Hodges Resources Ltd says it has reached a heads of agreement with a Kyrgyzstan based, Australian owned and registered, company to obtain 100% of the issued share capital in return for the rights to a 50% interest in an operational thermal coal mine and an additional coal prospect in Kyrgyzstan.
The open cut mine has been mined historically for domestic consumption and internal energy markets. Historical reporting indicates the mine has been sporadically operational since 1986 and currently mines around 100,000 tonnes within less than 6 months of the year. A historical resource report was previously completed under the Russian classification system using data from around 160 holes.
Under the terms of the heads of agreement, Hodges will issue shares in the company to the vendors shareholders. The total consideration is: 65,000,000 fully paid ordinary shares in the capital of HDG on completion of successful due diligence and shareholder approval. These shares will be escrowed for 18 months from issue; 35,000,000 fully paid ordinary shares in HDG which shall only be issued upon delineation and ASX announcement by HDG of a JORC compliant reserve tonnage at the historical mine project of at least 50,000,000 tonnes of minable coal.
The other consideration is 50,000,000 fully paid ordinary shares in HDG which shall only be issued upon achievement of coal production and sales rates from the Historical mine such that the sum of any four consecutive months of production is at least 167,000 tonnes (equivalent to an annualized production rate of 500,000 tonnes or more) at an operating cost of equal to or less than: I. if the required production rate is achieved in the first two years following Completion, USD45 per tonne (FOB at the proposed China border destination); or II. if the required production rate is achieved after first two years following Completion,
USD40 per tonne (FOB at the proposed China border destination)
Estimates are currently in Russian resource categories A, B and C levels and support an exploration target* of 120-160 million tonne resource of coal quality (air drid basis) ranging from 5,500-6,900 Kcal/kg CV; ash 6-18% and total moisture 8-24%. The first priority of the company will be to undertake a technical review of these estimates with the aim to convert it to JORC standards during the due diligence period. This process can be fast-tracked subject to accessibility of all required data and should be available in the near term, followed by a full expansion review to expedite near term production and cash flow potential. The second project has had coal exploration and surface exploitation work. Coal has been mapped at surface and sporadically drilled. No resource has been calculated at this project.
Managing Director Mark Major said the “This previously mined asset will play an important part of Hodges development. It is our belief that we could see rapid development at this mine for minimal capital expenditure given the existing infrastructure of the open pit with coal already at surface, roads, power and labour all available” “Our initial review suggests the mine can be scaled up in the short term and provide substantial free cash flow.
The location project also works in our favour. With neighbouring China being the major consumer of thermal coal we see our growth in line with this demand as well as the regional and domestic demands.” Major added. This current acquisition coincides with Kyrgyzstan’s push to become a major supplier to China in the near term. In April, China Road and Bridge Corporation was completing a feasibility study on a railway that would link China and the Kyrgyz-Uzbek border. The proposed line would allow large scale production from Kyrgyzstan’s mineral resource assets.
Kyrgyzstan is now a stable democracy encouraging foreign investment to help exploit its vast mineral resources. The country provides many advantages for coal mining operations as it is close to four possible markets, both internal and external, with road and rail access. Power infrastructure runs adjacent to the license and given the abundance of hydro power in country electricity is low cost. Labour costs are also highly competitive.
These factors combined set the scene for high margin and economic bulk mining operations in Kyrgyzstan. Soviet geologists have estimated Kyrgyzstan’s coal reserves at about 27 billion tons, of which the majority remained entirely unexploited in the mid-1990s. About 3 billion tons of that amount are judged to be of highest quality.
