(MENAFN- ProactiveInvestors)
() remains on track with its acquisition of a U.S. positive cash flow producing coal producer and a name change to Pacific American Coal (ASX:PAK) on relisting and a successful $3.7 million capital raising in its pocket.
The funds will be used to acquire a 30% stake in Georges Colliers Inc the owner and operator of the P8 Mine in Oklahoma which is already cash flow positive with an existing contract with a local power station.
This would allow it to benefit from the strong domestic U.S. economy and improved demand for metallurgical coal in 2015.
has the option to increase its equity in GCI up to 80% which has plans to boost production from P8 Mine to 1.25 million tonnes per annum and to upgrade the coal output so that it can supply steel producers with low volatile pulverised coal.
Combined JORC coking coal exploration targets across the entire portfolio are between 697 – 1031 million tonnes.
Proceeds from the capital raising will also help fund a feasibility study to expand the mine initial exploration at its coal tenements in British Columbia and secure leases in Oklahoma and Colorado.
Re-branding
will be re-branded as Pacific American Coal Limited after the reverse merger with Texas and Oklahoma Coal Company which holds the North American coal assets is completed.
It will consolidate its existing 73.1 million issued shares on a 1 for 10 basis into 7.3 million new shares and issue 56 million new $0.20 shares with 16.8 million options to the Texas and Oklahoma Coal Company for U.S. and Canadian coal assets valued at $11.1 million.
P8 Mine
The P8 Mine is a producing coal mine held under mining lease and located in the Arkoma Basin of Oklahoma.
It is located 30 kilometres south of the coal barging river ports at Van Buren and close to water power rail links and Fort Smith with a population of 86000.
The mining lease contains both metallurgical and thermal coal types with a JORC Measured 8.97 million tonnes Indicated 4.37 million tonnes and Inferred 0.38 million tonnes for a total of 13.72 million tonnes.
It currently operates via a contracting agreement with South Central Coal Company which employs a skilled workforce of 73 people.
Since 2008 the P8 Mine has averaged an annualised output of approximately 450000 tonnes of “Run of Mine” production and projected a similar rate of Run of Mine production for 2015 to generate a surplus cash flow of US$2.0 million.
P8 produces a steaming coal with high ash 10500 Btu per pound / 5837 kcal per kilogram that supplies a local Oklahoma power station.
has evaluated potential for production of a higher value PCI which is a pulverised coal that is suitable for steel making that is recovered by crushing screening and washing of Run of Mine coal.
Future Activity
Over the next two years GCI plans to expand production to 1.25 million tonnes per year Run of Mine.
This will include the addition of underground mining equipment and installation of a new Coal Handling Preparation Plant that will screen crush and wash the Run of Mine coal to produce a 625000 tonnes of PCI export product and 125000 tonnes of steaming coal per annum.
The estimated mining cost is US$45.00 per tonne CHPP process cost US$6.50 per tonne road transport US$6.00 per tonne river transport and port charges US$18.00 per tonne sundries and royalties US$4.50 per tonne for a total OPEX of US$80 per tonne.
Long term commodity pricing for PCI coal product is estimated at US$105 per tonne and should produce US$25 per tonne free cash flow or US$15.5 million on an annualized basis.
This should produce an EBITDA of US$12.4 million to Pacific American Coal for its 80% equity stake in the venture and before any credit is generated from the remaining thermal coal production.
Other Tenements
is acquiring 6 tenements that are in various stages of approval within the Arkoma Basin Oklahoma that are within 300 kilometres of the P8 Mine.
It is also acquiring 6 Coal Licenses being the Elko and South Hazell Project areas in the Kootenay Basin Project Area Canada.
Analysis
is well on the road towards becoming a U.S. coal producer with the acquisition of a 30% interest in the P8 Mine in Oklahoma with an option to increase this to 80%.
This is already cash flow positive with plans to install a plant to produce an export quality PCI (pulverised coal) coking coal product at an annualised rate of 620000 tonnes plus 125000 of steaming coal.
The acquisition is in the U.S. and contains metallurgical coal not steaming coal. Initial target is cash flow from domestic U.S. consumption.
Its current valuation versus comparable projects is leveraged into any coking coal price rise.
Pacific American Coal will complete a reverse take-over of the Texas and Oklahoma Coal Company at a deemed value of $11.1 million by issuance of 56 million shares and 16.8 million options.
The company will also acquire an initial equity stake in the P8 Mine of 30% - 47% that is based on a fundraising range of $3.5 – $5.0 million. An option is also held to increase the equity interest up to a maximum 80%
The operating P8 Mine in Oklahoma is cash flow positive and has an existing contract with a local power station.
With the staged acquisition of P8 and the significant mine development program in Oklahoma investors can expect a series of announcements on our progress there.
Proactive Investos believes the PCI production could produce an annualised EBITDA of $15.5 million and projects a 12 - 18 month valuation of $31.9 million and share price target of $0.32 per share.
On a 3-5 year view the company has a business plan in place that will expand production to over 2 million tonnes of metallurgical coal and become a mid-tier coal producer providing investors with an ongoing growth opportunity to much higher levels.
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