Atrum Coal NL A$2.1 Billion NPV For First Stage Production At Groundhog
06.05.2014 | ABN Newswire
Perth, May 6, 2014 (ABN Newswire) - Atrum Coal NL ("Atrum" or the "Company") (ASX:ATU) is pleased to announce compelling economic results from the PFS for first stage production at the Company's flagship JORC 1.57 billion tonne Groundhog Anthracite Project in British Columbia, Canada.Managing Director, Dr Eric Lilford said:
"The results speak for themselves. Groundhog is a world class asset and we are merely scratching the surface of its potential."
The PFS was independently authored by Valzan Pty Ltd (Valzan) and includes independent financial modelling undertaken by Deloitte Touche Tohmatsu. A summary of results is tabled below:
Production
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Anthracite ROM - North West Area 87.4 Mt
Life of Mine ROM Production - North West Area 75.0 Mt
Life of Mine - North West Area 16 Years
ROM Production Rate (Peak) 5.4 Mtpa
LOM Yield 60 %
Anthracite Lumps Production - LOM / Annual (ROM) 39.3Mt/2.62Mtpa
Anthracite Fines Production - LOM / Annual (ROM) 38.7Mt/2.38Mtpa
Source: Valzan
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Capital Expenditure
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Mining Equipment (Contractor) N/A
Water and Waste Management Facilities (Initial) US $14.7M
Office Buildings / Man Camp / Portal Facilities (Leased) US $N/A
Surface Infrastructure US $52.4M
Coal Haulage Road US $47.6M
Mains Power Transmission Infrastructure US $52.0M
Clean Coal Storage Silo / Conveyor System /
Truck Dump (Leased) US $N/A
CHPP (under BOOT) US $N/A
Waste Management Expansion (funded from Free Cash Flow)
- Year 7 and Year 12 US $34.9M
Mine Closure (funded from Free Cash Flow) US $22.8M
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CAPEX Responsibility Scenario
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Pre-Production Capital - Atrum (2014 requirement) US $10.0M
Ramp-up Production Capital - Atrum US $67.1M
Infrastructure Capital - Atrum Infrastructure & Logistics US $100-154M
(Low-High Range)
Source: Valzan
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Operational Expenditure
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Mining
(Owner Operator v Contractor basis) US$/Product t 47.3- 70.9
Processing (BOOT arrangement) US$/Product t 8.2
Waste and Water Management US$/Product t 1.2
Haulage / Transportation US$/Product t 17.1
Port Handling Charges (Contractor basis) US$/Product t 5.9
Power Consumption Charges US$/Product t 4.1
Site Administration & Marketing US$/Product t 3.0
FOB costs (Temporary Contract Mining
Basis During Ramp Up) US$/Product t 110
Long Term FOB costs (Owner Operator Basis) US$/Product t 87
Legacy Production Royalty (ex-mine gate) 1.0%
FOB costs including royalty
(Temporary Contract Mining Basis) US$/Product t 112
Long Term FOB costs including royalty
(Owner Operator Basis) US$/Product t 88
Source: Valzan - US$/Product tonne based on
the road and power infrastructure
CAPEX being funded by Atrum Coal NL
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Financial Summary
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Average weighted anthracite sales price US$/Product t 194
NPV8 (nominal/pre-tax) A $2,063M
NPV8 (nominal/post-tax) A $1,256M
IRR (nominal/pre-tax) 67.6%
IRR (nominal/post-tax) 51.4%
Source: Financial Model - based on the road and power infrastructure
CAPEX being funded by Atrum Coal NL
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Financial modelling was completed by Deloitte Touche Tohmatsu.
BACKGROUND
Atrum commissioned leading Australian-based mining and engineering consultants Valzan to carry out an independent PFS for the development of a steady-state 5Mtpa / peak 5.4Mtpa ROM operation at Groundhog. Although the deposit is shallow and amenable to large scale open-cut mining, in order to fast-track a low impact and low cost entry to production, an initial 'adit style' or 'cut and cover' underground mine methodology has been adopted.
