Coalspur Mines Limited (ASX:CPL) Quarterly Report And Update On Activities During The Quarter Ending 31 March 2010
Perth, May 3, 2010 AEST (ABN Newswire) - Coalspur Mines Limited (ASX:CPL) (PINK:CSPZF) is pleased to present its March 2010 quarterly report.
The Company has an exciting quarter ahead with a substantial amount of activity scheduled, including:
- Commencing reporting of the Coal Resource estimates for the Company's Coalspur Project ("CSP") which will be announced progressively over the coming months.
- Commencing the second phase of drill programs on the Project and initiating drill programs on the CSP.
- Reporting of results from washability and quality testing results from core samples obtained in the recently completed first phase exploration drilling program.
At the end of the quarter the Company had cash reserves of approximately A$7.8 million which, together with the funds to be raised from the placement to Highland Park, put the Company in a strong financial position and allow Coalspur to expedite development of its existing Canadian coal assets and provide the ability to pursue related coal acquisitions.
CANADIAN COAL PROJECTS
Hinton Coal Project
The Hinton Coal Project ("HCP") is a large scale, open pit potential, thermal coal project located adjacent to the main line of the CN Rail in Alberta, Canada.
The leases comprising the HCP cover approximately 4,976 hectares and together contain a JORC Coal Resource of approximately 467 million tonnes of low sulphur, high volatile, bituminous C thermal coal. The HCP is split into Hinton East and Hinton West. Hinton East comprises six coal leases covering approximately 3,984 hectares and Hinton West comprises 2 coal leases and 3 coal lease applications covering 992 hectares.
The Coal Resource and associated coal quality assessment have confirmed the HCP's potential to deliver a large scale, open pit, thermal coal operation producing high quality coal suitable for export to lucrative Pacific Rim market.
HCP Scoping Study
During the quarter Coalpsur announced the results of the Scoping Study (the "Study") conducted on the Coal Resource estimate for the Company's wholly owned HCP (see Figure 2). The study was managed by Wardrop and included input from a number of recognised coal industry experts.
The Scoping Study result confirms the potential for strong economics on the Project which has the capacity to generate pre-tax cash margins of approximately US$150 million per annum.
Project Enhancement Opportunities
The Study identified potential opportunities that could enhance the Project economics.
During future studies the Company will focus on evaluating these opportunities identified which include:
- Updating the mine plan with additional Coal Resource estimates currently being delineated on the CSP leases. The Study currently focuses only on the HCP Coal Resource estimate which covers 4,967ha whilst the CSP covers an area of 19,671ha;
- Review the potential markets for the sale of the McLeod seam which is currently not included in the saleable mix and totals approximately 5.8Mt due to its high product ash content. Potential markets for this product include local power stations and cement manufacturers;
- Examine the use of a dragline in the mine plan for the potential of lowering operating costs and/or optimise the mining fleet; and
- Review the historical coal quality and process yield of the coal seams post completion of the upcoming coal quality and washability testing.
The key considerations in the Study were preferred mining plan, coal handling and processing method, scale, throughput rate, project life, operating and capital costs. The minimum life of the Project is 14 years, but has the potential to be significantly increased, the close proximity of the current Study mine plan to the potential resource areas of the CSP leases. The Study is therefore considered a base case scenario.
The total operating cost per clean coal tonne produced in the initial years will be lower due to lower strip ratios in the initial years. In the first five years of production, the operating cost is estimated to be US$46.80 per clean coal tonne FOB Ridley. Over the current LOM the average estimated operating cost is US$48.40 per clean coal tonne FOB Ridley. The operating costs over the LOM are summarised in Table 2.
Delineation of further coal resources in the CSP is currently underway with a view to define additional low strip ratio coal tonnes. This has the potential to further enhance the economics of the Project by allowing increased production and a longer mine life to be considered.
The Alberta royalty system comprises of a two tiered system with the first tier being a mine mouth royalty payable on 1% of mine mouth revenues from commencement of production.
The second tier is a 13% royalty payable on mine mouth revenues based on a formula which initiates the payment of the royalty only after payback of the capital expenditure.
Capital costs (determined to a nominal accuracy of +/-35% and in Q4 2009 dollars) for the CHPP and all other project infrastructure were estimated to total US$185 million with a further US$69 million attributable to project indirects including EPCM and owners costs. This brings the total Project's initial infrastructure capital expenditure to US$254 million.
The capital cost of the initial mining equipment is US$151.6 million with a further US$71.3 million in sustaining capital costs for the mining equipment fleet over the LOM (+/- 35% nominal accuracy). The Company will be looking at leasing options for the mining equipment fleet and contract mining options and therefore these costs may not form part of the Project's initial capital expenditure.
In addition a provision for pre production costs in the first year of production has been estimated at US$19 million.
Community and Employment
The Company is currently working closely with key stakeholders, including the local communities and relevant authorities, in all aspects of the Project. A project office has been opened in the town of Hinton. The Company currently estimates that an ongoing workforce of approximately 363 will be required to operate the Project.
Employees will be largely sourced from the local community and elsewhere within Alberta and Canada, which has long established coal mining experience.
The Project will be required to undergo an extensive, four-stage regulatory and environmental assessment application and review process, as mandated by the Alberta Environmental Protection and Enhancement Act. The process involves public disclosures, mine permitting and processing plant approval, mine licensing, and Water Resources Act approvals.
In the upcoming quarter the Company plans to initiate baseline studies which will form part of the Environmental Impact Assessment on the Project as part of the environmental assessment application. The baseline studies will continue throughout 2010 and progress into 2011.
