Wednesday, 27 July 2011

International Coal poised for exploration success at Queensland coal tenements

International Coal Ltd (ASX: ICX) will list today on the Australian Stock Exchange.  It has issued 45 million shares at $0.20, to raise $9 million.

An earlier seed capital raising round involved the issue of 84.5 million shares for a total issued capital of 130.7 million shares.  At a listing price of $0.20 this would value International Coal at $26.1 million.

Funds raised will be utilized to identify and develop hard coking coal and thermal coal resources. The company holds exploration projects at Bundaberg, and at South Blackall, in Queensland.

Bundaberg Project

International Coal has acquired quality projects adjacent to existing projects and within defined Geological Systems.

The Bundaberg permits include EPC 2194 of 274 km², EPC 2196 of 24.9 km² and EPCA 2195 of 71.5 km² which are all within the Maryborough Basin. They are located 50 kilometres north of Bundaberg, where the Company is seeking hard coking coal deposits located within the Burrum coal measures.

The main coal bearing sequences within the Maryborough Basin are the Burrum Coal Measures, Maryborough Formation, and potentially Tiaro Coal Measures. The Burrum Coal Measures crop out in the eastern portion of EPC2194, with the older Maryborough Formation and Graham’s Creek Formation cropping out west of the Burrum Coal Measures within the same permit.

The primary focus will be on EPC 2194, where exploration will be aimed at establishing an open cut mining resource. EPC 2194 is located 45 kilometres to the north of the Colton Coal Mine, which is under development by Northern Energy Corporation (ASX: NEC).

Colton hosts a JORC Indicated and Inferred Resources of 83 million tonnes, and an exploration target of 105 – 137 million tonnes. Coal mined from Colton will probably require beneficiation to produce a marketable hard coking coal product. Capital costs are estimated at $84 million, with a proposed initial production rate of 0.5 million tonnes in the first year, and ramping up to 2 million tonnes per year by 2015. Estimated FOB operating costs, excluding royalty are $112 per tonne, and EBITDA of $240 million is projected at a production rate of 2 million tonnes.

Guilford Coal (ASX: GUF) also has permits in the immediate vicinity, and is seeking coal resources in the Burrum Coal Measures that are sufficient to support annualized production of 1 million tonnes, for export via the Wiggins Island Coal Terminal, at Gladstone.

This may be indicative of the potential that exists on the Bundaberg tenements. Previous exploration has already identified thin seams of Burrum measures that outcrop close to surface within the permit area.

Moultrie Database and Modeling have prepared an Independent Geologists Report for EPC 2194 North that conceptualizes an exploration target of 50 to 70 million tonnes, and a second target at EPC 2194 South of less than 5 million tonnes within the Burrum Coal Measures. Other conceptualized targets in the same formation include EPCA 2195 with 70 to 90 million tonnes, EPC 2196 North of 5 to 10 million tonnes, EPC 2196 South of 5 to 20 million tonnes, which also hosts an Inferred Resource of 1.59 million tonnes.

Maryborough Formation conceptual targets at EPC 2194 are 200 to 250 million tonnes and at EPC 2196 are 20 to 40 million tonnes.

The first stage of exploration at EPC 2194 will include a Rotary Chip drilling program of 4 holes followed by an additional 20 holes at a total cost of approximately $575,000. The second year of the program will involve the drilling of 80 Rotary Chip holes and 10 partially cored holes at a cost of approximately $3 million.

South Blackall Project

The second major project area is at South Blackall, where EPC 2197 covers approximately 768 km², and is located 80 km northeast of Quilpie, in south western Queensland. This permit is located close to road and rail that can provide direct access to the Port of Brisbane. Both the Galilee and Eromanga Basin coal seams are present in the permit area, with the lower part of the Winton Formation in the Eromanga Basin targeted as a potential coal source.

EPC 2197 is located approximately 120 km north of East Energy Resources (ASX: EER) EPC 149, where East Energy has confirmed a maiden Indicated Resource of 469 million tonnes, within an Inferred and Indicated Resource of 749 million tonnes, and an early production estimate of 20 million tonnes per year. This resource was estimated to an open pit depth of 150 metres, within a coal seam of continuous mineralization, confirming the discovery of a major new thermal coal basin.

The Blackall Coal Deposit in EPC 1149 is expected to produce a domestic thermal coal product.
Immediately east of International Coal’s EPC 2197, is U.S. listed Sentry Petroleum’s (NASDAQ OTC: SPLM) Exploration Permits for Petroleum (ATP’s) 862 and 864.   Sentry Petroleum has also reported a “2,000 square mile non JORC coal deposit” located in oil drilling on EPP 862 and EPP 864, which are both adjacent to the East Energy Resources thermal coal discovery.