The PFS is based on the underground mining of the #70 seam and the #40 seam in the north-west area of Groundhog, which represents less than 5% of the aerial extent of Groundhog and models only two seams out of a potential 20+ anthracite seams. Using bord and pillar roadway development and productive mini-wall mining techniques, an initial 87.4Mt of ROM anthracite has been defined with 75Mt of this modelled for extraction. Groundhog hosts a global JORC Resource of 1.57 billion tonnes of high grade anthracite.
Groundhog is located approximately 150km away from the deep sea port of Stewart where Atrum has secured 1.5Mtpa of port capacity under 'non-take or pay' terms at the existing Stewart Bulk Terminal and a further 5Mtpa secured under Memorandum of Understanding at the Stewart World Port (currently under construction).
PFS RESULTS
JORC Anthracite Resources
The anthracite resources contained within the north-west zone of Groundhog, as at 31 March 2014, are reported in accordance with the JORC Code 2012 and outlined in the table below. The relatively small focus area contains an estimated total resource of 305Mt of in situ anthracite with 128Mt of this resource contained in the main target seams, the #40 and #70 seams.
The resources contained in the north-west zone, according to JORC (2012) classification and category are outlined in the table below:
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Depth Measured Indicated Inferred Total
(m) (Mt) (Mt) (Mt) (Mt)
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Open Cut Mining < 100 40.7 32.1 18.5 91.3
Underground Mining > 100 59.4 97.0 57.5 213.9
Total by JORC Category 100.1 129.1 76.0 305.2
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#Confidence in the estimate of 'Inferred' Mineral Resources is not sufficient to allow the results of the application of technical and economic parameters to be used for detailed planning in pre-feasibility studies, due to insufficient geological confidence. For this reason, there is no direct link from an 'Inferred' Mineral Resource to any category of Ore Reserve. Caution should be exercised if 'Inferred' Mineral Resources are used to support technical and economic studies.
Groundhog Anthracite JORC Resources - North-West Zone - Gordon Geotechniques
For the purposes of the PFS, a total of 87.4Mt ROM anthracite has been estimated to be contained in the north-west zone, of which 75Mt has been modelled and reflected in the ROM production schedule, meaning that an additional 12.4Mt remains as extractable anthracite, yet to be included in the production schedule from this small focus area.
Mining & Processing
The shallow underground mine, via an 'adit style' or 'cut and cover' portal, will utilise a system of mini-walls, conveyors, shuttle cars and dump trucks to mine and haul the anthracite. At peak production, the mine will produce approximately 5.4Mtpa ROM anthracite which, after washing through a coal handling and preparation plant (CHPP), is forecast to produce approximately 3.4Mtpa of product (or saleable) anthracite. The proposed production schedule including ramp up is outlined in the graph in link below:
CHART NA
The mining and processing of anthracite at Groundhog requires the design and construction of purpose built facilities including:
- mine office and workshop facilities;
- a feed hopper, rock breaker and crusher;
- a CHPP with dense medium cyclones and concentrators;
- accommodation camp;
- fuel storage facilities;
- diesel power generators and associated electrical reticulation;
- clean anthracite stockpiling facilities;
- tailings and water treatment facilities;
- mine access road; and
- facility pads.
Coal Handling and Preparation Plant (CHPP)
The CHPP has been introduced as a two-phased approach designed to provide the project with flexibility in its ramp up and also its ability to produce tailored specialty anthracite products. The first phase of the CHPP is designed to process 2.5Mtpa ROM with the second phase designed to process an additional 2.5Mtpa ROM. The CHPP will be financed through an off-balance BOOT arrangement and will comprise an enclosed plant, stockpiles of ROM anthracite, product anthracite and coarse reject, feed and product conveyors.
The CHPP is to be located at the mine site in a centralised location which will service the two entry portals into seam #70 and the single entry into seam #40, with the final anthracite product trucked to the deep sea port of Stewart for seaborne export to Asia.
The CHPP has been designed to produce a sub-10% ash product with a composite make up of 52.4% high grade and ultra-high grade anthracite lumps across three size fractions and 47.6% high grade and ultra-high grade anthracite fines. The overall yield over the life-of-mine has been projected to be 60%.
