
million tons per annum ("Mtpa") Run-of-Mine ("ROM")
coal yielding approximately 3.8Mtpa of saleable clean coal at
steady state production.
The low capex, high margin Project is expected to achieve
average earnings before interest, taxes, depreciation, and
amortization ("EBITDA") of US$87
million per annum (steady state) with average annual total
operating costs (steady state; inclusive of royalties and severance
taxes) of US$29.37 per ton Free On
Board Barge ("FOB Barge") at the Project's barge load-out
facility.
Comparison of Results from BFS and PFS
Compared to the results of the Pre-Feasibility Study
("PFS") released in March
2015, the BFS results show a significant decrease in the
total initial capital by US$23 million to
US$105 million as a result of conducting a competitive
bidding process with a large pool of local contractors experienced
in developing coal mines in the Illinois Basin. With an additional 10%
contingency, the total capital figure increases to US$115 million.
In addition, the BFS results indicate a slight reduction in the
average annual operating costs (FOB Barge) of US$0.82 to US$29.37
per ton as a result of a reduction in leased equipment costs (on a
per ton basis), reduction in employee benefits insurance costs and
the assumed removal of the vendor override royalty (0.5%) as part
of the re-negotiation of the remaining vendor payments announced to
the Australian Securities Exchange ("ASX") on 2 June 2015. Note, Paringa has not included the
final vendor payments within the total initial capital of
US$105 million, however will account
for the final vendor payments within the total financing
requirement currently negotiated with US debt and equity
financiers.
A comparison of the results from the BFS and PFS are as
follows:
Table 3:
Comparison of Scoping Study and PFS
|
Item
|
BFS
|
PFS
|
Average Annual
Production (Steady State)
|
3.8 Mtpa
|
3.8 Mtpa
|
Average Sales Price
Received (FY18)
|
US$45.99
/t
|
US$47.36
/t
|
Average Sales Price
Received (FY35)
|
US$55.63
/t
|
US$55.63
/t
|
Total Operating Costs
(FOB Barge) (Steady State)
|
US$29.37
/t
|
US$30.19
/t
|
Average Annual EBITDA
(Steady State)
|
US$87
million
|
US$81
million
|
Total Initial
Capital
|
US$105
million
|
US$127
million
|
Next Steps
1.
Financing the Buck Creek No.1 Mine
Following the execution of the cornerstone sales agreement with
Louisville Gas and Electric Company and Kentucky Utilities Company
("LG&E and KU"), and the completion of the final bidding
process for major capital items to develop the Project, Paringa
will continue to progress advanced discussions with debt and equity
financiers.
2.
Execute Additional Coal Sales Contracts
The cornerstone sales contract executed with LG&E and KU is
a 7-year contract covering an initial 2-year construction period
(2016 to 2017) and a 5-year production period (2018 to 2022).
LG&E and KU are two of the largest fuel buyers within the
Company's initial target Ohio River Market, with significant
resources to undertake a 12 month due diligence process, and are
subsidiaries of PPL Corporation, a diversified US energy company
that has a market capitalisation of approximately US$22.6 billion (NYSE: PPL).
Paringa has also completed 12 months of due diligence
identifying and building relationships with local utilities who
operate scrubbed coal fired power plants along the Ohio River
Market and who are buyers of the Project's Western Kentucky No.9
("WK No.9") coal specification.
Following execution of the cornerstone sales agreement and
completion of financing activities, Paringa will contract
additional coal sales by participating in future solicited bids
with local utilities during the North American Spring and Fall
solicitation periods and will also approach local utilities to make
unsolicited offers to sell coal outside of the solicitation
periods. In addition, the Company will assess opportunities to sell
coal into a secondary target South East Market, which is a growing
market for Illinois Basin
coal.
3.
Results of Scoping Study for Buck Creek No.2 Mine
Paringa has also begun assessing opportunities to incrementally
expand production at the Buck Creek Mining Complex, forming part of
a staged multi-project development program. The Company announced
to the ASX in November 2014, that it
had begun technical studies (now Scoping Study) at the Buck Creek
No.2 Mine. This second mine development has the potential to be a
low capital cost project due to the shallow depth of the coal seam
from the surface at the mine portal. The results of the Scoping
Study for the Buck Creek No. 2 Mine are expected to be released
during the December quarter of 2015.
Illinois Basin
Update
Consistent with the rationalization of depleting resources and
high cost mines across the US coal industry, several Illinois Basin producers have recently
announced the closures of older or higher cost operations with
continued consolidation into newer and lower cost mining
operations. Recent company fillings from Illinois Basin producers have announced the
following closures:
Table 4: Overview
of Recently Announced Illinois Basin Mine Closures
|
Mine
|
Owner
|
Production (FY14)
|
Close
Date
|
Reason
|
Onton No.9
|
Alliance
|
2.8 mt
|
Closed
|
End of economic
reserve life
|
Hopkins (Elk
Creek)
|
Alliance
|
3.0 mt
|
2016
|
End of economic
reserve life
|
Midway
|
Armstrong
|
2.5 mt
|
2016
|
End of economic
reserve life
|
New Era
|
Murray
|
5.5 mt
|
2016
|
End of economic
reserve life
|
In relation to the Onton No.9 and Hopkins mines owned by
Alliance Resource Partners, LP ("Alliance"), it has been
announced that the company is effectively transferring coal
production to its recently acquired Illinois White Oak longwall
mine and the expanding Western Kentucky River View room-and-pillar
mine, which is estimated to produce nearly 10 million tons in 2015,
making it the largest and most productive underground
room-and-pillar coal mine in the US.
This rationalization of production within the Illinois Basin is a positive indication that
producers are focused on maximizing margins which carefully
protecting the market from over-production. This willingness
from multiple producers to protect the market from oversupply is
one of the primary reasons for the exceptional margins produced
from this region.
The Illinois Basin's position
at the bottom of the delivered cost curve for the Eastern US power
markets, coupled with the recent scrubbing of US coal fired power
plants which removes sulfur as a key consideration, are the key
drivers for the basin's success. This position is dictated by both
the consistent and highly productive geology of the basin, which
lends itself to low cost underground mining methods, and the basins
access to low cost barge and rail transportation infrastructure.
