Colonial completes Preliminary Economic Assessment

Trent Ernst, Editor

 

Colonial Coal has completed its Preliminary Economic Assessment for the company’s Huguenot project, and the news keeps getting better and better.

The PEA report, prepared by Norwest Corporation, suggests that the Huguenot Project “has positive economics and that it is worthy of continued exploration and development,” according to the company.

Norwest has updated its previously reported (2012) information on coal reserves in the area, using a combination of open pit and underground mining.

The Huguenot Project has an estimated 132 million tonnes of coal accessible via open pit mining, and 145.7 million tonnes of underground mining. This gives a projected mine life of 31 years, with a 14 year run on the open pit mine, and underground mining starting in year three. Resource estimates are nearly 50 percent higher than what was estimated last year, which in turn was up substantially over previous estimates.

Norwest estimates that the mine would produce a total of 89 million tones of clean coal, at a rate of between 1.4 million tonnes per year to 5.9 Mt/a, with an average production of about 3 Mt/a.

The study concluded that it would cost $387 million USD to develop Huguenot into a mine. However, Colonial noted that assumption major surface mining equipment items would be leased reduced initial capital costs significantly, as leasing expenses appear as part of operating costs.

At that rate, says Colonial, coal, the mine would recoup its initial investment of $387 million after about eight years, assuming a coal price of about $192 US/tonne. That’s well above the current coal prices, which are in the $145 range. That cost also assumes that mine equipment would be leased. The total value of coal in the Huguenot is valued at $1.1 billion USD, assuming a 7.5 percent discount rate.

Projected cost per tonne is about $122.51 USD per clean tonne.

Colonial says that they have developed a conceptual mine plan, which would use surface mining for the steeper dipping sections of the North, Middle and South resource blocks, while the shallower dipping portions of the North Block are conceived as being mineable by underground longwall mining techniques.

According to a press release from Colonial, these prices are based on the assumption that the Huguenot Project will be connected by rail to the existing rail line south of Tumbler Ridge, “and that a third party would construct this rail link, with costs being charged to the Huguenot Project on an annual basis.”

This, says Colonial is based on the assumption that other mines along this extended rail corridor would come on stream during the same general time frame as the Huguenot Project and that the rail costs would be shared among several users.

Using a coal price of $192.50 USD per tonne and a 7.5 percent discount rate, Huguenot carries an after-tax net present value of $1.1 billion USD. The mine should be able to repay its capital costs in eight years, though that would require metallurgical coal prices to rise from their current hover near $150 USD per tonne.

Shares of Colonial Coal, which have more than doubled over the last two months, fell $0.04 on the news, to $0.45. That’s up from a low of $0.25, but well below the $0.80 per share at the beginning of the year.