Kangaroo updates Indonesian coal projects
Friday, July 23 2010 - 08:10 AM WIB
23 July 2010--Kangaroo Resources Limited (KRL) successfully overcame a number of operational and logistical challenges during the June Quarter as it continued to progress as an emerging international coal producer.
Most of these issues related to the production ramp-up at Kangaroo?s flagship Mamahak Coking Coal Project, which is on track to lift coal production up to 50,000 tonnes per month by the end of 2010 and become a significant part of the Company?s coal portfolio.
Kangaroo secured US$14 million of new funding during the Quarter to assist in overcoming these logistical challenges and to support its ongoing growth strategy across several key coal projects.
The key ingredient to the Company?s success to date has been its strong local Indonesian partners and these parties continue to deliver value on the ground for the Company, enabling Kangaroo to rapidly increase its market capitalization over the past twelve months.
The unique formula by which KRL has managed to align all parties? interests as common shareholders maximises the Company?s ability to build on this growth going forward.
OPERATIONS
Mamahak Coking Coal Project
The main focus during the Quarter was to manage production and logistical issues inherited with the acquisition of the Mamahak Project in December last year, in order to ramp up production towards targeted steady-state production levels of up to 50,000 tonnes per month (up to 600,000 tonnes on an annualised basis) by the end of 2010.
In addition, Kangaroo commenced the initial delivery of 50,000 tonnes of semi-soft coking coal from Mamahak down the Mahakam River to realise the first coal sales from the Project.
This initial sale is a priority for the Company as it will realise approximately US$5 million in revenue and provide a significant boost to working capital for all of the Company?s projects in Indonesia.
The ramp-up of production at Mamahak has been affected by these key production and logistical issues, resulting in some delays in operational delivery.
In particular, unnaturally low water levels in the upper reaches of the Mahakam River has slowed the barging of cool to ships, underlining the importance of ultimately building strong systems and controls to ensure that each aspect of the operational chain flows smoothly as the Project progresses.
The Company still anticipates ramping up production at Mamahak from current levels of approximately 20,000 tonnes per month to a target of up to 50,000 tonnes per month by the end of 2010.
Kangaroo and its Indonesian partners have also made the decision to outsource all mining and associated operations at Mamahak Project.
This decision will enable the Company to conserve in-house resources, giving it the capability to deliver across all projects in its portfolio, while at the same time bringing in independent third-party expertise which is considered positive in reducing the operational risks associated with the Project.
The Company will invite suitable parties to bid as part of an impending tender for the Mamahak operation, with contractors targeted to be on site by end of the current Quarter.
Mamahak is a key part of Kangaroo?s Indonesian coal portfolio as it will deliver short-term cash flow while the Company ramps up production at its other key projects. It has also provided an opportunity for the Company to gain valuable operational experience in Indonesia which is expected to add significant value in the future as KRL brings its other projects into production.
GPK Thermal Coal Project
KRL commenced operations at the GPK Coal Project in January 2010 with first coal sales completed to a PLN power station in East Kalimantan shortly thereafter.
Approximately 30,000 tonnes of coal was sold to PLN during the first Quarter of 2010 with the Company delivering into a contract that had been arranged through its Indonesian partners. Work also continued on developing infrastructure at the project, including roads, a port facility and a coal stockpile.
As a result of these initial operations, the Company received expressions of interest from a wide range of parties in potentially acquiring or joint venturing the GPK Project, as well as possible off-take arrangements and other similar transactions.
Given the strong levels of interest received and the Company?s existing commitments in managing the restart of the Mamahak Project, the Company decided to mandate an experienced third party to manage a review process. Accordingly, Macquarie Capital Singapore (?Macquarie?) was appointed to manage a tender process whereby third parties could register their interest in the GPK Project.
The Company also completed a Deed of Release with KAL Energy in relation to its previous interest in the GPK Project, giving Kangaroo the ability to consider all possible alternatives for this project under the tender process without prejudice associated with any historical issues relating to former interests held by other parties.