When both factors are taken into account, the Illinois Basin excels as one of the lowest
cost delivered fuel sources into the Eastern US power market.
Given Illinois Basin's position
on the delivered cost curve, it will continue to take market share
from other higher cost coal basins as it has done over the past
decade, typically displacing the higher cost Central Appalachian
coal basin ("CAPP").
Illinois Basin: Competitive
with Natural Gas
Even at currently depressed natural gas prices, coal remains a
highly competitive and dominant energy source for the Ohio River
market, which is the initial target market for the Buck Creek No. 1
Mine. This is primarily due to the lower production costs of the
Illinois Basin coals and the
extremely favorable logistical and transportation costs of barge
supplied coal. With Illinois Basin
coals supplying this region for a delivered cost of less than
US$2.50 per mmbtu, it is expected the
Ohio River Market will remain strongly in favor of coal going
forward.
Within the Northeast of the US, low cost natural gas from the
Marcellus and Utica basins is
expected to remain the most economic fuel for power generation. The
physical limitations and costs of natural gas transportation
rapidly increase the delivered cost of this natural gas as it moves
towards the Ohio River Market or into the South East Market
(represented by the high delivered cost of natural gas).
In the event natural gas prices rise in the future, there is the
ability for US coal fired power plants based in the Ohio River
Market and South East Market to increase utilization rates (i.e.
"run harder"), potentially leading to an increase in Illinois Basin coal burn. This utilization
demand dynamic is in addition to the coal basin switching dynamic
that underpins the long term demand growth for Illinois Basin coals.
US$220 Million Cornerstone Long
Term Contract Secured
Paringa executed its "cornerstone" coal sales agreement with
LG&E and KU for future coal sales from the proposed Buck Creek
No.1 Mine, totaling US$220 million of
contracted sales.
Based on feedback from Paringa's potential "tier-1" customers
within the Ohio River Market, the Buck Creek No.1 Mine's Coal
Handling and Preparation Plant was redesigned as part of the
Pre-Feasibility Study ("PFS") released to the ASX in
March 2015, to produce both a
fully-washed and a blended product. It is estimated that 30% of
total sales from the Buck Creek No.1 Mine will be a fully washed
11,800 btu/lb product and 70% of total sales will be a 11,200
btu/lb product.
Paringa is expected to begin production at the Buck Creek No.1
Mine in 2018, reaching full production of 3.8mtpa by approximately
2020. Under the coal sales agreement, Paringa is contracted to
deliver a total of 4.75 million tons over a 5-year period of its
11,200 btu/lb product, with 750,000 tons to be delivered in 2018
and 1,000,000 tons to be delivered in each year from 2019 to
2022.
Table 5: Summary
of Key Terms
|
Year
|
Contracted
Production
|
Fixed Contract
Price (FOB Barge; 11,200
btu/lb)
|
2018
|
750,000
tons
|
US$44.50 per
ton
|
2019
|
1,000,000
tons
|
US$45.50
|
2020
|
1,000,000
tons
|
US$46.30
|
2021
|
1,000,000
tons
|
US$47.25
|
2022
|
1,000,000
tons
|
US$48.20
|
|
Buck Creek No.1 Mine
"All-in" Operating Costs per ton
|
US$29.37 per
ton
|
The Buck Creek No.1 Mine's direct barge access to the
Green and Ohio River systems
provides a significant transportation advantage. The LG&E and
KU coal sales agreement calls for fixed sales prices based on a
Free-on-Board ("F.O.B.") Buck Creek No.1 Green River Barge
Price", which is equivalent to selling coal at the end of the Buck
Creek No.1 Mine's conveyor belt at the Green River barge load-out
facility.
The contracted fixed coal sales prices for Paringa's 11,200
btu/lb coal spec begins at US$44.50
per ton in 2018, escalating to US$48.20 per ton in 2022.
The LG&E and KU agreement includes standard project
development milestones that are in line with the proposed Buck
Creek No.1 Mine construction program. During this construction
period, LG&E and KU will progressively monitor Paringa's
performance in meeting these milestones.
LG&E and KU are two of the largest fuel buyers within the
Company's initial target Ohio River Market, with resources to
perform a 12 month due diligence process on Paringa and the
Project, and are subsidiaries of PPL Corporation, a diversified US
energy company that has a market capitalisation of approximately
US$22.6 billion (NYSE: PPL).
Coal Sales Marketing Strategy Going Forward
For utilities within Paringa's initial target Ohio River Market,
the duration of most standard sales contracts with coal producers
is currently between one and three years. The Ohio River Market
utilities are not currently contracting for the 2019 year and
beyond.
Paringa will continue contracting additional coal sales with
utilities in the Ohio River Market as the Company moves towards
production in 2018. Paringa has been added to the "Qualified
Bidders List" of all utilities within the Ohio River Market and
will participate in all future solicited bids during the North
American spring and fall solicitation periods. In addition, Paringa
has begun approaching utilities to make unsolicited offers for
future coal sales.
Over the coming months, the Company will add resources to its
coal sales and marketing team to build relationships with utilities
within the South East Market, a growing market for Illinois Basin coal. Provided below is an
overview of Paringa's initial target Ohio River Market and the
expanding South East Market.
Initial Target Market – Ohio River Market
A Stable Base-load Energy Source for the Region
The Project is in an enviable position in having direct barge
access to the Green and Ohio rivers, providing a significant
transportation cost advantage over other Illinois Basin and US coal producers.
Paringa's initial target market is the 17 large base-load coal
fired power plants located on the Ohio River. These plants consumed
55 million tons of coal in 2014, primarily from the Illinois Basin and have installed
environmental controls and are fully compliant with Mercury and Air
Toxics Standard ("MATS") regulations.
