Xceed Resources (ASX: XCD) is an Australia-based company engaged in the exploration and development of coal projects in Southern Africa.
The company is developing the Moabsvelden thermal coal project in the Witbank coal field. Moabsvelden is expected to have a mine life in excess of 15 years and will produce export quality as well as domestic quality thermal coal.
Xceed Resources (ASX: XCD) has received the completed Bankable Feasibility Study (BFS) for its 74%-owned Moabsvelden Thermal Coal Project in South Africa which demonstrates the technical and economic viability of the project.
The ungeared project net present value has come in at A$92 million (12.5%) post tax, while the internal rate of return has been estimated at 60%.
The BFS is based on a 15 year mine life producing 666,000 tonnes of export quality coal and 890,000 tonnes to supply domestic power stations annually.
Further upside to the project is that Xceed has received expressions of interest to take coal at the mine gate, freeing up the project from rail and port constraints.
The capital cost of development is $33 million based on an owner-operator model for the processing plant and contractor mining.
The BFS shows an earnings before interest, taxes, depreciation and amortisation margin of 45%.
Importantly, there is further potential to reduce the capital cost of development if Xceed decides to operate the coal wash plant under the terms of a Build-Own-Operate-Manage (BOOM) arrangement.
Xceed received a proposal from a major South African company who is currently operating six coal washing plants in the country under BOOM arrangements.
If the company accepts the proposal, which includes part of the civil works required for the plant, it would result in the estimated up front capital costs of development being considerably reduced to about A$18 million.
Ian Culbert, managing director, commented on the important milestone:
“The study confirms the viability of the project, which when built will provide an outstanding platform for future growth.
“Importantly, the study shows that the cost of development is realistically achievable, the operating margins are robust and that the coal can be sold at the mine gate.”
Moabsvelden Coal Project
The company retains a 74% interest in the advanced stage Moabsvelden coal project which is located within South Africa’s key coal region of Witbank.
Xceed acquired the Moabsvelden thermal coal project because it is relatively easy to develop, and is within the Witbank /Ermelo /Highveld coalfield complex that supplies 80% of South Africa’s coal.
The coalfield has excellent road and rail infrastructure, and is surrounded by many thermal power stations that generate electricity, and is also 80 kilometres from the main Johannesburg industrial belt.
The project is surrounded by metallurgical and thermal coal mines at Leeuwpan, Stuart Coal, Vanggatfontein, and Rietkuil, where each project outputs an average of 3 million tonnes of coal per year. New mines are under construction at Vlakvarkfontein, Kangala and Brakfontein.
Moabsvelden contains a Measured Resource of 63.75 million tonnes and an Indicated Resource of 2.39 million tonnes, which includes Reserves of 43.8 million tonnes.
Based on recent coal sector M&A transactions and current valuations of South African listed coal explorers, Xceed’s current valuation looks light and even an exit strategy for Xceed would value it between $0.20 to $0.25 per share.
Catalysts such as receipt of mining permits, offtake agreement and funding in planned timeframe could kick this valuation significantly higher.
On an EV/tonne coal resource, Xceed is valued well below its coal sector peers.
Xceed could carry a similar valuation in 2012 as Moabsvelden develops into an operating mine and the portfolio produces a build-up of resources for production, or acquires more low cost projects.