As part of the pre-production phase and to enable the Company to wash anthracite on site as part of the small scale mining phase, a separate 400,00tpa wash plant will also be commissioned at Groundhog. This wash plant will be used to batch wash the specialised ultra-high grade anthracite which will then be supplied to the filter media, high tensile metals, cathode and electrode paste and pellet plant fuel markets. Prices for ultra-high grade anthracite in these markets range from US$1,000/t up to US$1,400/t.
Mine Site Infrastructure
Mine site infrastructure at Groundhog includes:
- office facilities located at the central mining industrial area;
- portal workshops located at the access / entry point of the #70 seam in the north and south location within the north west area;
- mine industrial area including the tailings storage facility, water treatment facility, clean anthracite storage facility and the sediment control pond;
- light vehicles for personnel transportation;
- mine and office personnel man camp; and
- site access roads.
Anthracite Haulage and Transportation
Clean anthracite will be transported from the mine site along a dedicated anthracite haulage road, which will connect with Highway 37, a provincially maintained highway, and continue south onwards to the deep sea port of Stewart Bulk Terminals.
The overall length of the road route, including the dedicated haul road is 219 km. Anthracite will be transported in B-double trucks with net carrying capacity of 50t. A single shift will see anthracite loaded onto the trucks through the truck load-out at the mine site, driven to Stewart Bulk Terminal, at which point it will be unloaded at the clean anthracite stockpile facilities.
Atrum will not be required to fund construction of the haul road. Instead, Atrum Infrastructure and Logistics (ATIL) will fund construction of the road and charge Atrum a service fee. ATIL will also seek secondary customers to charge for use of the road. The road is expected to double as a potential easement for the power line extension and if required, a new dedicated railway line to Stewart once production at Groundhog exceeds 'truckable' volumes. It is envisaged that ATIL will fund the construction and maintenance of any rail line, and will seek secondary customers for additional revenue. ATIL is currently in discussions with Kuro Coal Limited in relation to the infrastructure requirements for the development of the Panorama project.
The Company is assessing a number of options to fund ATIL, including an option to 'spin-out' the infrastructure unit through a public market transaction, where Atrum shareholders would receive a significant in specie stake. ATIL provides Atrum with a means of avoiding shareholder dilution by quarantining infrastructure capital expenditure and financing it in an external structure and simultaneously allowing Atrum to focus on its core activities, being mining, processing, marketing and selling anthracite.
The PFS results and the financial model have assumed that Atrum will fund the road infrastructure CAPEX associated with the mine site.
Power Infrastructure at Mine Site
Initially, Groundhog will use diesel generators to power the mine site, mining equipment and surface infrastructure.
Following the initial two years of operation, the Company will require a power transmission line to extend from Groundhog to the North-West Transmission Line (NTL) near Highway 37. The total length of the power transmission line is estimated at 103 km and will follow the road haulage route.
The NTL delivers low cost hydropower which is expected to save Groundhog US$10 million per annum in operating costs when compared to the sole use of diesel generators.
Atrum will not be required to fund the extension of the NTL. Instead, ATIL will fund construction of the power lines and charge Atrum an annual service fee. For cost efficiencies, the power lines will follow the easement created by the haulage road. ATIL may seek secondary customers for additional revenue, including Kuro Coal Limited.
The PFS results and the financial model have assumed that Atrum will fund the power infrastructure CAPEX associated with the mine site.
Port Optimisation and Anthracite Stockpiling Facility
As part of the PFS, the Company engaged a port and logistics engineering consultant to undertake a review of the current loading facility, including the ship loader and conveyor systems, and clean anthracite stockpiling area available at Stewart Bulk Terminal. The current facilities are capable of handling 1.5Mtpa with minimal upgrade.
The Company considered a number of options for expansion of the port facilities to efficiently handle larger volumes, well beyond the modelled annual anthracite throughput.
Atrum will not be required to fund any optimisation or upgrade associated with the port facilities.