The Ohio River Market is an important base-load energy source
for the region and is largely insulated from the volatility of
natural gas prices. For example, there are no combined-cycle
natural gas plants currently in the State
of Kentucky. Given the cost competitiveness of Illinois Basin coal delivered to the Ohio
River Market (approximately US$2.00 to
US$2.30 per mmbtu) and the capital spent on installing
environmental controls (+US$35 billion in total in the US), the
Ohio River Market will remain a vital source of energy for the
region.
Provided below is an overview of the 17 large base-load energy
power plants within the Ohio River Market:
Table 6: Ohio
River Market - Target Customers #1
|
Plant
|
Ghent
|
Trimble
County
|
Mill
Creek
|
Cumberland
|
Shawnee
|
Paradise
|
R.D.
Green
|
D.B.
Wilson
|
East
Bend
|
State
|
KY
|
KY
|
KY
|
TN
|
KY
|
KY
|
KY
|
KY
|
KY
|
Plant
Owner
|
LG&E
|
LG&E
|
LG&E
|
TVA
|
TVA
|
TVA
|
BREC
|
BREC
|
Duke
|
Regulated?
|
Yes
|
Yes
|
Yes
|
No
|
No
|
No
|
Yes
|
Yes
|
Yes
|
Scrubbers?
|
Yes
|
Yes
|
Yes
|
Yes
|
Planned
|
Yes
|
Yes
|
Yes
|
Yes
|
Capacity
(GW)
|
2.0
|
1.3
|
1.5
|
2.5
|
1.4
|
2.3
|
0.5
|
0.4
|
0.6
|
Utilization
(2014)
|
74%
|
66%
|
67%
|
66%
|
59%
|
66%
|
87%
|
82%
|
55%
|
Coal Burn
(2014)
|
6.03 mt
|
3.29
mt
|
3.89 mt
|
6.11
mt
|
3.88 mt
|
5.89
mt
|
1.30 mt
|
1.34 mt
|
1.38 mt
|
% Illinois Basin
Supplied
|
97%
|
81%
|
100%
|
82%
|
0%
|
100%
|
96%
|
100%
|
96%
|
Delivered Coal Price
(2014, US$ pe rmmbtu)
|
$2.26
|
$2.32
|
$2.34
|
$2.41
|
$2.32
|
$2.25
|
$2.74
|
$2.55
|
$2.17
|
Primary Transport
Method
|
Barge
|
Barge
|
Rail
|
Barge
|
Rail
|
Barge
|
Barge
|
Truck
|
Barge
|
Barge Load-out
Location
|
Ohio River
|
Ohio River
|
Ohio River
|
Cumberland
River
|
Ohio River
|
Green
River
|
Green
River
|
Green
River
|
Ohio River
|
|
|
Table 7: Ohio
River Market - Target Customers #2
|
Plant
|
W.H.
Zimmer
|
J.M.
Stuart
|
Killen
Station
|
Miami
Fort
|
Elmer
Smith
|
Henderson
2
|
H.L.
Spurlock
|
Clifty
Creek
|
State
|
OH
|
OH
|
OH
|
OH
|
KY
|
KY
|
KY
|
IN
|
Plant
Owner
|
Dynegy
|
Dynegy
|
AES
|
Dynegy
|
Owensboro
City
|
Henderson
City
|
EKPC
|
Multi-owned
|
Regulated?
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Scrubbers?
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
Capacity
(GW)
|
1.3
|
2.3
|
0.6
|
1.2
|
0.4
|
0.3
|
1.3
|
1.2
|
Utilization
(2014)
|
62%
|
51%
|
73%
|
74%
|
67%
|
84%
|
73%
|
58%
|
Coal Burn
(2014)
|
2.92 mt
|
4.64
mt
|
1.90 mt
|
3.36
mt
|
1.19 mt
|
1.02 mt
|
4.01
mt
|
2.85
mt
|
% Illinois Basin
Supplied
|
43%
|
46%
|
48%
|
61%
|
100%
|
100%
|
54%
|
100%
|
Delivered Coal Price
(2014, US$ pe rmmbtu))
|
$2.12
|
$2.20
|
$2.18
|
$2.07
|
$2.02
|
$2.37
|
$2.38
|
$2.92
|
Primary Transport
Method
|
Barge
|
Barge
|
Barge
|
Barge
|
Truck
|
Truck
|
Barge
|
Barge
|
Barge Load-out
Location
|
Ohio River
|
Ohio River
|
Ohio River
|
Ohio River
|
Ohio River
|
Green
River
|
Ohio River
|
Ohio River
|
Secondary Target Market – South East
Switching from High Cost Central Appalachia Coal Supply to
the Illinois Basin
Paringa has also identified a secondary target market, the South
East Market, which has traditionally been supplied by the Central
Appalachian region. Coal basin switching from the higher cost
Central Appalachian coals to lower cost Illinois Basin coals has been facilitated by
changing environmental standards.
These standards require installation of pollution control
devices at coal fired power plants, including flue gas
desulphurization units ("Scrubbers"). These Scrubbers now
allow power plants to burn the cheapest fuels on a delivered basis
with less regard to sulfur content, because almost all of the
sulfur and other harmful chemicals are removed before being
released to the atmosphere.
The increase in Scrubber installations in the US has provided an
opportunity for low cost Illinois
Basin coal to increasingly penetrate a large proportion of the
Eastern U.S. power market which has been traditionally supplied by
Central Appalachia. For example, the Illinois Basin's market share of the South
East Market has increased from 5% in 2006, to a market share of 26%
in 2014. The South East Market consumed approximately 20 million
tons of Illinois Basin coal in
2014.
The typical "mine-gate" costs of Central Appalachian mines are
between US$55 to US$70 per ton,
compared to Paringa's "all-in" average annual operating costs of
US$29.37 per ton (FOB Barge). The key
reason for this difference in operating cost structure is primarily
due to the geology.
The typical "in-seam" yield (i.e. the percentage of coal from
top to bottom of the coal seam) for Central Appalachian thermal
coal mines ranges from 45% to 55%. The equivalent in-seam yield for
Buck Creek's WK No.9 coal seam is
92.9%. This difference in in-seam yield is the largest single
difference in explaining the difference in mine productivity and
operating costs at the mine-gate.
