Australia’s New Horizon Coal Ltd. (ASX: NHO) said Nov. 29 that it has completed a positive Pre-Feasibility Study (PFS) for the Kinney Coal Project, which is a planned underground mining operation in Utah near Arch Coal’s (NYSE: ACI) Skyline longwall mine.
The PFS confirms the project’s technical and economic viability to produce a high-Btu, low-sulfur coal, the company said. The study, conducted by consultant John T. Boyd Co., defined a Joint Ore Reserves Committee (JORC)-compliant 16-year life of mine for the Kinney Coal Project at a run of mine (ROM) annual production level of 2.3 million tonnes per year. ROM is a measure of raw coal production, with any cleaning or sorting potentially reducing the figure when it comes to net saleable coal.
The project features low capital development costs and rapid development timetable, as well as attractive cash operating costs providing delivery into both the domestic and export markets, said New Horizon.
Michael Placha, Managing Director of NHO, said: “Completion of the PFS provides the first comprehensive evaluation of the Kinney Project Area. Annual production at 2.3 million tonnes for the initial 16-year mine plan has met expectations and confirms that Kinney is important for both export and domestic thermal coal markets. Located in an established mining region of Utah, the Kinney Project will be able to access well developed infrastructure and underutilized rail network. Based on the favourable economic results of this PFS study NHO, through its subsidiary Wasatch Natural Resources, will continue to build on this study with a Bankable Feasibility Study commencing in CY 2013.”
With drift access directly into the Hiawatha coal seam, production of saleable coal would commence quickly, eliminating the time and expense of either a rock slope or shaft to access the coal seam. The mine plan utilizes conventional room-and-pillar methods with up to four continuous miner sections, further reducing capital cost while allowing the company to pursue a more agile approach to production.
Development costs for Kinney are separated into three phases.
- Phase I encompasses the initial development of the mine, including surface facilities and a continuous miner section required to commence production. Capital development in this phase includes the construction of shop, office-bathhouse and warehouse facilities and the bulk of material handling, coal preparation, waste handling and storage, and truck loadout facilities sized for full production at 2.3 million tonnes per year; much of the development is included as capitalized development costs.
- Phase II and Phase III capital development are related primarily to the addition of continuous miner sections to reach full production, and to the completion of surface facilities. Upon completion of Phase III, Kinney Coal would reach its intended annual ROM production of 2.3 million tonnes.
Cash costs per tonne are projected to be higher in the first two years of the mine due to lower production during the development period, with operating costs falling as the Kinney Coal Project reaches the 2.3 million tonnes ROM annual level. Average, estimated operational expenditures are projected at US$36.34/tonne during the initial production period, falling to US$30.49/tonne during peak production years. The PFS assumes that product from Kinney will be sold at premium prices, based on the superior product quality and access to both domestic and seaborne coal markets.
New Horizon says rail access a strong positive for project
Kinney benefits from its proximity to three Class 1 rail carriers located within 30 kilometers of the project site. The PFS has accounted for NHO’s option to utilize two existing rail loadouts on a fee basis or to construct a new loadout on the main line, about 18 kilometers from the project. NHO said it has engaged with several rail carriers to secure preferred pricing for moves to the Gulf of Mexico.
To facilitate exports, NHO said it expects to sign a letter of intent in CY 2012 with a new, fully permitted deep-water port facility located on the Gulf of Mexico coast. Under the terms of the framework agreement, NHO has secured a port allocation commensurate with near- and long-term export needs. Construction on the new port facility is expected to commence in 2013, with first coal exported in 2014. With a strategic location on the Gulf, this new port facility is well positioned to provide cost effective seaborne access to crucial thermal coal markets in Europe, Latin America, and Asia. A market assessment prepared for NHO by consultant Wood Mackenzie indicates that FOB vessel pricing from the Gulf of Mexico for high-Btu, low sulfur coal is expected to rise significantly as market demand for high quality thermal coal rises in both Europe and Asia.
Access to multiple Class 1 rail carriers and their broader North American network provides Kinney with single-haul reach to numerous Gulf and West Coast port facilities, the company added. NHO said it will continue its evaluation of West Coast port options that would allow more direct shipments into Pacific Rim and Asia markets. There is a lack of current export terminal capacity along the U.S. West Coast, with about a half dozen new port projects in the works in Oregon and Washington.
New Horizon works on leasing of Long Canyon coal tract
The Kinney Coal Project consists of two prospective production areas: the existing Carbon County lease, and federal mineral rights that lie adjacent to the Kinney project. NHO is in advanced stages of acquiring the Long Canyon fedetal LBA (lease by application). The PFS has been predicated on the acquisition of the Long Canyon tract given the advanced status of the application and the technical and economic uncertainty of entering the tract from points of entry not controlled by NHO. That means no competing party is likely to pop up for this lease.
At the full 2.3 million tonnes per year ROM production rate, mine operations employment (hourly and salaried) to operate the four continuous miner sections plus all surface facilities is estimated at 175 employees. A core of experienced miners will be recruited from the local area.
The mine plan is designed to recover coal based on room-and-pillar mining from both the Hiawatha and UP seams. Process simulations conducted on washability data collected from a 2012 exploration drilling program indicate a premium 6,865 kcal/kg (12,350 Btu/lb) product quality.
Coal handling, processing and loadout facilities designed by Taggart Global for Kinney are flexible to allow for maximizing sales revenue for a range of ROM and product quality specs. The process plant will have the capability of fully washing, partially washing and bypassing the ROM production dependent on quality requirements. Coal handling facilities include raw and clean coal product storage and product loadout into unit train or truck.
NHO said it will be further evaluating rail carrier and trucking options and costs as part of the Bankable Feasibility Study. Further evaluation and selection of a preferred train loadout site is underway and will be finalized in the BFS.
NHO commissioned Wood Mackenzie to forecast thermal coal pricing through 2030. For domestic supply there are nine power plants with a combined capacity of 5,470 MW that reported Utah coal burn in 2011. Beginning in 2016, eight major, unnamed mines within the region are expected to deplete their reserves. Replacement mines for this capacity face capital and permit hurdles that will enable Kinney to capture key domestic markets, the company said.
For export thermal markets, there is the option of blending Kinney coal with lower rank domestic coal and shipping into Asian, Latin American and European markets. Wood Mackenzie has forecast a base thermal coal export price growing from US$101/tonne once Kinney reaches full production to US$115/tonne by mid-life in the initial 16-year mine plan.