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The Range

Project Overview

Location: Surat Basin

Nearest Port: Gladstone

Rail Line: SBR / Moura

Mines in Region: Cameby Downs, New Acland

Coal Type: Thermal

Mining Method: Open Cut

Throughput: 5 Mtpa (product coal)

Study: FS completed April 2013

Strip Ratio: 6:1 (first 13 yrs)

FOB: 76.4 (LOM)

Project Specification

Energy: 6,466 kcal/kg (Primary, air dried basis)

Ash: 10.0% (Primary)

Sulphur: 0.44%

Project Details

In April 2013 the Company completed the Feasibility Study (“FS” or “the Study”) for its wholly owned The Range Project (“the Project”), located in Queensland’s Surat Basin. The FS follows on from the Pre-Feasibility Study (“PFS”) completed by the Company in November 2011 and provides an enhanced level of accuracy regarding the Project’s technical and commercial viability.  The Project demonstrates attractive economics under both owner-operator and contractor cases. 

Whilst the project economics are robust, the company believes there is scope to further reduce the cost of rail and port infrastructure and is working with key infrastructure providers to deliver a final, low cost infrastructure solution.

Sufficient work has now been completed around geology, mining and cost structures to confirm that the Range Project is an attractive 5Mtpa high quality, export grade, thermal coal project ready for execution upon the delivery of the Surat Basin Rail linking the basin to the existing Aurizon Moura network via a 200 km rail link.  The focus of the company in relation to the Range project is on supporting the delivery of rail and port infrastructure and as such it is not expected that further material expenditure will be required on the project prior to the infrastructure solution being finalised. 

Table 1 - Key Financial Metrics - The Range Project

Key Financial Outputs

Owner Mining

Contract Mining

Unit Costs ($A / product tonne)

Mining and processing cost

41.9

51.1

Rail, Port and Overhead Costs

34.2

33.7

Total FOB Cost (first 13 years)

76.1

84.8

Project Economics

NPV

$499m

$441m

IRR

18.6%

19.1%

Payback Period

9.0 years

8.8 years

The Environmental Impact Statement (“EIS”) and supplementary EIS have been completed and assessed by the Department of Environment and Heritage Protection (“DEHP”). The EIS was approved by the DEHP on 18 February 2013. It is expected that the Mining Lease will be ready for grant by the end of 2013.

Figure 1 - The Range Project Site Aerial Photo

1. Project Overview

The Range Project (EPC1112, EPC2030 and MLA 55001) is located 25 kilometres south east of the Wandoan township, within the Surat Basin. It is in direct proximity to the planned Surat Basin Rail line, which will provide a rail link  to export facilities at Gladstone. 

Figure 2 - The Range Project Locality Map


The mine will utilise conventional truck and shovel methods to deliver ROM coal to a Coal Handling and Preparation Plan (CHPP) at the mine.  Product coal will be delivered to a train loadout facility (TLO) off the Surat Basin Rail line approximately 12km northeast of Wandoan via an overland conveyor.  The TLO area will be accessed from the Leichhardt Highway via Nathan Road north of Wandoan.

The project contains a JORC Marketable Reserve of 94 million tonnes1 (Mt) from a JORC Total Resource of 287Mt (18Mt Measured plus 187Mt Indicated plus 82Mt Inferred) of low emission, export quality thermal coal.  The study considered both owner mining and contractor mining options to produce 5 Mtpa of export coal over a mine life of 25 years.  The Range Project has been extensively geologically interpreted with more than 300 holes drilled (140 cored) within the tenement area, providing a high level of geological and operational certainty over the Project’s resource base.  The depth of cover to top of first coal is less than 20 metres, with seams dipping approximately one degree to the west. 

Development Capital ($Am)

First 13 Years

Life of Mine

ROM Coal Tonnes (Mt)

79.8

161.5

Product Coal Tonnes (Mt)

58.2

112.9

ROM Strip Ratio (bcm/t)

6.1

7.2

Table 2 - Key Production Metrics - The Range Project

Figure 3 - The Range Project In-Situ Strip Ratio Plot

The Company engaged the services of The Minserve Group Pty Ltd, AECOM Australia Pty Ltd and DRA Pacific Pty Ltd to provide technical input to the Study.

2. Capital and Operating Costs

The development capital cost estimates are shown below for both owner and contract mining cases. The Company anticipates that recent project delays and deferrals will lead to moderation of activity in the mining and construction services sectors and consequently sees considerable scope to further optimise capital and operating costs when procurement contracts are ultimately awarded. 