The increase in Scrubber installations in the US has provided an
opportunity for low cost Illinois
Basin coal to increasingly penetrate a large proportion of the
Eastern U.S. power market which has been traditionally supplied by
Central Appalachia. For example, the Illinois Basin's market share of the South
East Market has increased from 5% in 2006, to a market share of 26%
in 2014. The South East Market consumed approximately 20 million
tons of Illinois Basin coal in
2014.
The typical "mine-gate" costs of Central Appalachian mines are
between US$55 to US$70 per ton,
compared to Paringa's "all-in" average annual operating costs of
US$29.37 per ton (FOB Barge). The key
reason for this difference in operating cost structure is primarily
due to the geology.
The typical "in-seam" yield (i.e. the percentage of coal from
top to bottom of the coal seam) for Central Appalachian thermal
coal mines ranges from 45% to 55%. The equivalent in-seam yield for
Buck Creek's WK No.9 coal seam is
92.9%. This difference in in-seam yield is the largest single
difference in explaining the difference in mine productivity and
operating costs at the mine-gate.
Realistic BFS Sales Price Assumptions
Paringa has adopted the LG&E and KU long term contract
prices for the Project's Blended Product (11,200 Btu/lb) for the
BFS from 2018 to 2022. Hanou Energy Consulting, LLC's latest
Illinois Basin coal price forecast
has been adopted for the Project's Fully Washed Product (11,800
btu/lb) for years 2018 to 2035 and for the Blended Product (11,200
btu/lb) for years 2023 to 2035.
A selection of the sales prices used in the BFS for Paringa's
Fully Washed and Blended Products for the years 2018 to 2035 are
summarised in the table below:
Table 8: Selected
Average Sales Forecasts (US$ per ton)
|
Project Coal
Specification
|
2018
|
2019
|
2020
|
2025
|
2030
|
2035
|
Fully Washed (11,800
Btu/lb)
|
49.46
|
49.92
|
50.39
|
52.81
|
55.35
|
58.03
|
Blended (11,200
Btu/lb)
|
44.50
|
45.50
|
46.30
|
49.64
|
52.06
|
54.60
|
Low Operating Costs
The average annual operating costs per clean ton of coal during
steady state production ("all-in cash costs") is approximately
US$29.37 per ton (FOB Barge),
including the cost of leased mining equipment, royalties and
severance taxes. The average annual operating costs adopted in the
BFS has been reduced by US$0.82 from
the PFS equivalent operating cost.
Table 9: Low
Operating Costs
|
Average Annual
Operating Costs (Steady State)
|
BFS
(US$ per ton)
|
PFS
(US$ per ton)
|
Variance (US$ per ton)
|
Labor and
Benefits
|
7.46
|
7.71
|
(0.25)
|
Operating &
Maintenance
|
9.33
|
9.40
|
(0.07)
|
Power &
Utilities
|
0.91
|
0.97
|
(0.06)
|
General &
Administration
|
0.81
|
0.78
|
0.03
|
Leased
Equipment
|
1.71
|
1.85
|
(0.14)
|
Sub-total Direct
Mining Costs
|
20.22
|
20.69
|
(0.47)
|
CHPP & Barge
Load-Out Facility
|
3.45
|
3.51
|
(0.06)
|
Taxes &
Insurance
|
1.37
|
1.29
|
+0.08
|
Royalties (Average
rate of 4.1%)
|
2.01
|
2.37
|
(0.36)
|
Severance
Taxes
|
2.32
|
2.32
|
-
|
Average Annual
Operating Costs
|
29.37
|
30.19
|
(0.82)
|
The reduction is largely due to a reduction in leased equipment
costs (on a per ton basis) and the assumed removal of the vendor
override royalty (0.5% of gross sales value) as part of the
re-negotiation of the remaining vendor payments announced to the
ASX on 2 June 2015.
Note, Paringa has not included the final vendor payments within
the total initial capital of US$105
million, however will account for the final vendor payments
within the total financing requirement currently negotiated with
debt financiers.
The Project's low operating costs result from the following
inherent advantages:
- In-seam yield of the Project's WK No.9 seam is 92.9%,
effectively almost pure coal, and the Project's mine plan being a
relatively flat lying (i.e. 2o to 3o dip),
consistent, and laterally continuous coal seam resulting in high
productivity;
- Close proximity to the Green River provides direct low-cost
barge access to the lucrative Ohio River Market consisting of
large, scrubbed, and efficient base load power plants;
- Proximal to local mining services and equipment providers;
- Located within a mature coal mining district with access to
highly skilled union-free labour;
- Competitive power and utilities costs; and
- Economic rights to the coal are generally owned by the local
landowners (e.g. farmers) who are highly supportive of the
Project.
Capex: Final Bidding Process Completed
Paringa received competitive bids for all major capital items in
the BFS for the construction and development of the Project. These
bids were received as a result of an extensive six month contract
negotiation and bidding process for all major capital items
including site development, electrical substation and
infrastructure, slope (decline) construction, shaft excavation,
mine fan and escape hoist, surface facilities, coal preparation
plant, materials handling, overland conveyor belt and barge
load-out facility.
Due to the competitive bidding process between several highly
experienced contractors, there has been a significant saving to the
quotes used in the initial total capital estimate for the PFS. This
is an indication of the availability of highly experienced coal
industry contractors and the competition among contractors to win
mine development work in the Illinois Basin.
Total initial capital is estimated at US$105 million which includes the cost of surface
property, surface and underground mine development and
infrastructure estimated at US$61
million and the cost of a 700 tph wash plant, barge load-out
and surface facilities of US$44million. The total initial capital cost with
an added 10% contingency reserve is US$115
million. Sustaining capital for the mine, mine site
infrastructure and CHPP have been estimated at US$1.28 per ton.
