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Pacific American Coal closes share offer, to re-list on the ASX

Last updated: 18:10 04 Feb 2015 AEDT, First published: 19:10 04 Feb 2015 AEDT

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Pacific American Coal (ASX:PAK) has successfully closed its re-opened share offer, raising $3.8 million and meeting the Australian Securities Exchange’s minimum spread requirements for re-listing.

The offer attracted 314 shareholders and applicants, meeting the minimum of 300 required.

It had re-opened its offer on 2 January of up to 25 million shares priced at $0.20 each with a free attaching option exercisable at $0.25 expiring on 31st December 2017 to raise up to $5 million.

“Now that the offer has successfully closed, we will be moving quickly to complete the purchase of our strategic U.S. coal assets,” chairman Geoff Hill said.

“This will place the company on a new growth path, thanks to production from the P8 Mine in Oklahoma and development projects we have in Canada and the U.S.”

The funds will be used to acquire a 30% stake in Georges Colliers Inc, the owner and operator of the P8 Mine in Oklahoma, which is already cash flow positive with an existing contract with a local power station.

This would allow it to benefit from the strong domestic U.S. economy and improved demand for metallurgical coal in 2015.

Proceeds from the capital raising will also help fund a feasibility study to expand the mine, initial exploration at its coal tenements in British Columbia and secure leases in Oklahoma and Colorado.

Pacific American, formerly Metals Finance, has the option to increase its equity in GCI up to 80%.

Its strategy is to expand production to 1.25 million tonnes per year Run of Mine as part of a broader strategy to produce and export 2 million to 3 million tonnes of metallurgical coal within 3-5 years.

Combined JORC coking coal exploration targets across the entire portfolio are between 697 – 1,031 million tonnes.


P8 Mine


The P8 Mine is a producing coal mine held under mining lease and located in the Arkoma Basin of Oklahoma. 

It is located 30 kilometres south of the coal barging river ports at Van Buren and close to water, power, rail links, and Fort Smith with a population of 86,000.

The mining lease contains both metallurgical and thermal coal types with a JORC Measured 8.97 million tonnes, Indicated 4.37 million tonnes, and Inferred 0.38 million tonnes for a total of 13.72 million tonnes.

It currently operates via a contracting agreement with South Central Coal Company which employs a skilled workforce of 73 people. 

Since 2008 the P8 Mine has averaged an annualised output of approximately 450,000 tonnes of “Run of Mine” production, and projected a similar rate of Run of Mine production for 2015 to generate a surplus cash flow of US$2.0 million.

P8 produces a steaming coal with high ash, 10,500 Btu per pound / 5,837 kcal per kilogram that supplies a local Oklahoma power station.

Pacific American has evaluated potential for production of a higher value PCI which is a pulverised coal that is suitable for steel making that is recovered by crushing, screening, and washing of Run of Mine coal.


Future Activity


Over the next two years, GCI plans to expand production to 1.25 million tonnes per year Run of Mine.

This will include the addition of underground mining equipment, and installation of a new Coal Handling Preparation Plant that will screen, crush and wash the Run of Mine coal to produce a 625,000 tonnes of PCI export product and 125,000 tonnes of steaming coal per annum.

The estimated mining cost is US$45.00 per tonne, CHPP process cost US$6.50 per tonne, road transport US$6.00 per tonne, river transport and port charges US$18.00 per tonne, sundries and royalties US$4.50 per tonne for a total OPEX of US$80 per tonne. 

Long term commodity pricing for PCI coal product is estimated at US$105 per tonne, and should produce US$25 per tonne free cash flow, or US$15.5 million on an annualized basis. 

This should produce an EBITDA of US$12.4 million to Pacific American Coal for its 80% equity stake in the venture, and before any credit is generated from the remaining thermal coal production.

Initial work under the first and second phases include:

- Confirming coal characteristics and quality;
- Complete feasibility work on expanding production at P8;
- Conduct initial exploration on the 100% owned Coal Licences in British Columbia;
- Progress the applications for exploration tenure in Oklahoma, British Columbia and Colorado;
- Expand the operational footprint in Oklahoma, by developing adjacent coal tenements in the Arkoma Basin using local knowledge, experience and relationship; and
- Finalise the option to acquire the remaining equity up to 80% in GCI.

Longer term, the company plans to conduct further exploration activities on the British Columbia assets and identify economically attractive metallurgical deposits that are capable of being developed into a Tier 1 operation.


Other Tenements


The company is acquiring 6 tenements that are in various stages of approval within the Arkoma Basin, Oklahoma, that are within 300 kilometres of the P8 Mine.

It is also acquiring 6 Coal Licenses, being the Elko and South Hazell Project areas, in the Kootenay Basin Project Area, Canada.


Analysis

Completion of the share offer and meeting the ASX’s minimum spread requirements for re-listing places Pacific American Coal well on the road towards becoming a U.S. coal producer.

The operating P8 Mine is already cash flow positive with plans to install a plant to produce an export quality PCI (pulverised coal) coking coal product at an annualised rate of 620,000 tonnes, plus 125,000t of steaming coal.

Adding to the interest, the acquisition is in the U.S., allowing it to tap the strong domestic U.S. economy and demand for metallurgical coal.

Its current valuation versus comparable projects, is leveraged into any coking coal price rise.
    
Proactive Investors believes the PCI production could produce an annualised EBITDA of $15.5 million and projects a 12 - 18 month valuation of $31.9 million and share price target of $0.32 per share.

On a 3-5 year view, the company has a business plan in place that will expand production to over 2 million tonnes of metallurgical coal and become a mid-tier coal producer providing investors with an ongoing growth opportunity to much higher levels.



Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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