| HIGHLIGHTS Debiensko Hard Coking Coal Project •Following positive Scoping Study results, works at Debiensko have continued to develop a globally significant hard coking coal project with robust economics positioning Prairie to become a large scale, low cost and long life premium hard coking coal supplier •With Debiensko now development ready, Prairie will focus on planning the mine site’s redevelopment program, including: opreparation for an in-fill drill program to increase JORC measured and indicated resources to support future feasibility studies ocompletion of a re-engineered mine plan to produce a feasibility study to international standards with a focus on near term production at Debiensko oadvancing discussions with regional steel makers and coke producers for future coking coal sales and offtake •In preparation for the next phase of project studies, pre-qualification of study contractors was initiated, demolition works commenced in order to remove old structures from the historical Debiensko surface facilities and a shallow geo-technical drill program commenced for engineering design of foundations for new surface structures •Highly favourable market fundamentals remain prominent as Europe continues to consume 47 Mt of hard coking coal annually, 85% of which is imported •Debiensko coking coal is expected to enjoy strong demand from European steelmakers, with substantial netback pricing advantages given proximity to regional customers Jan Karski Mine •Recent coal quality analysis following the drilling of a new exploration borehole re-affirms Jan Karski’s potential to produce high value ultra-low ash semi-soft coking coal and confirms Jan Karski’s status as a Tier One coking coal project of global significance •Independent assessment by specialist coking coal market consultants predicts that Jan Karski ultra-low ash semi-soft coking coal would potentially realise a 10% premium to international benchmark prices •China Coal has made substantial progress on the Bankable Feasibility Study (“BFS”) during the quarter. Continued discussions were held with Chinese financing institutions which will progress further towards completion of the BFS during the next quarter •The approval of the Deposit Development Plan (“DDP”) at Jan Karski by the Lublin Regional Mining Authority during the quarter paves the way forward for a mining concession application. Prairie will now focus on: ofurthering discussions with a select group of Chinese financing institutions as China Coal nears completion of its BFS ocontinuing project permitting activities including obtaining an Environmental Consent Decision, Spatial Planning consents (rezoning) and land acquisition at Jan Karski oformally lodging a mining concession application for Jan Karski •The Strategic Co-operation Agreement with China Coal demonstrates the increasing economic collaboration between Poland and China following China’s proposed “One Belt, One Road” development strategy and highlights Poland’s importance to China as a “One Belt Economy” for accessing key European markets •Significant government support was received at the 2017 Jan Karski Mine Development Conference as regional authorities, the Australian Ambassador to Poland, the Vice Marshall of the Lublin province and representatives from the Polish Investment and Trade Agency and numerous other distinguished regional officials were updated on Jan Karski’s considerable progress to date •Conditions for power grid connection have been signed with national power utility, PGE Dystrybucja S.A., which will provide the 45MW bulk supply required for full scale mine production at Jan Karski •Development activities have commenced with the appointment of a leading contractor to design and supervise the bulk power supply connections for the project, including power lines and substations Corporate •Prairie completed the successful placing of 11.5 million new ordinary shares in the capital of the Company to a number of UK based high quality institutional investors to raise approximately £3.2 million (~A$5.5 million) before costs •Prairie and CD Capital have agreed final terms for a further investment of US$2.0 million (A$2.6 million) in the form of non-redeemable, non-interest-bearing Convertible Loan Notes •Subject to Shareholder approval, the Notes issued will be convertible into ordinary shares of Prairie at A$0.46 (28 pence) per share and will be subject to a lock up period during which time CD Capital may not convert the Notes prior to 1 April 2018 •Following the successful placing of ordinary shares to UK institutional investors, Prairie has cash reserves of A$16.8 million. With CD Capital’s additional A$2.6 million investment still to come and its right to invest a further A$68 million as a cornerstone investor, plus with the Strategic Co-operation Agreement Prairie has with China Coal for financing and construction of Jan Karski, Prairie is in a strong financial position to progress with its planned development activities at Debiensko and Jan Karski Ben Stoikovich, Chief Executive Officer commented “This quarter has seen Prairie take another quantum leap as an emerging Tier One coking coal company. Following the extremely positive Scoping Study results at Debiensko, we have accelerated our development plans with the commencement of limited demolition works on site and shallow geotechnical drilling for foundation design to continue over the coming months. At Jan Karski, enhanced coal quality analysis from our recently drilled core borehole demonstrated the potential to produce high value ultra-low ash semi-soft coking coal which would attract a premium to benchmark from Europe’s steel makers. Jan Karski continues to gain strong governmental support as Prairie obtained approval for the DDP in May and consequently commenced preliminary development activities. During the quarter, we also