A comparison of the Project's major capital cost items adopted
in the BFS and PFS is shown below:
Table 10:
Comparison of BFS and PFS Major Capital Item Costs
|
Capital
Item
|
BFS
(US$ million)
|
PFS
(US$ million)
|
Variance (US$ million)
|
Project
Development
|
8.82
|
9.35
|
(0.53)
|
Electrical
|
3.07
|
3.62
|
(0.55)
|
Site
Development
|
2.78
|
2.83
|
(0.05)
|
Surface
Facilities
|
5.05
|
5.53
|
(0.48)
|
Slope
|
19.31
|
35.48
|
(16.17)
|
Slope
Hoist
|
2.24
|
0.00
|
+2.24
|
Underground
Development
|
3.92
|
2.76
|
+1.16
|
Shaft
|
6.80
|
10.50
|
(3.70)
|
Slope Belt
|
5.42
|
6.59
|
(1.17)
|
Fan, Escape and
Hoist
|
1.77
|
1.66
|
+0.11
|
Engineering and
Safety
|
1.47
|
1.33
|
+0.14
|
Sub-total Mine
Development
|
60.65
|
79.65
|
(19.03)
|
Preparation
Plant
|
19.55
|
18.51
|
+1.04
|
Materials
Handling
|
20.14
|
23.38
|
(3.24)
|
River Dock
|
4.20
|
4.72
|
(0.52)
|
Refuse
Disposal
|
0.10
|
1.00
|
(0.90)
|
Sub-total CHPP and
Load-out
|
43.99
|
47.61
|
(3.62)
|
Total Initial
Capital
|
104.60
|
127.28
|
(22.68)
|
Capital costs for the Buck Creek No.1 Mine have been benchmarked
against similar underground mines in the region that mine the
Project's WK No.9 coal seam in similar conditions, utilizing
identical mining and processing techniques and equipment. In
addition, the capital intensity (inclusive of leased equipment) of
the Buck Creek No.1 Mine is similar to other new coal developments
in the Illinois Basin by public
listed companies that have started construction since 2007:
Table 11: Capital
Intensity of Recent Illinois Basin Developments
|
Mine
|
Owner
|
Construction Start
Year
|
Nameplate
Production
|
Capex
Intensity
|
River View
(CM)
|
Alliance
|
2007
|
8.4 Mtpa
|
US$29 /t
|
Bear Run
(DL)
|
Peabody
|
2009
|
5.2 Mtpa
|
US$50 /t
|
White Oak #1
(LW)
|
Alliance/Private
|
2011
|
6.5 Mtpa
|
US$62 /t
|
Gibson South
(CM)
|
Alliance
|
2011
|
5.2 Mtpa
|
US$38 /t
|
Pennyrile
(CM)
|
Rhino
|
2013
|
2.0 Mtpa
|
US$34 /t
|
Average
|
|
US$43
/t
|
Buck Creek No.1
(CM)
|
Paringa
|
2016
|
3.8 Mtpa
|
US$43 /t
|
|
|
|
|
|
|
Capital Intensity =
Total Capital divided by Nameplate Production; Capex includes all
mining equipment to full production
|
Note: (CM) –
Continuous Miner; (LW) – Longwall; (DL) – Surface
Dragline
|
Source: Company
Filings
|
The Buck Creek No.1 Mine is located in one of the best-serviced
and infrastructure advantaged coal regions in the US. All
construction services, construction personnel, contractors and
parts will be supplied by firms who are operating in the region.
Final bid awards and construction contract executions will align
with the completion of formal negotiations with financiers to
develop the Buck Creek No.1 Mine.
Growing Coal Resource
Paringa previously announced to the ASX (February 2015), an updated Coal Resource Estimate
("CRE") of 211 million tons (Measured and Indicated
categories) reported in accordance with the JORC Code 2012. For the
BFS, the CRE has now increased to 224 million tons (~203 million
tonnes) in the Measured and Indicated categories. The updated CRE
incorporated results from an additional seven air rotary holes
drilled by Paringa 2015. Drilling has confirmed the WK No.9 seam to
demonstrate lateral stratigraphic and coal quality continuity.
Table 12: Buck
Creek Mining Complex – Coal Resource Estimate
|
CRE Tonnage
(Mt)
|
Product Quality
(+4% Eq. Moisture)
|
Measured
|
Indicated
|
Total Measured
& Indicated
|
Inferred
|
Total
|
Calorific
Value
|
Ash
|
Yield
|
60.5
|
163.6
|
224.1
|
0.7
|
224.8
|
11,893
Btu/lb
|
8.4%
|
92.9%
|
A total of 194 bore holes were used in the estimation, including
103 Kentucky Geological Survey core holes, 29 Buck Creek Resources
LLC core holes, 10 Buck Creek Resources LLC rotary holes, 21
Hartshorne Mining LLC core holes, 4 Hartshorne Mining LLC rotary
holes, and 27 gas wells.
The Buck Creek Mining Complex coal resource is in the WK No. 9
coal seam approximately 650 feet below the surface at the proposed
mine portal site. The coal seam is flat lying with a modest
dip of 2 to 3 degrees generally to the northwest and toward the
centre of the bowl-shaped Illinois Coal Basin. Thickness of the WK
No. 9 coal seam modelled in the CRE averages approximately 3.8 feet
(46 inches), a suitable seam thickness for high-productivity
underground mining with approximately 0.7 feet (8 inches) of
out-of-seam mining needed to achieve an average mining height of
4.5 feet (54 inches) required for equipment clearance. Seam and
mining heights are similar to a number of underground mines in the
region.
High Quality Coal
The Project has particularly attractive coal quality properties
compared to existing and new mines being developed in the
Illinois Basin. On a product
basis, after a 4% addition to equilibrium moisture, the coal has a
high heat content of 11,855 Btu/lb which compares very favourably
with the larger producing mines in the Illinois Basin. Since thermal coal mines are
ultimately selling energy, this factor makes the Project's quality
very attractive as a new source of energy from the Illinois Basin.
