PROJECTS
INVESTMENTS
EAST KUTAI COAL PROJECT - INDONESIA
BACKGROUND
The East Kutai Coal Project is a world-class thermal coal deposit, with a JORC Mining Reserve of 961 million tonnes and a JORC Mining Resource of 2.730 billion tonnes. The feasibility study was completed in September 2010 and had the following highlights:
- Study confirms the technical and economic feasibility of the Project and demonstrates that it is a world-class thermal coal deposit
- Investment evaluation, modeled over an initial 25-year period, indicates a pre-tax net present value of US$1.8 Billion (discount rate of 10%), internal rate of return of 21% and payback period of 7 years
- Pre-tax net cashflow in excess of US$500 Million per annum over the first 20 years of capacity production
- Proposed 30Mtpa open-pit mining operation producing high-quality sub-bituminous coal over an intial 25-year period, although the reserve base woudl support a much longer mine life
- The Study now forms the platform for the next stage in the development of the Project and the ongoing strategic process
- Direct capital expenditure estimated at US$1.2 Billion before indirects (Engineering Procurement Construction Management ("EPCM"), insurance costs) and contingency
- Low average strip ratio of 3.7 bcm/tonne
- Operating cost estimated at US$25.10 per tonne FOB (excluding royalty of US$2.32 per tonne)
In accordance with the new Indonesian Mining Law, Churchill has completed the initial stage of its Indonesian restructuring and has converted its 75% beneficial interest in the Ridlatama Tambang license area into a direct equity interest.
The Ridlatama Tambang license area is the larger of the two IUP licenses that make up the East Kutai Coal Project, with a resource of 2.545 billion tonnes, or 93.2% of the 2.730 billion tonne resource of the East Kutai Coal Project. Churchill has also converted to a 75% direct ownership in PT Ridlatama Trade Powerindo, which holds a prospective 5,386 hectare license area adjacent to the Ridlatama Tambang license area, on which no drilling has been done to date.
PROJECT HISTORY
The project is comprised of four contiguous coal concessions covering an area of 350km2, with the resource as currently defined situated within two of the four concessions.
Churchill Mining Plc and its Indonesian partners the Ridlatama Group intend to increase the project coal production rate by up to 10mtpa to 35mtpa. Coal production from the Northern Pit would increase from 20mtpa to 25-30mtpa and production from the Southern Pit would remain at 5mtpa.
Churchill’s feasibility and development work has identified that planned mine facilities at the Northern Pit have the capacity to support a mining production rate of 40-45mtpa. In this context, Churchill has executed project optimization studies which show that the overland conveyor, which will transport the coal from the Northern Pit, has an enhanced capacity of 25-30mtpa, an increase of 5-10mtpa.
In addition to the Northern Pit production, and further to the MOU signed with PT. Perusahaan Listrik Negara (PLN), the Indonesian state electricity firm, in April 2010, Churchill continues to work on plans for the purchase of 5mtpa of coal from the Southern Pit, which would fulfill Churchill’s Indonesian Domestic Market Obligation (“DMO”). PLN is now reviewing the potential to utilize its coal drying and enhancement technology on the project’s coal, which, in testing, upgraded the coal from sub-bituminous to bituminous, considerably increasing its value.
Churchill also continues to work closely with its strategic adviser, Credit Suisse, in reviewing development options for the project. The optimized feasibility study forms the platform for Credit Suisse’s work as it evaluates Churchill’s options for the project and the next stages in its development.
Note:
On 3 March 2011, the Company and Ridlatama was subject to a surprising negative ruling from the Samarinda Administrative Tribunal. The Tribunal action was initially undertaken by the Company and its Indonesian partners, Ridlatama, to protect the validity of the licenses that make up the EKCP (the “EKCP Licences”).
The Company / Ridlatama lodged an appeal to the Administrative High Court in Jakarta on 9 March 2011 and will vigorously defend their rights in relation to the EKCP Licenses. The Company / Ridlatama have engaged experienced International Legal Firm Herbert Smith LLP to lead the appeal action.
