Realm anticipates further reduction in operating cost of Katingan Ria project
Saturday, January 31 2015 - 02:55 AM WIB
ASX-listed Realm Resources Ltd said that the operating cost assumption used in the feasibility study and valuation of its 51 percent-owned Katingan Ria thermal coal project in Central Kalimantan may be further reduced from its recent valuation amid lingering drop in oil price.
?The operating cost assumption review was completed pre the oil price collapse so there is further scope for reductions,? the company said in a quarterly report seen Saturday.
As previously reported, Realm completed the review of the operating cost assumption in December of last year.
Industry operating costs have declined by up to 30 percent over the last two years in parallel with falling commodity prices and profitability, and the strengthening US dollar.
Realm said Katingan Ria?s unit operating cost forecasts have subsequently been reduced by approximately US$8/t or 20 percent following a review by management and their consultants. Importantly the forecast life of mine (LOM) unit cost for the operation before royalties has reduced to ~ US$31/t which is below the current spot coal price expected for Katingan Ria coal (i.e. 4,200 Kcal/Kg GAR at US$36/t).
Management has also reduced its long term price forecast for Katingan Ria?s coal quality to US$42.50/t (vs. US$52.00/t) in line with industry consensus forecasts.
Based on the long term price and revised cost assumptions, the NPV (10%) valuation for Katingan Ria (100%) declines marginally to $100m (vs. $111m) for the 3Mtpa dozer push mining method case as defined in the Feasibility Study. The NPV at spot prices is US$29m
The company said it is continuing to engage with prospective buyers and/or strategic off take partners interested in the company?s development ready thermal coal project in Central Kalimantan.
Interest has been directed at domestic supply opportunities and specifically PLN?s (Indonesian State owned Electricity Corporation) proposed 200Mw power station development in the vicinity of Kasongan, as well as increased interest from Indian parties seeking to procure coal supplies for their power sector.
The Katingan Ria thermal coal project is ideally suited to supply a proposed power station in Central Kalimantan. Efforts to engage with PLN about the proposed 2 x 100MW power station development in the vicinity of the project were unfortunately delayed by the Indonesian elections and changes to officials.
Management expects to accelerate discussions now that elections have been completed as a number of major power developers have expressed interest in partnering with Realm.
Editing by Reiner Simanjuntak