Paringa Resources (ASX:PNL) has announced the result of a pre-feasibility study it conducted on the Buck Creek coal project in the Illinois coal basin in the USA. The mine plan calls for an annual Run-of-Mine production of 5.2 million tonnes resulting in a saleable production rate of 3.8 million tonnes of coal per year. The mine could be developed at a cost of just $127M and with an operating cost of just $30/t (including royalties, excluding transportation costs), the economics of the study look pretty decent.
Using a gradually increasing coal price based on estimates of Hanou Consulting, the average annual EBITDA would be $81M per year, but we expect this number to be lower in the first few years of the mine life due to the lower coal price. Based on an expected AISC of $37/t (including sustaining capex and transportation costs) we wouldn’t be surprised to see the annual pre-tax cash flow coming in at less than $40M per year (excluding the cost of debt and G&A expenses). That’s indeed much worse than the $81M per year in the headlines, but we remain very confident the payback period of the Buck Creek mine will be less than 5 years. Even if the average sales price would be 10% lower than assumed, the after-tax NPV8% of the project will still be $177M which compares quite favorable to Paringa’s current market capitalization of A$37M.
Paringa definitely isn’t a slam dunk investment and several questions (regarding a potential financing) remain, but the company definitely is in an enviable position as it has direct access to the river where it will use barges to transport its coal to one of the nearby power plants.
> Click here to go to Paringa’s website
Disclosure: The author holds no position in Paringa Resources. Please see our disclaimer for current positions.
