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Pacific American Coal clocks first monthly production from Oklahoma

Pacific American Coal clocks first monthly production from Oklahoma

Pacific American Coal (ASX:PAK) might be a new name to some since listing in 2015, but has clocked up 27,000 tonnes of coal lifted in February from the P8N underground coal mine in Oklahoma.

All of the coal was sold under a long term contract to a local energy utility.

Pacific American recently acquired a 30% stake in Georges Colliers Inc (GCI) owner of the P8N operating mine in Oklahoma and can increase this to 80% through to March 2017.

This is its first monthly coal production from the P8N mine. Output was 19% lower than the previous month partly because February had fewer production days. 

However, year to date production is close to target of 60,000 tonnes (93%). There were no significant downtime delays experienced. 

P8N Mine is the largest operating underground coal mine in the state of Oklahoma and produces around 400,000 tonnes of coal per year that is sold under long-term contract to the local utility. 

Compellingly, there were no lost time injuries recorded in February and no lost LTI’s have been recorded for the year to date.

The mine is nicely located near the Van Buren river transportation hub, where product from the mine has the potential to be exported to international markets via the Arkansas and Mississippi rivers.

Through GCI, there is 100% ownership of six approved Coal Licences within the Kootenay Coal Basin of British Columbia as well as exploration tenements in application within the Arkoma Basin in Oklahoma and the Raton Bain in Colorado.


P8 Mine

The P8 Mine is located in the Arkoma Basin of Oklahoma and 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.

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.

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


Capital raised


In February 2015, Pacific American closed an offer that saw applications for $3.8 million from investors, issuing 19 million shares.

Apart from acquiring its interest in GCI, 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.


Strategy


The company's strategy is to produce and export 2‐3 million tonnes per annum of metallurgical coal within 3 – 5 years from North America.

Currently, Pacific American is looking at new investments to expand its footprint in the Arkoma Basin in Oklahoma. This could expand cash flow capabilities and deliver cash benefits during FY2016.

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


Analysis

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.

 


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