Strike resources updates E. Kalimantan coal project
Monday, February 2 2009 - 02:08 AM WIB
Berau Thermal Coal Project (100%, East Kalimantan)
Strike?s focus is on the development of a relatively low-cost strip mining operation producing 1.5 million tonnes per annum initially and increasing to 3 million tonnes per annum. This project, upon commencement of production, has the potential to generate substantial near term cash flows for Strike.
JORC Resource
Resource drilling within the proposed initial mining pit and a resource review by Minarco MineConsult has led to Strike upgrading its JORC Inferred Resource of 8 million tonnes to a JORC Indicated Resource of 8.1 million tonnes of sub-bituminous thermal coal with a calorific value of 5,756 kcal/kg. The coal has low ash (6.8%), low sulphur (0.73%) and Inherent Moisture of 13.8%.
The calorific value of this coal together with its relatively low levels of ash and sulphur means that it is ideally suited for use as a fuel for power utilities in both domestic (Indonesia) and international markets.
Coal of this quality is currently selling for US$65 to $75 per tonne FOB barge Berau.
Resource Expansion
The current JORC Indicated Resource of 8.1 million tonnes of thermal coal along a 2.5 kilometres strike length is located within a 200 hectare area forming part of the total concessions area of 5,000 hectares.
Outcropping coal seams have been mapped intermittently by Strike along a further strike length of 4 kilometres southeast of the current JORC Inferred Resource.
Strike has completed -50% of a 5,000 metre diamond core drilling programme to confirm the continuity of coal seams within the resource block and extend the occurrence of coal seams in drill holes 2.5 kilometres away from the resource block.
Drilling outside the proposed pit areas has confirmed the extension of the resource as far as 2.5 kilometres (in hole KJB 02) from the resource block. Of particular interest are intersections of coal seams in the following four (4) drill holes where thick seam thicknesses varying in thickness from 1.27 to 5.7 metres (with several 4 metre wide seams) were intersected along a strike extension of 1,000 metres:
Because of undulating ground not all seams were intersected in every drill hole. However, continuous intersections of seam thicknesses of 4 and 5.7 metres is encouraging for significant addition to the resource base. Chemical analyses is pending and Strike will release these results when completed.
This possible extension of the resource along strike affords the potential to increase the JORC Indicated Resource by a further 5 to 10 million tonnes to a total of 13 to 18 million tonnes.
The potential quantity of the target mineralisation of an additional 5 to 10 million tonnes of coal is conceptual in nature. There has been insufficient exploration to define a mineral resource in relation to that target coal. It is uncertain if further exploration will result in the determination of a mineral resource in relation to that target coal. The potential quality of the target mineralisation coal has not been ascertained at this stage, and no assurance can be given that the target mineralisation will have a similar quality to the current JORC Inferred Resource.
The on-going objectives of the drilling campaign are to:
? obtain geotechnical information to determine mining conditions and to plan an open pit;
? convert the current JORC Indicated Resource of 8.1 million tonnes to a Measured JORC category; and
? delineate an additional resource outside of the currently drilled area.
Capital and Operating Costs
The Berau Thermal Coal Project has the potential to generate substantial near term cash flows for Strike.
After a brief drop in the price indices of traded thermal coal in October and November 2008, thermal coal prices have improved and stabilised. Market intelligence suggests that demand for thermal coal will continue to remain strong.
On current prices and the scoping numbers provided by GMT Indonesia (referred to in our September 2008 quarterly report) Strike forecasts a gross operating margin of between US$20 to US$30 per tonne.
There has been no change in the estimate for capital cost of US$23 to US$25 million provided in the September 2008 quarterly.
At an initial proposed production target of 1.5 million tonnes per annum and ramping to 3 million tonnes per annum, thermal coal is expected to provide strong annual cash flow for Strike.
Resource and Infrastructure Studies
A low-cost strip mining operation is planned of 1.5 million tonnes per annum initially, increasing to 3 million tonnes per annum. It is proposed that the coal will be trucked and barged to the coast for transport to buyers in Asia.
During the December 2008 quarter and to the date of this report, Strike has engaged:
(i) An Australian expatriate site Project Manager based in Berau, to provide day to day management of site operations;
(ii) A number of local project geologists, staff and consultants to assist with community relations and social mapping;
(iii) A local consultant to assist with the development of a coal marketing strategy;
(iv) AAM Hatch to conduct a LIDAR radar survey for modelling the terrain between the mine and proposed port site to precisely determine the course of the 30 kilometres haulage road between the proposed mine and the proposed port. This survey is expected to be completed in mid-March 2009;
(v) Golder Associates to provide an assessment of proposed port locations and geotechnical assessment of the proposed mine pits. In this regard, approximately 50% of the geotech drilling has been completed and 2 potential port sites have been identified as suitable for barging, barge loading infrastructure and stockpiles.
A feasibility study presented to the Berau Mines Department has been approved by the Department.
The community consultation process has commenced with a view to finalisation of the Environment and Social Impact Report with the Berau Regency and agreements with local communities by the end of April 2009.
Off-take Agreements and Project Financing
Given current uncertainty in world financial markets Strike believes that it is important to secure firm and binding off-take agreements for coal produced from this project prior to proceeding with any significant expenditure in mine development. Strike may also seek, in conjunction with such off-take agreements, project financing for the whole or part of the capital costs involved in mine development.
A marketing strategy report has been completed by a local consultant.
Strike is currently in discussions with various parties to secure firm coal offtake agreements and is also discussing various project financing options. (end of edited excerpt)