Development Capital ($Am)

Owner Mining

Contract Mining

Coal Handling & Prep Plant

112

112

Surface Infrastructure

141

141

Conveyer & Rail Loop

124

124

Mining Fleet to first coal

150

6

Port capacity obligations

44

44

Contingency

28

28

Total

599

455

Table 3 - Capital Expenditure Estimates

Capital costs are generally in line with estimates reported in the PFS however:

·  the capital cost for the Project in the FS includes the Company’s capital obligations in respect of port capacity in Wiggins Island Coal Terminal Expansion Stage 1 (“WEXP1”) of $44 million.  The quantum and structure of this obligation was not known at the time of the PFS; and

·  refinement to the mine plan and mining method has resulted in an upward revision to the cost of the mining fleet.

Operating Costs  ($A/PRODt)

Contract Mining

Owner Mining

Mining and processing cost (FOR)

51.09

41.91

With rail and port costs (FOB)

84.76

76.14

Table 4 - Average Operating Costs (pre-royalty, first 13 years)

Contract mining costs in the Study were benchmarked against indicative pricing provided by mining contractors.  Stanmore Coal believes that market dynamics are likely to apply downward pressure to mining contractor costs over the medium term and consequently expects that at the time of contract award, mining costs could be lower than those presented in the FS.

Total rail and port costs of approximately $32/product tonne are based on cost estimates for the Surat Basin Rail (“SBR”) and Wiggins Island Port Expansion Stage 1 (“WEXP1”) at the time of the FS.  The proposed supply chain solution for the Surat Basin is expensive both within a global and Australian context and Stanmore Coal recognises the need to engineer costs out of the supply chain if Surat Basin coal is to be globally competitive.

3. Coal Quality

Surat Basin coals are currently being exported in significant tonnages to the Asian utility market.  The Range coal measures feature good energy content at low ash levels, and the ability to produce a high quality product that comprises low ash, low levels of trace element impurities by international standards, low sulphur and nitrogen contents and excellent burnout characteristics. 

The raw and clean coal quality of The Range deposit is in the general range but higher quality than most Walloon coals in terms of moisture, ash, volatile matter, sulphur, hydrogen, nitrogen, HGI, abrasion index, energy levels, rank, ash chemistry, ash fusion temperatures and trace elements.

Surat Basin coals have been used in Japanese and Taiwanese power utilities formany years and are well understood.  This coal has an attractive fuel ratio resulting in a high burnout rate from a coarser power station grind. 

The FS marketing strategy contemplates two target markets for the premium low ash product 10% (ad) being utilities in both Japan and Taiwan.  A higher ash product of 15% to 16% (ad) will be directed to other Asian thermal markets.

Product 1

Product 2

Ash

% ad

10.0

16.0

Volatile Matter

% ad

41.8

39.6

Fixed Carbon

% ad

40.2

35.9

Total Sulfur

% ad

0.44

0.42

Nitrogen

% daf

1.10

1.12

Total Moisture

%

13.9

10.7

GCV

kcal/kg ad

6,466

5,904

GCV

kcal/kg daf

7,880

7,822

Table 5 - Coal Quality

Stanmore Coal believes in the strong long term fundamentals of the thermal coal market supportedby increasing demand for cost efficient base load power in emerging economiesincluding India and China. Stanmore Coal’sviewisthatthedemandforhigher energy, high quality(relativetoIndonesia)bituminousthermalcoal, with lower emission profileswillbe strongly supported and will be a key element of Asia’s strategy to address existing pollution difficulties.

 

In the short term, it is expected that coal fuelled electricity generation will grow globally by close to 400GW by 2016 and increased global demand of 1.3 billion tonnes of thermal coal is forecast by 2035 by the International Energy Agency.  This will make coal the fastest growing major fuel in the period to 2035.  The vast majority of this growth will be in China and India.  While both of these countries have domestic coal industries, this level of electricity generation growth will also drive seaborne demand.


1 JORC Probable Reserve (ROM) of 117.5Mt

2 Excludes State Government Royalty estimated at $10.87; includes overheads.

3 Based on Wood Mackenzie long term forecasts (FOB Newcastle thermal coal price and exchange rate of 0.89AU$/US$), and a nominal discount rate of 10% (WACC).

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