Kangaroo Resources advises that it has decided to delay resumption of operations at its Mamahak Coal Mine in East Kalimantan, Indonesia pending the completion of an operational review. As advised previously, operations at Mamahak were suspended in November 2012 due mainly to the impact of an industrial dispute between Mamahak’s mining contractor PT PPA and its on-site personnel. The Company used this period to review operational efficiencies at Mamahak, including mine plans and strip ratios, contractor performance, barging strategy and exploration practices. This was aimed at lowering costs to help counteract the impact of lower coal prices.

The review has already identified cost-cutting measures at Mamahak, including the potential to lower the mining strip ratio that will result in reduced targeted production rates. In light of this, Kangaroo has terminated Mamahak’s contract with PT PPA, which had equipped itself to meet the previously agreed production rates rather than the lower rates now proposed by Kangaroo. Mamahak will pay compensation of US$2.8 million to PT PPA in relation to infrastructure built on site by PT PPA, to offset the cost of demobilising equipment and to cover termination fees associated with equipment on standby.

As a result, Mamahak has signed an agreement with another mining contractor, PT Hero Krida Utama (PT HKU), under which PT HKU will resume mining at Mamahak within three months of being notified by Kangaroo. Barging operations at Mamahak remain temporarily suspended. However, Kangaroo is in discussions with barge operators as part of a plan to ship stockpiles totalling 133,000 tonnes of coal. These stockpiles have an estimated profit value of approximately $10 million at current international coal prices. In tandem with the operational review, Kangaroo is continuing its exploration drilling programme to increase the coal inventory at Mamahak. Kangaroo Managing Director Mark O’Keeffe said these measures were aimed at maximising returns from Mamahak. “The operational review has identified the potential to reduce costs at Mamahak,” Mr O’Keeffe said. “We look forward to completing the review and implementing its findings.”