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Project status
Invested funds - >USD 54,9m
Mine construction project and electricity and other technical supply terms approved;
Land is allocated, infrastructure construction in progress: roads, bridges, drainage systems,
removal of soil etc.;
PAT «Luganskdiproshakht» elaborated an updated version of BFS in January 2014.
In 2015 CCMC (potential general contractor) and Hefei project institute developed an adaptation
of BFS according to terms and rules of potential international creditors, incl. Chinese financial
institutions
Term of construction, according to CCMC, will not exceed 38 months, planned start of operations
– 1st quarter of 2020; CCMC will provide the performance guarantee on estimated mine output,
construction term and quality of equipment
The Company is continuing preparation works for construction commencement and finalized
drilling of 15 boreholes (field #3) for further reclassification of resources according to JORC
standard
Mine project elaborated by CCMC is being modified by Yuzhgiproshakht according to local
standards
Unique Opportunity with
a Pure-Play Coking Coal
Development Company
located in a European
Country close to the end-
users
Project Consultants
General Advisor – BMO (Bank of Montreal)
Company Auditor – Deloitte & Touché
Corporate Secretaries – PwC (PricewaterhouseCoopers)
General Designers – PAT “Luhanskgiproshakht”, Hefei design and research institute of coal industry (China)
General Contractor – China Coal #3 Construction Group Corp. (CCMC, China)
Project Developers:
- Geology and Mining section: – IMC Montan (Germany); – Mineral and Energy Economy Research Institute
(Poland); – Wardell Armstrong (UK)
Process Design and Washing Plant Project Development:
– Capital Equipment and Trading Corporation (CETCO) – USA
Coal Quality: – UKHIN (Ukrainian Institute of Coal Chemistry)
Other Project Sections: – >10 Design and Research Institutes involved
Mining parameters
Lubel 1-2 Lubel 3 Total
Mining method Underground / Longwall system
Mine life (years) 27 23 42
Coking coal of grade K, Mt 129,87 -- 129,87
Coking coal of grade Ж/Zh, Mt
-- 99.74 99,74
Steam coal, Mt -- 4,52 4,52
Total – Salable Coal 129,87 104,26 234,13
About Lubel Coal Company
Lubel Coal Company Ltd.(BVI) – a privately-owned company focused on mine construction
project implementation on coking coal mining. Company owns 100% in Lubel Coal Project located in
Western Ukraine
Investment
Potential Factors
Strategic location with well-developed infrastructure Situated in a region of high demand on coking coal with convenient infrastructure for coal
supply
Located in close proximity to European steelmakers
Available high-skilled and experienced mine workers in the region
High quality coking coal with potential for resource extension
High quality coking coal with attractive metallurgical characteristics
Major project with long-term operation period based on high quality coking coal resources
177Mt of reserves at block No.1 and block No.2 according to JORC classification
129 Mt additional reserves of Ж/Zh-grade ranked by DKZ(1) at block No.3 and 108Mt of
Ж/Zh-grade at Lubel No.4 block to be compliant to JORC standards based on existing 3D
model
Positioned to be among the largest pure-play coking coal producers globally Underground mine with average salable coal production capacity over 6.1 Mt p.a. DKZ-
compliant К-grade(2) and DKZ-compliant Ж/Zh-grade(2) hard coking coal per annum
Clear construction scheduling not exceeding 38 months (term of construction and reaching
the project capacity are warranted by general contractor CCMC), potential commissioning in
2020
Mine life of 42 years
Project attractive economics Latest studies allow to achieve an IRR more then 38% for the Lubel Project
Attractive low production costs below US$ 30.0 per ton (average cash cost during full
operational years according to Luganskgiproshakht BFS). In accordance with CCMC BFS
average cost per ton is US$26,6 for the period of first 8 operational years
High productivity mining method
Modern, high-productive plow systems Caterpillar applied at similar operations in the world
mines
The use of the latest plow technology allows to improve throughput and achieve lower
operating costs
Environment and Labor safety The Company pays greatest attention to the key environmental and labor protection
issues: USD 27m (included in coal mine construction budget) will be spent to implement
modern environmental and labor protection measures providing effective limitation or
complete elimination of effects of technogenic pressing
Positive statements and conclusions were received from Scientific Institute of Environmental
Problems, Lugansk Expertise & Technology Center (No.44.05.3443.C08), State Sanitary
