- Compliance Energy Corporation
October 7, 2010, VANCOUVER, (Coal Geology): Compliance Energy Corporation (“Compliance” or the “Company) has announced a positive, NI 43-101 compliant, pre-feasibility study (“PFS”) for the Company’s 60% owned Raven Underground Coal Project (the “Project”) in the Comox Coal Basin on Vancouver Island, British Columbia. Pincock, Allen, and Holt (“PAH”), of Denver, Colorado, a qualified independent mining consulting firm, prepared the PFS on behalf of Compliance and its joint venture partners. This PFS follows the Project’s technical report, also prepared by PAH, that was filed on SEDAR on June 4, 2010. That technical report reported a NI 43-101 compliant measured and indicated coal resource of 72.0 million tonnes and an inferred coal resource of 59.4 million tonnes.
The Project involves underground mining utilizing room and pillar mining methods with conveyor transportation to surface. An annual average of 1.88 million tonnes of raw coal will be processed on site, resulting in total average annual production of 0.83 million tonnes of saleable semi soft metallurgical and thermal middlings coal per year over a 16 year mining term. Processed coal production will range from 0.65 million tonnes to 1.1 million tonnes per year after the initial start up period and excluding the final year of mining. Processed coal will be transported to Port Alberni on the west coast of Vancouver Island and marketed into Asian coal markets, likely Japan and Korea. Infrastructure construction is anticipated to commence in 2012 subsequent to the receipt of all necessary permits. Mine construction and development would take approximately one year to complete and the first shipment of coal is projected to commence in 2013.
The PFS concludes that the Project is financially attractive with an estimated pre-tax NPV (8% discount rate) of CDN$201.9 million at an average realized coal price of CDN$142 per tonne (prices are FOB Port Alberni). The Project returns a non-levered, pre-tax discounted cash flow-internal rate of return of 20.7%. Selected pre-feasibility study results are summarized in Table A below.
Table A
Summary PFS Results (1)(2)
--------------------------
Pre-Tax Net Present Value (CDN$ Millions)(3)
5% Discount rate $ 308.4
8% Discount rate $ 201.9
10% Discount rate $ 149.2
Pre-Tax Internal Rate of Return 20.7%
Undiscounted cash flow payback period Year 7
Average annual EBITA(4)(CDN$ Millions) $ 54.7
Notes:
(1) The PFS was completed on a 100% project basis and thus all results
presented in this news release are shown on a 100% Project basis. The
Company holds a 60% interest in the Project.
(2) These results are presented on a 100% equity financing basis for the
capital requirements for the Project.
(3) Net present values are discounted to 2012, the first year of the
Project cash flows.
(4) Earnings before interest, taxes, and amortization.
John Tapics, President and CEO of Compliance Energy, stated today that “we are pleased with the initial conclusions of PAH’s extensive work at the Raven Project. As we continue to advance to a feasibility study we are optimistic that we can achieve further efficiencies in design to enhance project economics further.”
Production Summary
The PFS defines an underground room-and-pillar mining strategy to provide the maximum flexibility to adapt to the variable conditions present at the Project. The room and pillar method centres on the use of a continuous miner, with shuttle car haulage and dual boom roof bolters used for roof support. Shuttle cars haul coal from the continuous miner to the belt-conveyor feeder breaker. The belt-conveyor feeds the raw coal to the surface preparation and process plant.
The Raven coal resource can be processed to a final product specification of 10 percent ash (dry basis) and less than 1 percent sulphur and is suitable for the metallurgical coal market. Alternatively, all of the Raven washed product could be marketed as a high-quality thermal coal with average product specifications of 7,000 kcal/kg and 15 percent ash on a dry basis. Given this, the process plant has been designed with the flexibility to produce metallurgical coal, with a thermal middlings coal by-product or alternatively a high-quality thermal coal. There are markets for metallurgical coal, thermal (or “steam”) coal, and industrial coal (higher than 15 per cent ash on a dry basis) available for the Raven Project. Rock rejects will be directed to a surface storage pile to the north and west of the access portals and processing facilities.
The total project life is 17 years, comprising a 12 month construction phase (2012 to 2013) followed by an 16-year mining period with site reclamation in the final year. The initial construction phase involves site preparation, infrastructure construction, and decline development. Major infrastructure to be constructed on site includes a coal processing plant, coal stockpiles and handling equipment, mine offices, equipment workshops and power sub-station.