Table 13: Buck
Creek Mining Complex – Coal Quality Specifications
|
Raw Proximate
Analysis (As
Received)
|
Washed Core
Quality (Equilibrium
Moisture +4%)
|
EQ
Moisture
|
Ash
|
Volatile
Matter
|
Fixed
Carbon
|
Chlorine
|
HGI
|
Calorific Value
(Btu/lb)
|
Ash
|
Yield @ 1.60
Float
|
6.6%
|
11.9%
|
37.1%
|
44.5%
|
0.18%
|
60
|
11,855
|
8.4%
|
92.9%
|
One of the more important characteristics to be considered in
the Illinois Basin is the chlorine
content because chlorine is corrosive to the boilers of coal fired
power plants. The Project's chlorine content is a relatively low
0.18% and thus has a significant advantage over many new
developments in the Illinois Basin
which often have values exceeding 0.3%. The ash content of the
Project's coal averages 8.4% and the sulfur content of 2.8% is
slightly lower than the average typically seen across the
Illinois Basin. The Project's coal
quality provides confidence that the coal will be an attractive
product in the growing scrubbed domestic and international thermal
coal markets.
Ore Reserve Estimate
The Project's Marketable Ore Reserve Estimate of 63.5 million
tons of thermal coal has been defined from Recoverable Ore Reserve
Estimate of 86.3 million tons. The Marketable Ore Reserve is
classified as a Proven and Probable Ore Reserve Estimate, of which
16.5 million tons (or 26 percent) is considered proven and 46.9
million tons (or 74% percent) is considered probable (after the
application of all mining factors).
Table 14: Project
Ore Reserve Estimate
|
Recoverable Coal
Reserve (Mt)
|
Product
Yield
|
Marketable Coal
Reserve (Mt)
|
Proven
|
Probable
|
Total
|
%
|
Proven
|
Probable
|
Total
|
22.49
|
63.84
|
86.33
|
73.54%
|
16.54
|
46.95
|
63.49
|
Coal Seam Access
Access to the proposed mine will be provided by a slope for
transport of personnel, materials, and ROM coal, and a
two-compartment vertical shaft for mine ventilation. The mine
slope (decline entryway from the surface to the coal seam) will
accommodate a conveyor belt to transport ROM coal to the surface
and a travelway for the transportation of personnel, supplies, and
equipment. Professional Geologists. The Ore Reserve Estimate
has been generated from the BFS mine plan which is based entirely
on Measured and Indicated Coal Resource of 224 million tons and
does not take into account Inferred Resources.
Proven and probable coal reserves were derived from the defined
coal resource considering relevant mining, processing,
infrastructure, economic (including estimates of capital, revenue,
and cost), marketing, legal, environmental, socio-economic, and
regulatory factors. They are presented on an as-received,
recoverable basis.
Simple Mine Development Plan
The Project is a well-defined coal resource, which is located in
an area with a long history of coal mining. Proposed
production from the mine will come exclusively from utilising the
room-and-pillar method. The selection of underground
room-and-pillar mining is validated by examining the method of
mining used by adjacent operations which are some of the highest
productivity room-and-pillar mines in the world.
In addition, the room-and-pillar mining method with continuous
miners has received all of the necessary approvals from regulatory
agencies at nearby operations and is supported by well-established
equipment models with a ready supply of repair and replacement
parts. No prototype equipment has been selected for use in
the Project.
Paringa's US-based executive staff has vast coal mining
experience and, more specifically, operational experience in the WK
No. 9 coal seam. The seasoned backgrounds of the leadership
team will enable the successful development and execution of a
sound business plan that incorporates management best-practices,
engineering design, personnel selection and training, equipment
selection, and a mine plan to maximize safe mine production and
high productivity.
The slope is designed as an 18-foot wide by 18-foot high slope
constructed at a 16 degree gradient that measures approximately
2,500 feet in length from the bottom of the box cut to the coal
seam. This length includes an allowance for a vertical curve
at the bottom of the slope to provide room for a level segment of
the slope belt for conveyor transfer points.
A dual-compartment vertical airshaft will be constructed in
order to ventilate the mine. One-half of the shaft will be designed
for intake (fresh) air, and the other will carry return air which
has coursed through the mine. The shaft will be constructed on the
permitted surface site by conventional drilling, blasting and
mucking from the surface to a depth of approximately 650 feet. The
finished (concrete-lined) inside diameter of the shaft will be 24
feet and divided by a concrete wall.
Mining Method
Production will be by room-and-pillar mining with four
super-section units with a total of eight continuous miners (i.e.
two continuous miners per super-section unit). Each super-section
will be equipped with four battery haulers discharging onto a belt
feeder/breaker, which provides surge capacity to reduce hauler dump
time.
In addition, each super-section will be equipped with two
dual-head roof bolting machines to provide roof support in mined
entries. The super-sections will also require scoops for clean-up
of spillage, and supply cars for distribution of supplies and
materials, rockdusting, and other utility purposes.
Personnel and supplies will be transported from the surface,
down the slope using personnel and supply cars lowered by the
hoist. Once underground, the mine's working sections will be
reached with battery or diesel-powered rubber-tired equipment.
Supplies will generally be loaded on combination rail-rubber cars
on the surface and transported to the operating sections or areas
designated for material use. Rehandling and stockpiling
supplies underground (in areas other than active working sections)
will be minimized to reduce labour and damage to supplies.
Mine Production
The BFS mine plan includes a total production of 86.3 million
raw (ROM) tons and 63.5 million clean, marketable tons over an
18-year period. This schedule includes a two-year ramp-up
period and a period when production declines (Year 18) as the
current mine plan area is depleted. At planned productivity,
each super-section will produce approximately 2,300 to 2,400 tons
of ROM coal per shift. ROM production for the Project will
total approximately 5.2 million tons per year at full
production.
Average product yield is estimated at 73.5 percent (which
includes direct shipment/preparation plant bypass of approximately
14 percent of the ROM production). This will yield an average
of approximately 1,675 to 1,765 tons of clean coal from each
unit-shift of production. Annual production will total
approximately 3.8 million marketable tons at full
production.
Productivity
Favourable geology, established mining infrastructure, including
coal mining equipment and services industries, and access to highly
skilled population centres within the Illinois Basin, lends itself to some of the
most productive underground mining in the US. Mine production is
most often measured by feet of entry advance per shift which
provides an assessment of crew and equipment performance
independent of geologic conditions. The continuous miner advance
rate projected for the Project is 560 feet per super-section
unit-shift which is comparable to the performance of other
producers in western Kentucky and
other parts of the Illinois Basin.
