Stanmore Coal splashes big on coal project expansion in Queensland

Stanmore Coal ASX SMR Isaac Plains Complex Wotonga South coking Peabody Australia

Coal miner Stanmore Coal (ASX: SMR) pleased its shareholders this morning with news that it was expanding the production life of its Isaac Plains Complex in Queensland’s Bowen basin.

Stanmore Coal has executed definitive agreements with Peabody Australia to acquire a mineral development lease and a coal exploration permit from Millennium Coal – two high-value assets worth around A$30 million.

Stanmore has said that it plans to fund the acquisition from existing cash flows and the company’s existing debt facilities which could potentially swell by A$12 million as a result of the deal.

The two tenements Stanmore has decided to acquire are located adjacent to Isaac Plains which provides Stanmore with the opportunity to extract around 15 -20 million tonnes of additional coal thereby significantly extending the mining life of the Isaac Plains Complex.

Paying for upgrades

Stanmore acquired Isaac Plains in November 2015 and commenced mining operations two months later.

Stanmore updated its resource estimate at Isaac Plains last year, reporting that total resources now total 79 million tonnes with 55.2 million tonnes classified as measured and indicated resources.

Current reserves support over 12 years of open cut mining at a planned mining rate of 1.2 million tonnes per year of product coal. As of August 2017, total reserves were 16.4 million tonnes via an open-cut mine.

Stanmore also has a joint venture with Bowen Coking Coal within the same basin, where the two companies are advancing the Lilyvale and Mackenzie projects.

The acquired tenements are expected to become part of Stanmore Coal’s new Isaac Plains South Project which is to be developed south of the existing Isaac Plains Complex.

The new tenements will be amalgamated with Stanmore’s EPC755 tenement which holds significant potential for coal resources additional to Wotonga South, the company said.

Stanmore has confirmed that Wotonga South will be operated as a “satellite development” for the Isaac Plains Complex with coal beneficiation and train loading activities all undertaken at the existing processing plant at Isaac Plains.

Reasons for expansion

The rationale for the acquisition is based on Stanmore’s intentions to commercialise the Wotonga South coal deposit.

The Wotonga South deposit has a coal resource of 22.8 million tonnes which is 10 kilometres south of the existing coal handling and process plant at Isaac Plains. The deposit is expected to support a mine life of 8-10 years and has the capability to produce “semi-hard” coking coal, a mid-vol PCI product, as well as a range of semi-soft/weak coking coals.

The development of Wotonga South is a logical extension of the Isaac Plains complex with Stanmore adamant it can achieve a fast-tracked approval process incorporating a thorough mine planning and environmental assessment.

The terms of the deal stipulate that Stanmore will acquire the Wotonga South coking coal deposit contained within MDL 137 and an additional exploration area for $30 million in cash. The deal consists of $6 million payable at completion expected in July 2018 followed by a series of deferred payments totalling a further $24 million payable over the following 12 months.

Additionally, the parties have agreed to a production-based royalty capped at $10 million.

“This represents the culmination of the work completed over the last three years to assemble a long-life resource base for the company. With the acquisition and permitting of Isaac Plains East and now the acquisition of Wotonga South, Stanmore can cement its ‘capital light’ approach utilising our regional advantage and infrastructure,” said Dan Clifford, managing director of Stanmore Coal.

Mr Clifford added that, “with this significant step taken, and the bankable feasibility study underway for the Isaac Plains Underground, the company has a clear pathway for the full utilization of the circa $350 million replacement value infrastructure at Isaac Plains acquired by the company in 2015 and supports a significant improvement in EBITDA and cash flow from operations for the company over the next 15-year period.”

In early trade this afternoon, Stanmore Coal shares were trading at $0.79 per share, up around 11% on the day.

George is an award-winning market analyst who has authored articles and editorial opinion pieces for multiple publications around the world. He has written about a wide variety of topics including financial markets, stocks, trading, politics and economics.