Table B
Project Production
------------------
Total Raw Coal mined (millions of ROM Mt) 30.1
Total Saleable Coal (millions of Mt) 13.2
Mine Life (Production Years) 16
ROM Average Mining Rate (millions of Mt per year) 1.88
ROM Average Saleable Coal (millions of Mt per year) 0.83
Notes:
(1) ROM = Run of Mine
(2) Mt = Metric Tonnes
Coal processing will be conducted on site. Average wash plant yield has been estimated at 44%. The final coal products will average 88% semi-soft metallurgical coal and 12% thermal middlings product over the mine life.
A number of options were considered for the transportation of coal from the mine to port. The base case assumes contracted highway trucks are used transport the coal to Port Alberni, British Columbia for loading onto Panamax-class ships for export to Asian Coal markets. Compared with coal ports in Australia, Port Alberni has an absolute mile advantage to markets in Japan and Korea. However, Port Alberni cannot accommodate the largest and thus most efficient “Cape Size” ocean-going bulk transport vessels.
The quantity of recoverable run of mine coal including dilution is estimated at 30.1 million tonnes. The saleable product in the base case is estimated at 11.6 million tonnes of semi-soft metallurgical coal and 1.6 million tonnes of thermal middlings coal. 72 million tonnes of Measured and Indicated resources were included to calculate the potential mineable coal resource. No consideration has been given in the mine plan for the 59 million tonnes of inferred resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The Company engaged an independent third-party coal market research firm to produce a coal price forecast for Raven Coal. The Raven metallurgical coal product has been characterized as essentially similar to Australian New South Wales semi soft coking coal, notwithstanding the fact that some characteristics of Raven coal are more typical of premium Australian hard coking coal. Raven thermal product is forecast to track the price of Australian coal shipped from the port of Newcastle, Australia.
Capital Expenditures
The mine development plan assumes that capital spending begins in 2012, with the majority of capital spending (equipment and facilities) occurring in 2013. Thereafter there will be on-going capital expenditures to add additional underground conveyors and sustaining capital has been budgeted to replace worn equipment over the life of the Project. The components of capital spending are listed in Table C below.
Table C
Capital Expenditures (CDN$ Millions)(1)
Initial Capital Costs:
Engineering, tendering, site development, electrical
switchgear and substation $ 11.0
General surface preparation(2) 28.6
Coal preparation plant 10.7
Raw and product coal handling/rejects 13.4
Underground mining equipment 34.0
Underground conveyors 38.0
Ancillary Underground Equipment and power 6.0
Underground Development and access 8.7
Port facilities 58.8
----------
209.2
Contingency 30.9
----------
Sub-total Capital (including contingency)(3) 240.1
Sustaining Capital (Life of Mine) 32.0
----------
Total Capital Outlay $ 272.1
Notes:
(1) - Capital expenditures include contingency and are shown in 2010
dollars.
(2) - Includes an estimate for a water treatment of $24.3 million, which
is subject to further study.
(3) - $217.8 of this amount is for initial capital to steady state
production with the balance in later years.
Mine operating Costs
The mine operating costs reflect a typical room-and-pillar operation with conveyor transport to surface and coal processing at surface. On-site costs consist primarily of workforce costs and also include operating supplies, maintenance parts and supplies, electric power, water treatment, roof bolts and all other mining and processing materials.
On-site costs are estimated to average CDN$60.30 per Mt of saleable coal. Offsite costs include coal loading and transportation, port costs, corporate general and administration, sales commissions and royalties. Off-site costs are estimated to average CDN$15.07 per Mt of saleable coal, resulting in a total average operating cost of CDN$75.37 per Mt of saleable coal, FOB Port Alberni.
Project Opportunities
Several opportunities remain at the Raven Project for generating additional revenues and improving economics, as well as for lowering capital costs. These opportunities were considered outside the scope of the work, but may be addressed in subsequent studies. These opportunities include:
- Evaluation of different port options;
- Increasing the quantity of saleable coal through additional in-fill
drilling to move inferred resources to measured and or indicated
resources and therefore into the mine plan;
- Additional resource drilling, if successful, could either expand the
mine size or extend mine life;
- Revising water treatment capital expenditures with the completion of
further scientific study.
The Company and its consultants are continuing to advance the study work in order to complete the feasibility study. Areas of uncertainty in engineering design that must be addressed further to determine feasibility including reject geochemistry and groundwater inflows and geochemistry to determine underground water management and if necessary, water treatment requirements.
Qualified Person
Peter Christensen, A. Lorraine Livingston, and Lynn A. Sessions of independent mining consultant Pincock, Allen, and Holt, are the Qualified Persons as defined by NI 43-101. They have reviewed and approved the results presented in this press release. A copy of the updated NI 43-101 compliant technical report on the Raven Underground Coal Project will be available at http://www.sedar.com.
http://www.complianceenergy.com
