Rey Resources keeps its eye on the prize, a busy year ahead with a 2013 production target

Rey Resources (ASX: REY) is rapidly advancing towards production from its Duchess Paradise Thermal Coal Project in Western Australia’s Canning Basin.

Tellingly, the success Rey has experienced at Duchess Paradise has generated significant interest from a number of parties interested in becoming involved with the project.

In the past year, Rey has:

- Upgraded the 535 million tonne thermal coal Resource;
- Delivered a maiden JORC Reserve of 26.3 million tonnes of thermal coal;
- Completed a Definitive Feasibility Study on time and budget that delivered attractive economics for the project; and
- Extended the Duchess Paradise coal occurrences through drilling.

In December Rey also completed a A$4 million capital raising that will be used to progress permitting and approvals required for Duchess Paradise as well as maintaining its sufficient level of working capital.

The DFS for Duchess Paradise confirmed the project as being an economically robust thermal coal export project with a longer life than expected and strong cashflows estimated with earnings before interest, taxes, depreciation and amortisation of $504 million over the first five years of sales.

The study proposes a highwall mining operation producing 2-2.5 million tonnes of 5,500 kilocalories per kilogram of thermal coal per year to be exported via the company’s existing port infrastructure at Derby in Western Australia.

The figures are encouraging with a longer mine life of at least 10 years, an ungeared net present value (10% discount rate) of $176 million (after taxes and MRRT), an internal rate of return of 27%, and a payback of 3.4 years. 

Worth noting is the potential to achieve this with the current Resource at Duchess Paradise representing just 25 kilometres of the plus 320 kilometres of coal sub-crop in the area.

In September, drilling confirmed the strike extent of a coal outcrop for 2 kilometres to the north, beyond the existing coal reserves, along with extensions to the P1 Seam resource for 2.5 kilometres to the east.

The presence of continuous shallow coal occurrences increases the proposed above ground slot mining from the current plan of 10 years to about 13-14 years.


India Coal Demand

Rey is well placed to take advantage of the projected widening gap between coal demand and supply in India.

By 2016, it is estimated that India will require over 1 billion tonnes of coal – a shortfall of 300 million tonnes it cannot produce.

Rey, with its potentially large Canning Basin coal production, could be a part of the long term solution for India. 

Duchess Paradise also presents a capital advantage for Rey with its proximity to the existing Derby Port.

Fending off takeovers
Rey's Kevin Wilson has fended off a number of takeover offers for the company, indicating the promise, scale and value perceived by suitors at Rey's Canning Basin coal project.  The current valuation would appear to offer considerable upside potential.

Plans for 2012

Significantly, the company is now looking to extend the mine life of Duchess Paradise beyond 10 years through further exploration of its land holding.

This year Rey will also advance corporate partnership discussions, which are well underway, as well as aim to reduce its funding requirement.


Originally published at: http://www.proactiveinvestors.com.au/companies/news/24073/rey-resources-keeps-its-eye-on-the-prize-a-busy-year-ahead-with-a-2013-production-target-24073.html