and Epidemiological Department of the Ministry of Health Protection of Ukraine
(No.05.03.03-07/53177)
Construction Project has been approved by “Environmental Expertise” as stated in the
Environmental State Expertise Conclusion No 680 issued by the Ministry Of Environmental
Protection of Ukraine
1. State Committee for Useful Mineral Reserves of Ukraine (DKZ)
2. International codes of K-grade coking coal : 12 0 30 8 22 07 08 36; 12 0 20 8 24 04 08 36, and
Ж /Zh-grade:11 X 22 X 26 14 17 35
Strong Coking
Coal Industry
Fundamentals
Strong Long Term Outlook
Long term demand for high quality coking coal is driven by steel industry
In its turn, the steel industry is driven primarily by demand of developing China and India
Although coastal regions of China and India approach peak steel intensity, intense urbanization of inland areas is expected
European net demand for coking coal is expected to be 50 Mt in 2016 which is anticipated to increase following the closure of several German mines by 2017
Current shortage of coking coal in Ukraine amounts to 12-13Mt per year
Coal prices forecast (USD/t, FOB Newcastle)
Source: AME
1 Compound Annual Growth Rate
2 Million tons
Recovery in Steel Making
Rising Demands for Imports of Coking Coal
Anticipation that the construction sector is entering the early stages of recovery with 4.0%
CAGR(1) over the next decade provides assurance that steel market will rebound
In its turn, global coking coal demand is expected to grow by 4.5% CAGR, tracking crude steel production
Over the mid-term, a shortage of higher quality coking coal supply is expected to exist in the market as China and India become substantial importers of coking coal
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10
20
30
40
50
60
70
80
90
Japan China South
Korea
India Taiwan Ger. Italy UK
Export
Dem
and (
Mt(
2) )
50% Demand Growth from Top 10 Importers (2012-2022)
Regional Lubel Export Markets
Brazil Ukraine
Potential Global Lubel Export Markets
Source: AME
Strategic
Location
Well positioned in a region
of high coking coal demand
and highly developed
infrastructure
Close proximity to European Steelmakers
Power
Mine equipment installed capacity 66MWt; annual demand 235 mln kWt*h at full production of mine
Existing 600 MWt power plant in Dobrotvor
Two new power lines to be constructed
Production of steam coal will be sufficient for thermal power plant operation of 75-100MWt during mine life period, 75% of produced electric power can be sold at the market
Located nearby to steel mills in western Europe as well as Ukraine and Russia
Export demand for these countries expected to be to grow to ~ 85 Mt of coking coal by 2022
Project location offers competitive transport advantages upon delivery by end-user ~ US $ 25 / t comparing to imports from North America, Mozambique and Australia
Closure of several German mines until 2017 expected to further tighten the coking coal supply in Germany
Workforce
Availability of skilled and high experienced coal miners from nearby Chervonohrad mining region
Mine commissioning allows to reduce considerably an unemployment in the region
Railway
30 km to Poland border
12km rail link to be constructed from Dobrosin station to Lubel mine site
Potential supply of coking coal concentrate to Indian and Chinese markets via Black see ports
High Quality
Coking Coal
with Potential
for Resource
Extension
Existing mines
Mines under development
Coalfields prepared for development
Extensively explored coalfields
Preliminary explored coalfields
Exploration works expected
Closed mines
Lubel No.3 – potential expansion
Existing railway
Proposed rail link
Road
Town
Resources for Lubel No.1 and Lubel
No.2 areas amount to 177 Mt
Large-scale geological exploration
program since 1978.
Drilled 437 boreholes with 250x500
drill spacing.
Three coal seems lying at the depth
of 700-850m.
Recoverable thickness of coal seams
ranging 0.9 ÷ 1.8м.
Low potential of methane at blocks
No’s 1 and No.2, continuous and flat
bedding of seams
Lubel No’s 3 and No.4
areas -potential increase
of reserves
Additional resources of 129 Mt for block No.3
Additional 108Mt resources at Lubel No.4 area currently not included in economic analysis
High Quality Coking Coal Products with Attractive Metallurgical Characteristics
Based on extensive drill data and core samples testing for washing, the Lubel coal has been approved as a high-quality hard coking coal
*Parameters will be determined during detailed exploration of Lubel No3
Source: Luganskgiproshakht BFS, Platts, Agrus Coal Specification Guide and GlobalCoal
Note: (ad) – air dry; (db) – dry basis; (daf) – dry ash-free basis; (ar) – as received
Vitrinite Ro
CSR
Swelling Index CSN
1.1 1.17-1.4
60-64%
5
1.4
67-74%
8.5
1.23
>60%
FSI 8.5
1.07
*
*
Mine / Project
Quality Poor / Marginal Fair / Good Excellent Lubel No1&2 Lubel No.3