However, as an option, ATIL, SBT or Stewart World Port (SWP) could fund an optimisation including all engineering and construction and charge Atrum an annual service fee. If ATIL was to fund the optimisation, it could seek secondary port customers for additional revenue including Kuro Coal Limited and other mining operations in the region.
The PFS financial model includes an optimisation option with a CAPEX budget of US$54 million that could be applied to optimising the current ship loading system, conveyors and clean anthracite storage facilities.
Anthracite Product Suite and Quality
The PFS for Groundhog has been modelled on the assumption of four sized high grade and ultrahigh grade anthracite products being 'Lumps', 'Large Nuts', 'Small Nuts' and 'Duff/Fines'. It is estimated that 52.4% of the anthracite produced at Groundhog will be made up of the three top sizes with the balance of 47.6% being Duff / Fines.
The overall yield at Groundhog over the life-of-mine is estimated at 60%. Indicative anthracite quality specifications for Groundhog are as follows:
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Property Value
Inherent Moisture (air dried) < 2%
Volatile Matter (air dried) 3 - 6%
Fixed Carbon (air dried) 85-97%
Ash (air dried) 10%
Sulphur (air dried) 0.4 - 0.7%
HGI 45
Calorific Value (kcal/kg) 7,200 - 8,000
Classification HG/UHG
Indicative Groundhog Anthracite Specifications - Valzan
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Commencement of trial mining later this year will allow the Company further opportunity to refine its understanding of the anthracite quality at Groundhog. Forecast Anthracite Pricing Wood Mackenzie provided independent price forecasts for Groundhog's anthracite through the compilation of international trade statistics and benchmarks. For modelling simplicity and to be conservative, it was assumed that the three Lump size fractions of high grade anthracite command a uniform price in the global market, whilst the Duff / Fines material has a lower price due to the 'unsized' nature and application of the product. It is expected that with more detailed market research, higher prices could be achieved for individual sizes. There is an opportunity for the Company to capitalise on significantly higher pricing for its sized anthracite products once specialty markets are defined and penetrated. The opportunity for Atrum to supply ultra-high grade anthracite into the specialty markets including filter media, high tensile metals, cathode and electrode paste and pellet plant fuel presents additional significant upside for the project. Prices for ultra-high grade anthracite in these markets range from US$1,000/t up to US$1,400/t. The anthracite market remains strong with high grade anthracite lumps currently trading at US$187/t compared to US$120/t for hard coking coal. Current forecast prices (in 2014 real US dollar terms) FOB Western Canada, are as follows:
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Year Export Anthracite Lumps/ Anthracite Duff/ Blended
Quality Coke Large Nuts/ Fines Forecast
(Benchmark) Small Nuts
2014 $330.6/t $187.9/t $123.9/t $157.4/t
2015 $345.7/t $202.0/t $133.3/t $169.3/t
2016 $352.7/t $209.0/t $138.2/t $175.3/t
2017 $356.5/t $214.1/t $142.0/t $179.8/t
2018 $358.0/t $217.7/t $146.9/t $184.0/t
2019 $357.6/t $220.3/t $153.1/t $188.3/t
2020 $357.0/t $223.0/t $159.5/t $192.8/t
2021 $354.3/t $224.8/t $161.1/t $194.5/t
2022 $349.9/t $225.2/t $162.0/t $195.1/t
2023 $348.8/t $227.9/t $164.3/t $197.6/t
2024 $345.8/t $225.7/t $165.9/t $197.2/t
2025 $344.4/t $224.7/t $168.3/t $197.9/t
Source: Wood Mackenzie 2014
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Anthracite Uses and Applications
Groundhog anthracite can be sold into the steel manufacturing and specialty high tensile metals industries. Within these markets, high grade anthracite can replace between 10% and 15% of metallurgical coke requirements in a blast furnace and can be used as the sole input in an electric arc furnace. Recently, Atrum has been contacted by steel mills modelling higher replacement ratios.
The market for these products is heavily supply constrained and Atrum is anticipating unconstrained seaborne demand.
In addition, the ultra-high grade anthracite produced at Groundhog can be used within the water filtration / filtration media sector, electrode and cathode paste and as a pellet plant fuel. These products command prices well over US$1,000/t (not modelled in this PFS).