As a result of this Deed of Release, KAL Energy now holds an 8% economic interest (as opposed to shareholding) in the GPK Project and is working closely with Kangaroo to consider the best commercial outcome for this project under the Macquarie review process, which is expected to be concluded shortly.
In the meantime, operations at the GPK Project remain on care and maintenance.
Tanur Jaya Thermal Coal Project
In late 2009, KRL announced an agreement with its local Indonesian partner to acquire a 45% interest in the Tanur Jaya Thermal Coal Project (subject to agreed terms and conditions).
The Tanur Jaya Project coal concession is one of the overall nine concessions on the vast Pakar Thermal Coal Project. The Company is targeting significant tonnages of thermal coal from Tanur Jaya as a cornerstone to an overall KRL production portfolio in the medium term.
Kangaroo is currently completing the US$15 million transaction to acquire the interest in Tanur Jaya and has also negotiated to increase from a 45% to a 49% interest. Kangaroo is aiming to bring Tanur Jaya into production as its next operating project by early 2011.
The Tanur Jaya Project is currently awaiting the award of final licenses by the Indonesian Government and does require minor additional infrastructure to bring it into production.
Most of the infrastructure required for a significant operation is already in place as the Company will be able to leverage off the existing Pakar Project infrastructure that is already commissioned.
Kangaroo expects to announce a JORC resource and reserve statement for Tanur Jaya in the next few weeks following the extensive drilling programme initiated in late 2009.
Kubah Indah Coking Coal Proiect
Kangaroo announced an agreement with its Indonesian partners to acquire 100% of the Kubah Indah Coking Coal Project in late 2009, subject to due diligence and shareholder approval.
The Kubah Indah Project will ultimately comprise a number of separate concessions within close regional proximity, serviced by a single production hub, targeting both coking coal and high quality thermal coal.
The Company received notification from its Indonesian partner of the grant of exploration licenses for three initial concessions relating to this Project in the first Quarter 2010 and commenced due diligence over these concessions. The Company announced the completion of due diligence in May 2010, clearing the way for the outstanding shares to be issued under the agreement to complete this transaction.
The Company has since received notification from a large multinational third party alleging that part of these initial three exploration licences for the Kubah Indah Coking Coal Project overlap licenses held by the third party. These allegations also claim that the licenses held by the third party have a priority right to the licenses granted to the Company?s Indonesia partner.
While overlap issues are fairly common in Indonesia ? and Kangaroo and ifs Indonesian partners deal with these administrative issues on a regular basis ? the Company is confident in the position as held by its Indonesian partners and is conducting further due diligence as necessary to resolve this issue.
As the Company does not directly hold any of the Kubah Indah Project concessions or licenses, this process requires the current owners to initiate and manage an enquiry in Indonesia. Kangaroo is facilitating this process to the best of its ability to ensure a prompt outcome, with a view to achieving a successful resolution.
The Company will make further disclosure to the market in due course once the position has been resolved. In the meantime, no shares will be issued by Kangaroo for the acquisition of the Kubah Indah Project.
OTHER PROJECTS
In an announcement of 14 May 2010, KRL stated that it had completed due diligence on the MBK, BP, Jawana and Borami Coal Projects. As these other projects are not subject to any known overlap queries or other known issues, the process of completing the transactions as agreed for these will take place in the near term, subject to a shareholder meeting.
Exploration work on these projects will be prioritised and may commence in the second half of 2010, once the second tranche of new funding is received (see below) and adequate resources are available to consider these targets.
The Company considers each of these four projects as highly prospective with the potential to add significant tonnages of coal tonnages to its overall portfolio in time, once exploration work is completed.
The Jawana and Borami Projects are contiguous with the Mamahak Coking Coal Project, which is already in production and has all necessary infrastructure in place. The ability to move these two greenfields projects into production will be significantly enhanced as a result of the synergies available and Kangaroo will be aiming to add the Jawana and Borami operations info its overall Mamahak production hub during 2011. (end of release)