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Rey Resources in discussions with partners to develop Canning Basin Coal project

Rey Resources (ASX: REY) ticked a number of boxes during the March quarter at its 100%-owned Canning Basin Coal Project in Western Australia including:

- Favourable outcome of Pre Feasibility Study on Duchess Paradise initial project
- Definitive Feasibility Study commenced
- Project Director appointed
- Preparation for drilling at end of wet season advanced

In January 2010, Rey announced that the Pre-Feasibility Study on Rey’s 100per cent owned Duchess Paradise Project demonstrated a strong economic case for development. It is based on the 511 million tonne JORC resource that was reported in 2009.

Proposed Initial Mining Operations

The PFS concluded that an initial operation comprising two million tonnes per year of saleable thermal coal from highwall mining is the optimum and most financially robust approach to begin commercialisation of the resource at Duchess Paradise.

The PFS proposed that mining operations will comprise Highwall Miners operating from a series of slots cut into the coal seam from the outcrop.

Under this scenario, the ROM production will be washed and trucked along the Great Northern Highway to Rey’s existing wharf at Derby, which then will be transported by barge to ships for export to Asian power generation markets.

The PFS proposes that mining operations will comprise Highwall Miners operating from a series of slots cut into the coal seam from the outcrop. It is proposed that the ROM production will be washed and trucked along the Great Northern Highway to Rey’s existing wharf at Derby, which then will be transported by barge to ships for export to Asian power generation markets.

This will form the basis for a definitive feasibility study on the underground operations, assuming a positive result from these studies.

To drive development, Rey has appointed Ron Hite as project director for its Canning Basin coal developments. Mr Hite will complete the recruitment of a team to undertake the DFS and the project development. The DFS will include reserve definition, engineering and hydrological drilling as well as combustion testing and environmental and marketing studies.

Hite was responsible for developing the first US – China coal mining joint venture in China. This included the design, construction and commissioning of a US$250 million, four million tonne per year best practice coal mining operation, state-of-the-art process facility and safety systems along with a 15 kilometre rail spur.

Kevin Wilson, managing director of Rey said that planning is underway for drilling at the end of the wet season in May 2010.

This includes aboriginal liaison as well as government and heritage clearances. The drilling program will have several aims including:

- Reserve drilling as part of DFS at Duchess Paradise
- Exploration drilling to add more tonnes in the north and west of the leases, which are closer to infrastructure. These have the potential to improve the returns and life of the Highwall Mining Project.
- Firm up resources for the large scale longwall studies

Rey saw off two takeover offers in 2009.  One from Gujarat NRE Minerals (ASX:GNM), Rey has recommended shareholders reject the offer.  The offer is due to expire on 14 May 2010. Gujarat holds a 12per cent interest in Rey Resources.

A conditional takeover offer for Rey from Crosby Capital (Holdings) Limited expired on 15 January 2010.

Divestment of non-core assets

Humito Project

During the quarter Rey agreed to sell 100per cent of the Humito Project in the Copiapo District, Chile to China Yunnan Copper Australia Limited (ASX: CYU). The purchase price is $200,000 cash and a 1.5per cent Net Smelter Royalty on any future production from the project leases. The divestment is subject to a 30 day due diligence period by CYU and to normal Chilean regulatory approval. The transaction was completed during the quarter.

Uranium Joint Venture

Rey signed an agreement with Uranium Exploration Australia Limited (ASX: UXA), allowing them to explore for uranium at Myroodah in the Canning Basin. UXA can earn up to 80per cent by spending $1.75 million on the two granted exploration licences, while Rey retains all the rights to the coal on the leases.

Cash at end of the March quarter was $12.5 million.

Outlook for 2010

In his review of the quarter's activities for Rey, Wilson said the PFS "demonstrated a robust, low capital entry method for unlocking the potential of the large coal deposits in the Canning Basin."

"The Duchess Paradise DFS will be undertaken during 2010 and 2011. Drilling is expected to start in May following conclusion of the wet season and subject to Heritage and Government approvals. This will focus on those shallow coal targets that are closest to export infrastructure as well as resource and reserve definition drilling at Duchess Paradise," he said.

Ongoing discussions with potential partners to develop the Canning Basin Coal Project will be continued.

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