Moisture (ar) >9.0% >9.0% <8.0% < 7.5% < 7.3%
Ash (ad) >9.0% <8.0% <6 - 7% < 5.6% < 4.75%
Volatile matter (ad) >32% <31% , >23% 17-22% 23.0% 27.0%
Total sulphur (ad) >1.0% 0.8-1.0% <0.7% < 0.8% < 1.0%
Phosphorus (ad) >0.12% 0.05-0.12% <0.05% 0.05% 0.05%
Lubel Coal Company
Co
al
Qu
ality
Data Benchmarks 1
In 2013-2015 the Company has drilled 15 boreholes drilling on the field #3 for further reclassification of resources to a higher class in accordance with JORC standards (depth of each hole is 750-1050m)
Geological survey expedition was formed allowing to achieve saving due to 2x lower drilling costs
The company has confirmed K-grade coal quality on a block #1-2, the checks and analysis were done by two independent qualified laboratories
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42
To
tal
Sa
lab
le C
oa
l
('0
00
t)
Operation Years (2020 – 1st year of operations)
Well-managed Construction Schedule*
Project High
Economic
Indicators
*CAPEX increased due to reclassification of operational costs to capital expenditures and decrease of construction term
**VAT credit is recovery upon putting in operation, potential VAT recovery before that moment is not considered
*** CCMC BFS analyzes 13 years from the start of preparation period, Luganskgiproshakht analyzed mine life during 42 years
from the commencement of extraction
Coking concentrate production schedule during mine operation period*
Project design
Surface works
Shafts construction
Equipment assembly for underground works
Initial output
Production output
2017 2018 2019 2020 2021 2022 2015 2016 2023
Bankable Feasibility Study Results
«Luhanskgiproshakht»
СCMC
Total investments, US$Mm: + net investment + pre-production expenses (surveyor services, insurance) = Total – Investment net of VAT + VAT = Total – investment inc. VAT + capitalized interest charges + capital demand (1st year of service) = Total project budget
708,63 73,58
782,21 109,65 891,86
70,60 17,81
980,27
772,14*
70,96 843,10
134,80** 977,90
76,82 27,12
1081,84
Payback period, years, inc. : - preparation period - construction - Payback period from the date of putting in operation
7.25 years 12 months 57 months 18 months
6.0 years 12 months 38 months 22 months
IRR, post tax, ungeared (100% equity) 44,0% 38,5%
Cash cost – per 1t coal concentrate, US$ 30,0 26,6
Staff 2900-3100 2754
Financial data for first 8 operating years*** - average EBITDA p.a., US$Mm - Annual average income tax, US$Mm
946,5 136,0
938,9 147,0
NPV (net present value ), US$Mm*** 2403,0 1959,5
Grade K Grade Zh/Ж Steam coal
Model sensitivity
Positioned to be
among the Largest
Potential Coking
Coal Producers
High Production
Capacity
Contacts
100% 100% 100% 100% 100% 100%
70% 70%61%
50%
6%
30% 30%39%
50%
94%100%
Lu
be
l C
oal
Ra
spa
dska
ya
Sou
thG
ob
i R
esou
rce
s
Ca
rde
ro
EastC
oa
l
Co
lonia
l C
oal
JS
W
Wa
lter
Ene
rgy
Co
rsa
Coa
l
Ne
w W
orl
d R
eso
urc
es
Sad
ova
ya
LW
Bog
dan
ka
302 2,078 757 250 118 46 1,932 375 131 396 51
(2)
(4)
(3)
255
(2)
(3)
(1)
Total resources Thermal coal Coking coal
(1) Lubel Mine (blocks No’s 1, No.2 and No.3) – 100% resources – coking coal
8m diameter two shafts of 920m and 940m in depth
State-of the-art high-production mechanized plow system
High productive Caterpillar plow systems to be applied
Scale and method of production are similar to LW Bogdanka
Mine (Poland)
– Recently achieved 24 400 t/day from one face equipped
with plow system
– Seam thickness of 1.63m
ССМС – world-known coal mine construction company, the
EPC contractor of Lubel mine construction, upon visit to
Bogdanka mine in July 2014, has confirmed annual output
capacities for Lubel mine of ca. 8Mt p.a.
up to 8,0 Mt p.a. from 2 long-
walls (6,1-6,5 Mt salable coal)
12,9 Mt p.a. ROM coal from 2
longwalls, 8,5 Mt salable coal
(2015FY data)
Lubel Coal Company Ltd.
Chairman of the Board, Boris Pokrass
Str. B.Khmelnitskoho, 56, 6th floor
01030 Kyiv, Ukraine
tel. +380 44 206 1726
fax +380 44 206 1727
e-mail: [email protected]
SC “CCI-Lubelia“
Director, Yaroslav Humen
Str.Voyiniv UPA, 8-G
80300 Zhovkva, Lviv region.
tel./fax +38 (03252) 62067
e-mail: [email protected]
www.lubelcoal.com
BOGDANKA
Resources (Mt)
Model sensitivity (varying coal price scenarios)
Coking coal price/t -> Ratios
USD 174 USD 160 USD 140* USD 120 USD 100
Payback period (upon commence-ment of operations) in months
22,0 23,4 26,1 29,8 35,3
Average annual sales, USD m (first full 8 operational years)
1108,0 1018,9 891,5 764,1 636,8
Average annual EBITDA, USD m (first full 8 operational years)
938,9 852,0 727,8 603,6 479,5
IRR, % 38,5% 36,0% 32,1% 27,7% 22,6%
* According to data on coking coal 2015FY import contracts (bought by companies in Ukraine, low volatile
matter similar to Lubel coal, state company Zovnishinform statistics) an average weighted CIF price equalled
to USD 147/t