Capital Expenditure
The overall estimated capital expenditure for the Groundhog project is as follows:
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Item Capital Amount
(US$,000)
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On-Balance Sheet Capital Expenditure:
Access Roads and Facility Pads 6,500
Central Area Campus 4,700
Man Camp - Electrical Reticulation 40
North Portal Facilities 880
South Portal Facilities 880
Overland ROM Conveyors 16,600
Product Reclaim and Truck Load-out 22,770
Environmental / Waste Tailings Management (initial) 14,700
Total On-Balance Sheet Capital Expenditure 67,070
Other Amortised / Leased Capital Expenditure:
CHPP - Phase 1 (BOOT) - DMS Plant 30,720
CHPP - Phase 2 (BOOT) - Static Bath Plant 22,500
Generators - onsite and offsite 2,130
South Portal Facilities 2,390
North Portal Facilities 2,390
Man Camp 9,565
Central Area Campus 7,295
Water Treatment Plant 8,920
Underground Mining Equipment, including electrical 136,808
Total Amortised / Leased Capital Expenditure 222,718
Atrum Infrastructure and Logistics Capital Expenditure:
Anthracite Haulage Road - Mine site to SBT 47,600
Power Transmission Line 52,000
Stewart Bulk Terminals - Optional optimisation 54,140
Total Atrum Infrastructure and 99,600 - 153,740
Logistics Capital Expenditure
(Low - High Range)
Source: Valzan
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Atrum has multiple funding options for ramp-up production capital expenditure including:
- Offtake funding
- Conventional debt facilities
- A separately funded infrastructure company funding all infrastructure items (see 'ATIL')
Atrum owns 100% of the Groundhog project and could consider direct minority investment in the project or into specific coal licences across the 38,000ha or 380sqkm Groundhog site.
Importantly, Atrum is well funded with cash at bank to deliver "first anthracite on ship" later this year. Atrum's wholly owned infrastructure subsidiary, Atrum Infrastructure and Logistics, will announce key management and Board appointments in the coming months.
Project Economics
The financial modelling indicates that when incorporating a nominal discount rate of 8%, the Groundhog project has a pre-tax NPV of approximately A$2.1 billion and a pre-tax IRR of 68%, assuming the road works and power capex is funded by Atrum rather than ATIL. The post-tax NPV and IRR is A$1.3 billion and 51% respectively. Total free cashflow is A$3.2 billion.
The following tables illustrate sensitivity analyses for the financial model:
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Discount Rate Post-tax NPV (A$M)
-2% / 6% (nominal) 1,564
Base Case / 8% (nominal) 1,256
+2% / 10% (nominal) 1,015
Source: Financial Model
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Yield Post -tax NPV (A$M)
-10% / 54% 993
Base Case / 60% 1,256
+10% / 66% 1,518
Source: Financial Model
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Financial modelling was completed by Deloitte Touche Tohmatsu.
Given the magnitude of the Groundhog project, the fact that less than 5% of the aerial extent of the project has been modelled in this PFS, and that the PFS only models 2 of the 20+ anthracite seams, significant upside is expected to be presented.
The Company will release a detailed technical presentation in the coming weeks which will elaborate on the PFS results
To view included tables and figures, please visit:
About Atrum Coal NL
Atrum Coal NL (ASX:ATU) is an emerging metallurgical coal explorer and developer.
The Company has a substantial coal position in British Columbia which, as a region boasts:
- Abundance of high quality PCI, coking and anthracite coals
- Well developed rail and port infrastructure with excess capacity
- Access to deep sea ports
- Competitive shipping distance to Asia
- Positive government stance on mining
The Company is building a quality portfolio of metallurgical coal assets suited to the Asian export market and the Board of Directors have a strong track record in identifying and developing world class coal assets in Australia and abroad.
Contact
Atrum Coal NL
Dr Eric Lilford, Managing Director
Tel: +61-424-757-452
E-mail: eric@atrumcoal.com
Nathan Ryan, Chairman Investor Relations
Tel: +61-420-582-887
E-mail: nathan@atrumcoal.com
