Killara enters into agreements to move into coal production

By Romel S. Gurky

ASX-listed Killara Resources Limited announced on Wednesday it has entered into a Mining Services Agreement and a Cooperation Agreement to progress the PT Borneo Emas Hitam (BEH) project in Indonesia into production.

These agreements follow the Coal Sale and Purchase Agreement entered into with Coal Operations & Assets Pte Ltd (COPA) last month, in which COPA agreed to become offtaker of 100 percent of the coal output from Killara.

?The Mining Services agreement entered into with PT Berkah Ciwi Lestari Kaltim (BCLK) provides ongoing mining services including the provision of equipment and personnel for the extraction of coal over the life of the project,? the firm said in a statement filed with the Australian Stock Exchange.

BCLK is a subsidiary of PT Buana Celebes, an experienced Indonesian mining operator whose mining operations include nickel in Pomala, Southeast Sulawesi and coal in Grogot and Bentuas, East Kalimantan. Celebes not as the prime contractor for the large diversified Alamoudi Resources Group within Indonesia.

Mining works will be coordinated by both COPA together with Killara?s team. The initial task is the approval of mine design followed by overburden removal with coal soles anticipated to commence ?within three to four months. The term of the Mining Services Agreement will also coincide with the coal sale agreement entered into with COPA.

Key commercial terms of the Mining Service Agreement are:
? Killara to retain authority over extraction of coal at the mine.
? BCLK to provide all equipment, machinery and personnel.
? The term of the agreement is until mine out of the BEH project.
? Cost of cool extraction initially set at US$40.40 per ton. (Inclusive of overburden removal). Any change in the fuel price by +/- 5 percent can necessitate an adjusted price per tonne either up or a own.
? The anticipated gross margin from this project is expected to be approximately $14.50 - $16.50 per ton.

?The coordination of coalmining and sales is underpinned by a Cooperation Agreement between BEH, COPA and BCLK. This agreement ensures that the three parties work together. From Killara?s perspective if means that the mining activities can be funded directly from our coal sale partner COPA, representing a major cash flow benefit to Killara,? the firm said.

Key commercial terms from the Cooperation Agreement are as follows:
? The sales price less operational costs shall not be less than $16.50 per ton. Thereby providing a minimum margin to Killara. With the selling price being fixed for the first twelve months. After the first year the sale price will be pegged against the Indonesian Coal Index price.
? COPA agrees to buy all coal output from the BEH project.
? BCLK will perform all post mining activities including reclamation, mine closure, dismantling, land preparation and clearing of each mine pit where the coal is mined.
? BCLK will ensure that the mine reaches minimum production targets of 20,000 tons per month.
? Costs relevant to production will be borne by COPA, including logistics, production contribution and performance of post mining activities.
? BEH shah bear the costs in relation to any land compensation, reclamation fund and dead rents due.
? Costs incurred in relation to the performance of community development will be funded jointly 50/50 by BEH and COPA.

Commenting on the recent coal sale agreement, the mining services agreement and the co-operation agreement Killara?s Managing Director Robert Kipp stated:?2013 has been a significant year of transition for Killara. The important partnering with the Zulkarnaen family as key stakeholders in Killara. together with their direct involvement, has delivered significant results by securing a producing mining asset and in the past week also finalizing important agreements, leading to the commercialization of the project for the benefit of all shareholders. It has been the family?s principal work and utilizations of existing networks in Indonesia that has assisted Killara in moving forward to become a coal producer.?

Editing by Johannes Simbolon