The combined Coal Resource estimates for the HCP totals 467 million tonnes of low sulphur, high volatile bituminous C thermal coal. Significantly, the Measured and Indicated Coal Resources of 421 million tonnes represent 90% of the total Coal Resource. A resource estimate for the CSP is currently being undertaken with completion expected in the March 2010 quarter.
The Coal Resource estimates have been based on considerable drilling and exploration activities which were undertaken on the HCP by Esso in the 1980's and prepared by respected Canadian independent technical consultants Moose Mountain Technical Services ("MMTS") and is reported in accordance with the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves' ("JORC Code") and National Instrument 43-101 - 'Standards of Disclosure for Mineral Projects' ("NI 43-101").
MMTS have also undertaken an indicative assessment of coal quality based on historical core hole information and coal qualities of nearby mines including Coal Valley and Obed Mountain. Based on this information MMTS has indicated that the washed clean coal product could have the following characteristics with a forecast yield of at least 50%:
2010 Drill Program
During the quarter the Company completed its first phase of drilling comprising 10 core holes within the proposed mine boundaries developed as part of the Company's recently completed Scoping Study on the HCP. The core samples have been shipped to ALS Laboratory Group in Vancouver, BC for washability and quality testing. Importantly, core recovery was in excess of 90%.
Results are expected by June 2010. The results will verify the seam quality information from historical drilling undertaken in the 1970's and 1980's and will also provide data for the development of a modernised washplant design. The Company has retained Mr Bob Leach, a leading coal metallurgist, to coordinate the washability testing program and washplant design studies.
A second phase of drilling is planned for the June 2010 quarter and will comprise rotary drilling within the Project and the commencement of core and rotary drilling in the CSP.
Coalspur Project and Additional Coal Leases
The Coalspur Project ("CSP") comprises coal leases covering an area of approximately 19,671 hectares located approximately 6km south west of the CSP (refer Figure 1).
Areas of the CSP were subject to previous drilling by Denison Mines Ltd in the 1980's. The considerable historical drilling and studies undertaken are expected to provide a solid foundation to assess the coal contained on the leases in accordance with the JORC Code in mid 2010.
Importantly, the proximity to the HCP allows for the CSP to leverage off potential infrastructure that will be developed closer to the town of Hinton and the main line of the CN Railway.
Key Management Appointments
Coalspur appointed Mr John Innis as Chief Geologist during the quarter. Mr Innis is a professional Geologist with a Masters Degree in Geological Sciences and has over 30 years of extensive coal and oil sands experience with Fording Coal, Gulf Canada Resources and Shell Canada. Mr. Innis will initially focus on accelerating the preparation of additional coal resource estimates and development drilling on the Company's projects.
Coalspur has and continues to develop a strong team of seasoned coal industry experts which will be instrumental in the development of the Project moving forward.
Placement to Strategic Investor
During the quarter Coalspur announced a placement to Highland Park who will become a strategic investor in the Company. The placement will significantly strengthen the Company's financial position as well as provide access to Highland Park's substantial resource management skills and also greatly assist in lifting the Company's profile in North American markets. Funds from the placement will enable the Company to accelerate the development of the Project and pursue related new business development opportunities.
The key investors in Highland Park ("Highland Park Investors") include the original founders and former executives of Toronto based LionOre Mining International Limited.
LionOre was acquired in 2007 for US$6.3 billion by Norilsk Nickel. The Highland Park Investors have successfully invested in and supported the development of Mantra Resources Limited (ASX:MRU) (TSX:MRL) ("Mantra") and Mirabela Nickel Limited (ASX:MBN) (TSX:MNB) ("Mirabela"). Since the making of these investments, each of these companies has greatly advanced their projects and seen a significant increase in their market capitalisations.
Upon completion of the placement Coalspur's Board has invited Mr Colin Steyn, previously CEO of LionOre, to join the Board of Coalspur. Mr Steyn was a Director of LionOre from 1998 and was appointed President and Chief Executive Officer in 1999. Mr Steyn holds an MBA from Cranfield University, UK and is currently a Director of Mantra and Mirabela.
The placement to Highland Park will involve an equity issue of 60.0 million shares at A$0.50 each to Highland Park and or its nominees to raise a total of A$30.0 million. The shares will be issued in two tranches as follows:
1. Subject to shareholder approval, the first tranche will consist of 45.0 million shares and 22.5 million free attaching listed options on a one for two basis (on the same terms as existing listed options) to raise A$22.5 million on issue; and
2. Subject to the necessary approvals, at Highland Park's election for the purposes of Coalspur funding future business development opportunities, the second tranche will consist of a further 15.0 million shares and 15.0 million free attaching unlisted options on a one for one basis (each exercisable at A$0.70 on or before 31 December 2012) to raise an additional A$7.5 million on issue.
Further details regarding the transaction will be included in a Notice of General Meeting to be sent to shareholders shortly.
For the complete Coalspur Mines Quarterly Activities Report including Tables and Figures, please click the following link:
About Coalspur Mines Limited
Coalspur Mines Limited (ASX:CPL) (TSE:CPT) is a coal development company with approximately 55,000 hectares of coal leases located within the Hinton region of Alberta, Canada. Coalspur's flagship project is Vista, which covers approximately 10,000 hectares and provides a large scale, surface mineable, thermal coal development. Vista is located adjacent to CN Rail's main line, which is suitable for the transport of coal to deepwater ports on Canada's west coast. Coalspur has secured a port allocation agreement with Ridley Terminals Inc., which is essential to the logistics supply chain necessary to export coal from Vista to the growing demand from the Asia Pacific countries.