The Project is proximal to some of the largest and highest
margin thermal coal mines in the US. Based on 2013 data, nine out
of the top ten most productive non-longwall underground coal mines
in the US are based in the Illinois Basin. The River View mine, which
began production in 2009, produced 9.3 million tons in 2014, is the
largest non-longwall (e.g. room-and-pillar) mine and is the most
productive in the US. In developing the Project, Paringa will seek
to replicate the productivity of underground room-and-pillar mines
in the region.
Local Mining Industry
With mining operations dating back to the early 1800's, western
Kentucky's coal mining industry is
one of the oldest and most extensively developed coal regions in
the US. At full production, staffing for the Project operation is
expected to total 283 employees, be non-unionised, highly skilled
and sourced predominately from nearby population centres.
The Project is extremely well-serviced by all major mining
equipment manufacturers and mine service and supply centres. Major
mining equipment manufacturers have rebuild and component service
exchange centres located near the proposed mine site. A major
network of mining service providers including slope, shaft, and
preparation plant construction companies are located in the
immediate area.
Mine Site Infrastructure and Coal Handling & Preparation
Plant ("CHPP")
The mine portal, coal preparation plant, and refuse disposal
facility will be located in McLean
County in the east-central portion of the Property. An
overland conveyor will connect the mine and plant to a barge
load-out on the Green River, approximately two miles to the
northeast along Kentucky Route
138.
Processing
The Project will include a modern, fully integrated, coal
preparation plant in order to provide a consistent product, which
meets the specifications of its customers. At full production, the
coal preparation plant will be capable of processing 5.2 million
tons of ROM coal annually, which equates to approximately 3.8
million marketable tons per year. The plant will be scheduled
for operation 302 days each year, which represents an average
six-day per week work schedule for 52 weeks (less 10
holidays).
Based on feedback from Paringa's potential Tier-1 customers, the
Project's CHPP has been redesigned to produce both a fully-washed
and blended product as shown below:
- Product A - Fully Washed Product (11,800 Btu/lb)
Raw coal from the
underground mine is transferred via conveyor belt to the CHPP for
screening and processing. All raw coal is immediately washed and
stockpiled as a fully washed, higher heating content 11,800 Btu/lb
product. It is estimated that 30% of total sales from the Project
will be a fully washed product (Product A) with a preparation plant
yield, for this product estimated at 67.1%.
- Product B - Blended Product (11,200 Btu/lb, 12% Ash)
Raw coal from the
underground mine is transferred via conveyor belt to the CHPP for
screening and processing. Approximately 20% of raw coal bypasses
the processing stage and is subsequently blended with fully washed
coal. This blended product is stockpiled, separately from Product
A, as an 11,200 Btu/lb product with maximum 12% ash. It is
estimated that 70% of total sales the Project will be a blended
product (Product B) with a preparation plant yield, for this
product, estimated at 76.7%.
An overview of the product mix and their relative CHPP yields
and coal specifications are shown below:
Table 15: Project
Product Mix and Quality
|
Product
|
Product
Mix
|
CHPP
Yield
|
Moisture
(a.r.)
|
Ash (a.r.)
|
Heating
Content (a.r.) (Btu/lb)
|
Heating
Content (a.r.) (Kcal/kg)
|
A – Fully
Washed
|
30%
|
67.1%
|
11.12%
|
7.90%
|
11,800
Btu/lb
|
6,552
Kcal/Kg
|
B –
Blended
|
70%
|
76.7%
|
10.90%
|
11.72%
|
11,200
Btu/lb
|
6,221
Kcal/kg
|
Weighted
Average
|
|
73.5%
|
11.0%
|
10.57%
|
11,380
Btu/lb
|
6,320
Kcal/kg
|
Materials Handling
Clean coal (originating from the stockpiles located at the
preparation plant) will be reclaimed using a system of underground
feeders and placed on a 2,000 ton per hour conveyor system.
The conveyors, totalling approximately 13,500 feet in length, will
run from the plant's clean coal piles over the controlled
right-of-way and continue onto the dock site. At the dock
site, the conveyor will dump coal into a 500-ton capacity bin which
allows the loading of barges without re-handling coal. The
bin will be equipped with two feeders allowing trucks to be loaded
or coal to be transferred to the barge loader.
Barge Load-Out Facility
The Company holds necessary permits required to construct the
barge load-out facility approximately two miles northeast of the
Project's plant site. The barge load-out facility will consist of a
ground-based tower connected to a floating work barge by a 48-inch
wide, 170-foot long, loading conveyor. The tower will stand
approximately 45 feet above the river and 90 feet away from the
river bank with a 30-foot wide by 120-foot long work barge anchored
on piers situated 30 feet from the river bank. The system will have
a design capacity of 2,500 tons per hour.
Barge Waterways
The primary market access point for the Project's saleable
product is via barge on the Green River. The Green River is part of
the Mississippi River System, a 12,350-mile (19,871 km) network of
navigable waterways serving much of the Eastern and Midwestern US.
On the Mississippi, coal is the
largest commodity, by volume, and accounts for over 20 percent of
all coal consumed in the US.
The Project's permitted barge load-out facility is located at
mile marker 62 on the Green River, as measured from the confluence
with the Ohio River. The Green River meets the Ohio River at mile
marker 784, which is approximately 169 miles (271 km) from the
Mississippi River and 145 miles (233 km) from the Tennessee and Cumberland Rivers.
The width of the Green River enables a two-by-two arrangement
(two-barges wide and two-barges long) for barge tows originating
from the Project's barge load-out facility. Standard coal barges
are typically 195 feet long, 35 feet wide with a draft of 9 feet
and a capacity of 1,500 tons each. Once on the Ohio River,
the loaded barges will be fleeted and assembled into larger tows
(i.e. 9 to 16 barge tows) to be moved to the coal power plant or
export facility.
