Lochinvar

Location and History

The Lochinvar Coking Coal Project is located on the Scottish / English border and is the Company’s principal focus. The project comprises two adjacent exploration and conditional underground mining licences known as Lochinvar (67.5 km²), and Lochinvar South (51km²).

Location of the Lochinvar Project
Location of the Lochinvar Project

These licenses cover a shallow portion of the Canonbie Coalfield, an undeveloped coking coal resource located adjacent to the West Coast Main Line rail connecting with UK steelmakers, coke makers and export ports.

Historic exploration at Lochinvar was conducted in the 1950’s by the National Coal Board, which sank four boreholes. This work proved the existence of the same sequence of thick coals of the Middle Coal Measures, which had been previously mined at Rowanburn colliery to the east of the licence where operations ceased in 1922.

From 1979 the NCB drilled a further nine boreholes and shot 55 kilometres of seismic line which proved the existence of a large concealed coking coalfield (the Canonbie Coalfield).

NAE drilled an initial four drill holes at Lochinvar in 2013 and a further 6 holes in 2014.

Scoping Study Results

In October 2014, NAE completed the Lochinvar Scoping Study which confirmed the potential for a low cost long life 1.9Mtpa long wall mining project to deliver 1.4Mpta coking coal into UK and European markets. The Scoping Study was updated in March 2017.

The Updated Scoping Study delivered a robust set of economics highlighted by an NPV9% of US$410M with and IRR of 27% and a payback of 4 years.

The project is focused on an underground mine connected by a drift (decline) to the surface where coal will be processed and loaded into rail wagons for direct delivery to either UK steel mills or port facilities in the UK for shipping into Europe. Underground coal will be mined using a 200m wide longwall with development roadways constructed by 3 continuous miner/ bolters.

Lochinvar Schematic Mine and Infrastructure Layout
Lochinvar Schematic Mine and Infrastructure Layout

Based on the production schedule over the life of mine, a total of 47.3 Mt ROM coal will be produced, averaging 1.9 Mtpa ROM coal with a peak production of 3.1 Mtpa ROM coal in year 16. The ROM coal will be processed at a high 71% yield to produce 33.7 Mt of clean coal (saleable product), averaging 1.4 Mtpa clean coal.

Lochinvar Scoping Study Profuction Schedule
Lochinvar Scoping Study Production Schedule

These results demonstrate the potential for Lochinvar to deliver excellent returns on investment with lowest quartile operating costs and a low capital cost structure.


Summary Economic Results – Lochinvar Scoping Study Update (March 2017)

Parameter Unit Result
Production LOM ROM Mt 47
LOM Saleable Coal Mt 34
Life of Mine Years 26
Annual Ave. ROM Mt 1.9
Annual Ave. Saleable Coal Mt 1.4
Revenue Benchmark HCC Price US$/t 160
Ave. Realised Price US$/t 150
Average Discount % 6
Operating Costs Unit Operating Cost US$/t 58
Capital Costs Construction Capital US$ M 229
Life of Mine Capital US$ M 513
Cash Annual Cash US$ M pa 95
Operating Margin US$/t 92
Valuation1 NPV (@9%) US$ M 410
IRR % 27
Payback (undiscounted) Years 4
1 Real after tax, unleveraged, 1 Jan 2017 basis

Indicated and Inferred Mineral Resource

A total resource of 111 Mt comprising 49 Mt Indicated Resource and 62 Mt Inferred Resource has been defined for the Nine Foot and Six Foot Seams. The Indicated Resource, Inferred Resource and Exploration Target have been reported in accordance with the JORC Code (2012) and have been independently estimated by Palaris Australia Pty Ltd, an internationally recognised mining consultancy specialising in coal exploration and mining.   The resource estimate is based on 9 holes drilled by the National Coal Board (NCB) from 1979 through to 1983 and 10 holes drilled by NAE in 2013 and 2014.

Lochinvar Resource Statement (August 2014)

Coal Seam
(Air Dried Basis)
Indicated Resource
(Mt)
Inferred Resource
(Mt)
Total Resource
(Mt)
Nine Foot Seam 37 49 86
Six Foot Seam 13 13 26
Total 49 62 111

An additional Exploration Target of 31 – 64Mt has also been identified which includes both the Lochinvar and Lochinvar South Leases.

It should be noted that this exploration target is conceptual in nature, that there has been insufficient exploration to define a mineral resource within this target volume and that it is uncertain if further exploration will result in the determination of a mineral resource.

Geology

Geological data collected from the two phases of NAE drilling and a re-interpretation of the available seismic data has increased the understanding of the Lochinvar structure.  Palaris completed a revised structural interpretation in August 2014 which identified an increased density of faulting compared to the previous interpretation.  Mine plans in the Scoping Study will be based on this revised structural interpretation.

Lochinvar Structural Interpretation and Nine Foot Seam Depth Contours
Lochinvar Structural Interpretation and Nine Foot Seam Depth Contours

This Resource occurs between 200m and 1,000m depth with 95 Mt of the total resource, including 74 Mt from the Nine Foot Seam, being shallower than 800m depth. All of the Indicated Resource is shallower than 800m depth.

Average seam thickness is 2.2m for the Nine Foot Seam and 1.8m for the Six Foot Seam.

Indicated and Inferred Resources - Tonnage by Depth

Lochinvar Resource – Depth from Surface

Coal Quality

Lochinvar Coal is comparable to highly sought after US High Volatile A Hard Coking Coal (Wood Mackenzie Lochinvar Marketing Study, March 2017).

Wood Mackenzie completed an assessment of the expected Lochinvar coal specification compared with commonly traded industry standard benchmark coking coals as follows:

Lochinvar Coal Quality Summary (Source Wood Mackenzie, 2017)

Lochinvar expected coal quality vs competing benchmark coals:

  • Very Low Ash & Phosphorous
  • Comparable VM, CSN, CSR (Predicted) & Fixed Carbon
  • High Sulphur but within UK / Europe blend limits. Potential to reduce to 1.2% based on coal processing modelling
  • Lochinvar Fluidity has wide range in results which were affected by laboratory media
  • Lochinvar CSR has been predicted by Pearson Coal Petrography. Bulk samples and CSR tests are planned to determine actual CSR

These results confirm the potential for Lochinvar to produce a low ash high volatile coking coal product at a high yield that will be attractive to the UK and European steel industry.


Market and Infrastructure

Lochinvar is ideally located to become a supplier of low cost, high volatile hard coking coal to the European Steel Industry as a result of:

  • 7km to main West Coast Main Line railway which links directly to nearby Steel mills in UK and nearby ports to access European market
  • Lower labour rates when compared to Australian mining costs
  • Excellent UK fiscal regime with low corporate taxes and royalties
  • European Metallurgical Coal imports forecast to grow from around 52Mt (2017) to 61Mt (2035)
  • Lochinvar Coal is comparable to US High Volatile A Hard Coking Coal – highly sought after in Europe
  • European High Volatile Hard Coking Coal (HV HCC) imports forecast to increase from 10.4Mt (2017) to 15.9Mt (2035)
  • Lochinvar 1.4Mtpa annual production represents ~12% of UK/Europe HV HCC coking coal imports in 2021
  • Lochinvar coal enjoys a clear distance and freight cost advantage over competing imported coal and the benefit of regular local deliveries reducing customer inventories

Lochinvar Infrastructure and Potential Markets

Lochinvar Infrastructure and Potential Markets