On 18th July, NSL Consolidated (ASX: NSL) announced it would go ahead with the acquisition of Queensland exploration permits for coal (EPC Applications) 2198, 2336, 2337 & 2338.

On the news, the NSL Consolidation share price jumped from a previous close of $0.07 to $0.11, a gain of 57.1% in two trading days.

Independent Geologists established an Exploration Target of between 6.6 billion and 18.1 billion of thermal coal products in the Winton Formation for NSL’s EPC Applications 2336, 2337 and 2338.

The Winton Formation is the main targeted coal-bearing structure, similar in mineralisation style to East Energy’s 1.2 billion tonne JORC Inferred resource and International Coal’s EPC 2197 Blackall Coal project.

The first year program at International Coal’s EPC 2197 will include the Rotary Chip drilling of 8 holes and 28 holes of large diameter drilling at a cost of $375,000. The second year program will entail the drilling of 11 Rotary Chip holes, and 3 large diameter holes at a cost of $500,000.

Moultrie Database and Modeling estimate a conceptual target range of from 9.13 to 9.32 billion tonnes at EPC 2197. This exploration target is reported within the Winton Formation with a range of 8.8 to 8.9 billion tonnes, and within the Mackunda Formation of 0.33 to 0.42 billion tonnes.


Bundaberg Project

Short term priority will be on International Coal’s Bundaberg Project where there is considered to be potential for large tonnages of hard coking Coal.

Infill drilling and core testing at Bundaberg Project will progress shortly.  Potential for large tonnages of coking coal exist at the Bundaberg Project where the two target exploration coal-bearing units are the Burrum Coal Measures and Maryborough Formation. Principal target is Cretaceous hard coking coals.

The company aims to prove up a JORC resource within 12 months from a target of 350 to 480 million tonnes of coking coal at the Bundaberg Project.

While a small JORC inferred tonnage of 1.5 million tonnes exists at the Bundaberg Project this is indicative of the existence of coal and a starting point.

Recent significant drill programs for coal have been very successful at near neighbours including Northern Energy, Guildford Coal, Ridge and Hancock  Coal.

Market Valuations of neighbouring companies to Bundaberg Permits:

Northern Energy: $197m
Guildford Coal: $490m
Carabella Resources: $265m
South Blackall Project

EPC2197 is located 80 kilometres northeast of Quilpie and 91 kilometres west of Charleville in south western Queensland.  There is a railway line between Quilpie and Charleville and it is 32 kilometres south of the tenement and continues to the coast to Brisbane.

In this area, the coal bearing intervals in the lower part of Winton Formation in the Eromanga Basin are the most prospective for finding an economic coal deposit.  The Winton Formation crops out over ALL of EPC2197.  It is 150 to 350 metres thick across the area as indicated by drilling and seismic surveys.   There may also be potential for Mackunda Formation coal seams to be present within EPC2197.

Based on the Geologist’s Report, EPC2197 has potential for large tonnages of domestic and export thermal coal.

The Moultrie Group has estimated potential tonnages of between 9.13 and 9.32 billion tonnes for both formations within International Coal’s EPC2197 tenement.  (For the Winton Formation, the potential coal tonnage was estimated at between 8.8 and 8.9 billion tonnes).

At present, there is insufficient data to calculate either an Exploration Target or JORC reported resources for EPC2197.   Although Moultrie concluded “sufficient data exists to correlate individual seams but only at a regional scale.” A grid meshed computer model would “provide the basis of target generation.”

South Blackhall Project looks to be a longer term project given the infrastructure that would be required including a likely new rail line.  That said, the valuation of neighbouring NSL Consolidated jumped by over 50% on the day it announced acquisition of the Eromanga tenements that almost abut International Coal’s EPC2197  tenement.  A Geologists Report indicated an Exploration Target of between 6.6 billion and 18.1 billion
tonnes of thermal coal product in the Winton Formation.

Market Valuations of neighbouring companies to South Blackall Project:

East Energy: $65m
NSL Consolidated: $22m

Market Valuations of other Queensland coal companies:

MetroCoal: $176m
Tiaro Coal: $24.3m
Endocoal: $58m
Bandanna Energy: $962m
International Coal (at $0.20 listing price): $26.1m

Coal floats and coal explorers in Queensland have been among the best performers on the ASX.  In the main, they have lifted valuations on exploration results and definition of JORC resources.  Judging by their success, and taking a line through their exploration tenements relative to International Coal's, there is plenty of scope for it to increase in valuation.

International Coal is leveraged to exploration success at its two projects on its IPO valuation parameters.  If neighbouring coal explorers are any guide, early valuations of International Coal may be the cheapest.

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