Churchill Mining’s East Kutai coal project gathers momentum in H1

In ist first-half results statement, Churchill Mining (AIM: CHL) said the development of its world-class East Kutai coal project (EKCP) in Indonesia continues to gather momentum. During the six months ended 31 December 2009, the company completed a maiden in-situ mining reserve of almost one billion tonnes of thermal coal and completed the project’s initial feasibility study.

The company has made significant progress with the EKCP, and it is rapidly approaching a crossroads in its development cycle. Churchill said it is still evaluating how best to generate value for shareholders, and it is considering its options including the sale of the project and/or the company, the development of EKCP as a joint venture, or financing and developing the EKCP itself.

“EKCP is a world-class opportunity and since acquiring a 75% interest in the project in 2007, we have been actively defining a large-scale sub-bituminous thermal coal resource which we believe will be extremely attractive to end-users of thermal coal, particularly in India and China”, chairman David F Quinlivan sommented .

A JORC reserve report was completed by SMG Consultants in October 2009, defining an initial JORC probable In-situ Reserve of 956 million tonnes of thermal coal. Churchill said that this significant achievement provides a strong platform, and the increasing confidence in the resource base enables the company to assess and negotiate strategic opportunities with a strengthened position.

The feasibility study identified the potential to for estimated annual production rate of 20 million tonnes per annum. According to Churchill the initial results from the study have been very encouraging, and it has subsequently been carrying out a detailed assessment on project economics and development requirements. This feasibility review is expected to complete in the second quarter of 2010.

In the meantime, Churchill is continuing to advance the project by putting key infrastructure items such as the mine stockyard, overland conveyor, port/ship-loader and power station out to tender. The company said that, to date, the bids received have been well under predicted costs due to the resurgence in global manufacturing and engineering capabilities following the global financial crisis.

The project construction work at EKCP is expected to take approximately two years to complete.

“With this timeframe in mind, we have commenced the application process for necessary licences and permits with the relevant Central, Provincial and Regional Indonesian Governments and will be working diligently with these agencies to ensure that approvals are progressed as rapidly as possible”, Churchill stated.

Furthermore, Churchill continues to assess marketing and off-take possibilities for EKCP coal, with the company’s representatives recently visiting 17 companies on India's East Coast to discuss the project and potential off-take agreements.

The company said that the trip was very successful and the company is highly encouraged by the growth profile of future Indian coal demand, Churchill said. According to Churchill, it was established during the trip, that India will need a minimum of 100 million tonnes per annum of new EKCP-styled coal to meet expected future energy needs.

For the first-half to end-December 2009, Churchill reported a loss of US$3m, narrowed from US$13.8m in the previous first half, a period when it booked a US$5.7 impairment charge and had significantly higher administration costs.  The company said that this is inline with its expectations as a mining company in the pre-production phase.

In a note on Churchill’s results and the demand for properties like EKCP, Astaire Securities commented that whilst the loss was above its forecast of US$2.1m, given the stage of the project’s development, it is neither surprised nor concerned about this result.

The broker expects Churchill’s costs to be relatively subdued for the next quarter, whilst it finalises the economic modelling and comes to a decision on whether it is going to develop or divest the property. Additionally, Astaire Securities noted that since the start of the year, there has been a noticeable increase in the level of activity from Chinese and Indian parties wishing to acquire thermal coal properties.

In respect of its other activities, Churchill said it continues to evaluate development options for its Sendawar Coal Bed Methane Project in East Kalimantan, including joint venture discussions with a number of interested parties. While the development of the EKCP is the key focus of attention, it will continue to assess options to add value and diversification through Sendawar, Churchill stated.

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