JOHANNESBURG (miningweekly.com) – Coal developer Paringa Resources has successfully amended its coal sales contract with Louisville Gas & Electric and Kentucky Utilities (LG&E and KU), following its recent change in strategy to develop the Buck Creek No 2 mine ahead of the Buck Creek No 1 mine’s proposed 2.8-million-ton-a-year coal project.
Paringa decided in February to develop the No 2 mine first, as scoping studies revealed that it would transform the economics of the Buck Creek mine complex. Results from a scoping study demonstrated that the No 2 mine was a high-margin, 1.8-million-ton-a-year mine with a low capital expenditure of $44-million.
The company’s new staged development strategy would enable Paringa to come a strategic 5.6-million-ton-a-year supplier of high-quality coal for the Eastern US power market.
The amended cornerstone coal sales agreement with LG&E and KU, which agreed to the same terms as the original contract, now reflected delivery of coal from No 2 mine, though volumes and coal specifications remained unchanged. The project development milestones and delivery schedule for No 2 mine, however, were updated.
Fixed sale prices also changed slightly to reflect recent sales data, resulting in a fall of 7% in the nominal total value of the coal sales contract from $220-million to $205-million.
The amended contracted fixed coal prices for Paringa’s 11 200 btu coal specifications began at $40.50/t for the first 750 000 t of coal delivered to LG&E and KU, escalating to $45.75/t for the final million tons sold.
Sixty per cent of the No 2 mine’s yearly production during the five-year sales agreement would be contracted to LG&E and KU, significantly derisked the project for potential financiers.
“The fact that LG&E and KY are prepared to sign this major amendment to our sales contract confirms their belief that we will become a significant new source of production in the Illinois basin,” said Paringa president and CEO David Gay on Monday.
He added that the company was “progressing rapidly” with No 2 mine’s bankable feasibility study and had already identified a significant reduction in Paringa’s operating and capital costs.
Construction at No 2 mine was due to get under way in the second quarter of 2017, with production expected to begin mid-2018, before it reached full production in 2019.