Alternative Coal Transportation
It is proposed that coal produced at the Project will be shipped
from a barge load-out facility located on the Green River, but
occasional shipments to nearby power plants by truck may be
arranged. Future studies will assess the possibility of utilising
barge to rail trans-loading services on the Tennessee, Ohio, and Big Sandy
rivers.
Access to Seaborne Markets
To access coal export terminals in the Gulf of Mexico, barge tows from the Project
barge load-out facility will travel down the Green, Ohio and Mississippi Rivers. The
average transit time to the Gulf Coast is approximately 11 days
with the base rate for barging being approximately US$15.00 to US$16.50 per ton. Coal terminals
along the Mississippi River are capable of loading cape-sized
vessels with up to 120,000 tons (~100,000 tonnes) of coal for
service coal markets in Europe,
South America and Asia.
Power and Water
The Project is located in a region serviced by two separate
electric utility providers, Kentucky Utilities and Big Rivers
Electric Corporation, both of which are capable of supplying the
69-kv service required. Major transmission and distribution lines
are located within the Project. Power rates are currently in the
range of 6 cents to 7 cents per
kWh.
Fresh water for the Project's mine and plant will be pumped from
the barge load-out facility on the Green River along the corridor
provided for the overland conveyor. To supply the mine office and
bathhouse, potable water will be accessed from the local public
water system supplied by the City of Calhoun.
Permitting, Surety Bonds and Socioeconomic Position
Permitting
Paringa has two distinct permitted areas for the Project, the
plant site and the barge load-out facility. Both areas are
permitted by Hartshorne and the rights to develop the surface are
controlled via option agreements. Surface rights to the new
optimised barge load-out site and associated conveyor right-of-way
are currently held under an option to lease with full rights to
develop the surface. The permitting of the new optimised
barge load-out facility site is currently underway, and the Company
does not expect this routine permit approval process to impose
delays in the construction of the Project.
Routine permits that have not been submitted will be submitted
on an as-needed basis prior to the commencement of
construction. The outstanding permits (with the exception of
those required for the new optimised barge load-out facility) are
not considered to be long lead times and none of the outstanding
permits are expected to impose delays to the Project's
timeline.
Surety Bonds
In order to obtain mining permits, federal and state laws and
regulations in the United States
require coal mine operators to post collateral securing their
obligations to reclaim land used for mining. The collateral
can take the form of cash or other forms of collateral acceptable
to the regulatory agency. Operators often prefer to submit
surety bonds as collateral, which are agreements by a third party
(the surety provider) with the regulatory agency to perform the
reclamation obligations associated with a particular mining permit
in the event the permit holder fails to perform those
obligations. The surety provider collects a fee from the
permit holder for providing the surety bond, and also may require
the permit holder to submit collateral to the surety
provider. Typically, however the amount of collateral
required by the surety provider is substantially less than the face
amount of the surety bond, with the result that submitting the
surety bond as collateral to the regulatory agency is much less
capital intensive for the mine operator than submitting cash
collateral to the regulatory agency.
A reputable surety bond provider has provided a surety bond in
the amount of $US85,300 to the
Kentucky Department for Natural Resources on behalf of the
Company's subsidiary, Hartshorne Mining, LLC, in connection with
the permitting process for the Buck Creek Mine No. 1. The bond
was provided after completing a rigorous due diligence process
regarding Hartshorne and the Buck Creek Mine No. 1, which
culminated in surety bond provider's issuance of a letter in
September, 2015, confirming that Hartshorne has been conditionally
approved for the issuance of up to US$5.0
million in surety bonds.
Environmental Audit
Cardno was retained to perform an Environmental Audit for the
Project in 2013. As part of this Environmental Audit, Cardno
reviewed federal, state, and local regulatory records, investigated
historical uses of the subject property and potential sources of
environmental contamination of the parcel and conducted interviews
with State agency personnel to evaluate whether Recognized
Environmental Conditions (RECs) or conditions indicative of
releases and threatened releases of hazardous substances are on,
at, in, or adjacent to the subject property. This Environmental
Audit did not reveal the presence of any RECs associated with the
subject property or operations proposed at the subject
property.
Population Centres
The Project is located in the western section of Kentucky approximately 30 miles south of
Henderson, Kentucky (population
28,757) and between the towns of Calhoun (population 763) to the east and
Hanson (population 742) to the
west. The property is located within a 45-minute drive of
Evansville, Indiana (metro
population of 358,676) and within a two-hour drive of Louisville, Kentucky (metro population of
569,135) and Nashville, Tennessee
(metro population of 1,589,934). Given the importance of coal
mining to the region, community attitudes towards new underground
coal mine developments are positive.
Net Present Value
The (ungeared) Net Present Value ("NPV") after tax is
US$300 million (A$416million) at an 8% discount rate (real), and
the (ungeared) IRR is 30%. Compared to the PFS released in
March 2015, the NPV for the Project
has increased by US$33 million as a
result of a reduction in total initial capital of US$23 million and a fall in average annual
operating costs (steady state production) of US$0.82 per ton.
Table 16: Project
Net Present Value
|
Discount Rate
(Real)
|
BFS
|
PFS
|
NPV (US$)
|
US$300
million
|
US$267
million
|
NPV (A$)
|
A$416
million
|
A$371
million
|
|
|
Table 17: Coal
Sales Price Sensitivity Analysis
|
Adjustment to Coal
Sales Forecasts
|
-10%
|
-5%
|
Base
Case
|
+5%
|
+10%
|
NPV
(US$)
|
US$204m
|
US$252m
|
US$300m
|
US$348m
|
US$396m
|
NPV
(A$)
|
A$283m
|
A$350m
|
A$416m
|
A$483m
|
A$550m
|
Note: assumed US$0.72
per A$1.0
|
The Project is expected to exhibit levels of profitability that
would contribute value to Paringa shareholders. As the domestic
coal market in general recovers, there is a strong potential for
the Project's strong financial returns to materially improve.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/bfs-confirms-buck-creek-will-be-a-low-capex-high-margin-coal-mine-300186649.html
SOURCE Paringa Resources Limited