Paringa Resources Ltd. out of Australia said Oct. 18 that it has executed its “cornerstone” coal sales agreement with Louisville Gas and Electric (LG&E) and Kentucky Utilities (KU), two of the largest fuel buyers within the company’s initial target Ohio River market.
The coal sales agreement is for the Buck Creek No.1 Mine’s 11,200 Btu/lb coal and will be sold at the proposed Green River barge load-out facility on an F.O.B. Barge basis. The deal is for five years, and covers 750,000 tons in 2018, the first year, at a fixed price of $44.50/ton (FOB Barge, 11,200 Btu/lb). Then there is 1 million tons contracted in each of 2019, 2020. 2021 and 2022.
The coal sales agreement is a seven-year contract covering an initial two-year construction period (2016 to 2017) and a fve-year production period (2018 to 2022). The coal sales agreement requires Paringa to meet certain construction milestones in developing the Buck Creek No.1 Mine. Execution of the cornerstone coal sales agreement will enable Paringa to facilitate final negotiations with financiers to develop the low-capex Buck Creek No.1 Mine
Paringa President and CEO David Gay, said: “I am very excited that Paringa has executed its cornerstone coal sales agreement with LG&E and KU. The contract is the culmination of over a year of due diligence, negotiations, documentation and approvals on both sides. We are very proud to be contracting with LG&E and KU and we will look forward to contracting additional coal sales as we move towards production.”
The company said this deals totals US$220 million of contracted sales. Based on feedback from Paringa’s potential “tier-1” customers within the Ohio River barge market, the Buck Creek No. 1 Mine’s Coal Handling and Preparation Plant was redesigned as part of a Pre-Feasibility Study (PFS) 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 3.8 million tons per year by approximately 2020. Under the coal sales agreement, Paringa is contracted to deliver a total of 4.75 million tons over the five-year period of its 11,200 btu/lb product.
The Buck Creek No.1 Mine’s direct barge access to the Green River (in western Kentucky) and Ohio River systems provides a significant transportation advantage, Paringa said. 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 a price for 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. By adjusting for heating content, the equivalent 11,800 btu/lb coal price implied under this coal sales agreement is US$46.88 for 2018, increasing to US$50.78 by 2022. Other contract coal specs include maximums of 10 lbs/mmBtu moisture, 11 lbs/mmBtu ash and 0.18 lbs/mmBtu chlorine.
|During the mine construction period, LG&E and KU will progressively monitor Paringa’s performance in meeting these milestones. If the company fails to achieve the relevant milestones, then LG&E and KU may terminate the agreement and the company will have no further obligations. LG&E and KU own three power plants within Paringa’s initial target Ohio River Market (the Trimble County, Ghent and Mill Creek plants) that are almost exclusively supplied by Illinois Basin coal producers.|
The Buck Creek Mining Complex is located in western Kentucky. Paringa controls over 34,556 gross acres of coal leases within an area of interest of approximately 72,000 acres. The Buck Creek Mining Complex is one of the few remaining contiguous high quality thermal coal projects within the Western Kentucky No. 9 seam that is not controlled by one of the major U.S. coal companies.
The Buck Creek Mining Complex has a Joint Ore Reserves Committee (JORC) Measured and Indicated Coal Resource Estimate of 211 million tons (about 192 million tonnes) of high quality thermal coal. JORC is a coal reserve benchmarking system in the international market. The project’s Marketable Ore Reserve is classified as a Proven and Probable Ore Reserve Estimate, of which 16.4 million tons (or 26%) is considered proven and 46.3 million tons (or 74%) is considered probable. The Buck Creek Mining Complex is located adjacent to the Green River which provides year-round linkage to the Ohio and Mississippi river systems. These systems feed domestic coal-fired power plants and coastal export coal terminals in the Gulf of Mexico.
An October 2015 “roadshow” presentation from the company credits new SO2 scrubbers on various U.S. power plants as the key to creating markets for this coal. The presentation said the company plans a room-and-pillar mine at Buck Creek, instead of a more expensive longwall mine. A map in the presentation shows this operation will be near existing mines in the region, like Alliance Coal‘s Onton No. 9 operation. The presentation noted that its “all-in” operating costs will be similar to those of Alliance Coal parent Alliance Resource Partners LP, a dominant producer in this region.
The presentation notes that Gay was formerly with Pittston Coal and Alpha Natural Resources. Other Paringa executives and their former companies include: CFO Scott Cole, Alpha Natural Resources; COO Matt Haaga, Peabody Energy; and Vice President of Coal Sales and Marketing Jim Plaisted, Alliance Coal. The company’s Board of Directors is largely made up of people with international mining backgrounds.