welcomed a number of high quality UK-based institutional investors as shareholders of Prairie while CD Capital demonstrated its continued support with additional funding to advance both of our Tier One coking coal projects.” For further information, please contact: Prairie Mining Limited +44 20 7478 3900 Ben Stoikovich, Chief Executive Officer [email protected] Sapan Ghai, Head of Corporate Development Cautionary Statement The primary purpose of the Scoping Study is to establish whether or not to proceed to the next stage of feasibility studies and has been prepared to an accuracy level of ±30%. The Scoping Study results should not be considered a profit forecast or production forecast. The Scoping Study is a preliminary technical and economic study of the potential viability of Debiensko. In accordance with the ASX listing rules, the Company advises that the Scoping Study referred to in this announcement is based on lower-level technical and preliminary economic assessments, and is insufficient to support estimation of Ore Reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the Scoping Study will be realised. The Production Target referred to in this announcement is based on 64% Indicated Resources and 36% Inferred Resources for the mine life covered under the Scoping Study. In accordance with the 26 year mine plan incorporated into the Scoping Study, the first 14 years of production will come exclusively from Indicated Resources. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Measured or Indicated Mineral Resources or that the Production Target or preliminary economic assessment will be realised. The Scoping Study is based on the material assumptions outlined elsewhere in this announcement. These include assumptions about the availability of funding. While the Company considers all the material assumptions to be based on reasonable grounds, there is no certainty that they will prove to be correct or that the range of outcomes indicated by the Scoping Study will be achieved. To achieve the potential mine development outcomes indicated in the Scoping Study, additional funding will be required. Investors should note that there is no certainty that the Company will be able to raise funding when needed however the Company has concluded it has a reasonable basis for providing the forward looking statements included in this announcement and believes that it has a “reasonable basis” to expect it will be able to fund the development of Debiensko. Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the Scoping Study. DEBIENSKO HARD COKING COAL PROJECT The Debiensko Hard Coking Coal Project (“Debiensko”) is a fully permitted, hard coking coal project located in the Upper Silesian Coal Basin in the south west of the Republic of Poland. It is approximately 40 km from the city of Katowice and 40 km from the Czech Republic. Debiensko is bordered by the Knurow-Szczyglowice Mine in the north west and the Budryk Mine in the north east, both owned and operated by Jastrzębska Spółka Węglowa SA (“JSW”), Europe’s leading producer of hard coking coal. The Debiensko mine was originally opened in 1898 and was operated by various Polish mining companies until 2000 when mining operations were terminated due to a major government led restructuring of the coal sector caused by a downturn in global coal prices. In early 2006 New World Resources Plc (“NWR”) acquired Debiensko and commenced planning for Debiensko to comply with Polish mining standards, with the aim of accessing and mining hard coking coal seams. In 2008, the Minister of Environment of Poland (“MoE”) granted a 50-year mine license for Debiensko. In October 2016 Prairie, acquired Debiensko with a view that a revised development approach would potentially allow for the early mining of profitable premium hard coking coal seams, whilst minimising upfront capital costs. Prairie has proven expertise in defining commercially robust projects and applying international standards in Poland. The fact that Debiensko is a former operating mine and its proximity to two neighbouring coking coal producers in the same geological setting, reaffirms the significant potential to successfully bring Debiensko back into operation. Scoping Study Results In March 2017, Prairie announced the results of a scoping study (“Study”) in accordance with the JORC Code 2012 and completed by independent consultants Royal HaskoningDHV given their extensive and recent track record of successful involvement in European underground coal projects in the UK, Kazakhstan and Poland, including Prairie’s Jan Karski Mine (“Jan Karski”). The Study utilised a maiden Coal Resource Estimate (“CRE”) for Debiensko which comprises a Global CRE of 301 million tonnes (“Mt”) including an Indicated Resource of 93 Mt from three coal seams; 401/1, 404/9 and 405 seams. Debiensko is located in the Upper Silesian Coal Basin in the south west of the Republic of Poland. Key results of the Study were as follows: Table 1: Strong Project Estimations and Approximations (to a maximum accuracy variation ± 30%) Cash flow Average Operating Costs Steady State US$47 per tonne Long Term Hard Coking (“HCC”) Price Benchmark (FOB Australia – REAL 2016$) US$142 per tonne (current Mar 2017 spot price: +US$160/t) Average Received HCC Price FOR (including netback) US$157 per tonne Average Steady State EBITDA US$282 million Production Average ROM* Coal Production Steady State 4 Mtpa Life of Mine Plant Feed Coal Production (“LOM”) 100.3 Mt Average Effective Product Yield LOM 67.8 % Mine Life Following First Production 26 years Average Saleable HCC Production Steady State 2.6 Mtpa Total Saleable HCC Produced LOM 65 Mt Total Saleable Coal Produced LOM (HCC + Middlings) 68 Mt Capital Expenditure to First Production Shaft sinking US$208.5 million Coal processing and surface facilities US$102.5 million Underground Infrastructure (Belts, Ventilation, Electrics) US$62.0 million Capitalised Pre-Production Expenses (Labour, Power, Contractors etc.) US$51.5 million Contingencies, EPCM and owners costs US$79.5 million Start of Construction 2019 Start of Production Ramp-Up 2023 *Run of Mine ** FX rate assumed for the Study is PLN:USD - 4.0:1.0 The results of the Study demonstrate the potential for exceptionally high operating margins and cash flow generation given the anticipated low operating costs for Debiensko. This is achieved because Prairie is pioneering in Poland well established international best practice in mine design, production organisation and technology for the project. Debiensko benefits from being a formerly operating mine, giving an excellent understanding of geology and mining conditions with substantial existing infrastructure available at site. Based on an independent marketing study conducted by CRU International (“CRU”), a long term hard coking coal benchmark price forecast of US$142/t (FOB Australia, real 2016 $) has been used in this Study. This compares to the current (March 2017) spot price of over US$160/t and the 2017 Q1 quarterly contract price of US$285/t. Due to the considerable transport cost advantages compared to imported hard coking coal, the CRU study also identified that Debiensko would potentially benefit from a substantial netback premium of US$15/t above benchmark prices for coal sold to regional Central European customers. Potentially Lowest Global Cash Operating Costs Delivered Into Europe Debiensko is projected to have an average steady state total cash cost of approximately US$47 per tonne Free On Rail (“FOR”) for its premium hard coking coal, producing an average 2.6 Mtpa. Hard coking coal product from Debiensko is anticipated to be at the bottom of the global cost curve for hard coking coal delivered into Central Europe, with a delivered cost of approximately US$51 per tonne (FOR total cash cost including royalty + rail to typical regional customer). Netback Pricing Advantage & Marketing Strategy CRU completed a review of the European coking coal market on behalf of Prairie. The CRU study, together with various independent and internal studies regarding coal quality and railway transport indicates that premium hard coking coal produced at Debiensko will attract strong regional demand and will benefit from a significantly lower estimated cost of delivery to Central European customers compared to coking coal imported from the international seaborne market. Accordingly, hard coking coal sales from Debiensko will likely secure a substantial “netback” price advantage. The CRU study included a comparison of the cost of importing hard coking coal from Australia, USA and Russia delivered into Polish steelworks. CRU used ArcelorMittal’s Zdzieszowice coke plant, the largest coke plant in Central Europe, as representative benchmark to estimate delivery costs. Coal imported for delivery to Zdzieszowice from the international seaborne market is purchased at the prevailing FOB price at the country of origin. Transportation costs incurred to deliver coal to the port of Swinoujscie, Poland include sea freight, port handling, storage and forwarding costs. Subsequently, the coal needs to be transported approximately 600 km by rail to the Zdzieszowice coke plant which incurs further freight charges. The coal requires up to 60 days to reach the coke plant from Australia and approximately 30 days from the USA. It is also handled multiple times, with greater potential for increased degradation and fines generation. In comparison, Debiensko is only 70 km from the Zdzieszowice coke plant and directly linked by rail. Transportation costs for Debiensko’s coal to Zdzieszowice are estimated to be less than US$4.60/t. Due to their proximity to Central European coking plants, regional producers such as NWR or JSW have traditionally gained a “netback premium” over FOB Australia or USA benchmark prices, which once adjusted for coal quality differences, equates to approximately 50% of the total transport cost differential. Essentially, an analysis of past practises shows that the coal producer and steel maker “split the difference”. Following this approach for Debiensko would result in a potential netback premium of ~US$15/t above prevailing benchmark prices for Debiensko coal when sold to regional end users compared to imported hard coking coal. However, Prairie believes there is significant potential to increase this netback premium during future discussions with offtakers. Table 2: Total Freight to Zdzieszowice (Source: CRU) Port of Origin Sea freight distance to Swinoujscie Estimated Shipping Time Typical Vessel Type Typical Vessel Size (dwt) Estimated Sea Freight Cost to Swinoujscie (US$/t 2017) Port Handling, Storage and Forwarding Fees (US$/t) Total Sea Freight Cost (US$/t) Estimated Rail Freight Cost (US$/t 2017) Rail Handling & Parking Fees (US$/t) Total Freight Costs (US$/t 2017) Debiensko n/a n/a n/a n/a n/a n/a n/a 3.00 1.60 4.60 Hampton Roads 3,958 16 days Panamax 70,000 11.50 6.00 17.50 11.90 1.60 31.00 Murmansk 1,656 7 days Panamax 70,000 6.70 6.00 12.70 11.90 1.60 26.20 Mobile 5,173 21 days Panamax 70,000 14.00 6.00 20.00 11.90 1.60 33.50 Queensland 11.858 49 days Panamax 70,000 18.20 6.00 24.20 11.90 1.60 37.70 Premium Quality Hard Coking Coal Preliminary analysis indicates that a range of premium hard coking coals that will be in high demand from European steelmakers can be produced from Debiensko. This analysis is based on historical data, neigbouring operational coking coal mines and the results of a suite of modern coking tests performed on selected seams from a fully cored borehole drilled by the previous owners in 2015/16. Two premium hard coking coal specifications have been delineated from select seams at Debiensko, namely Medium volatile matter hard coking coal (“Mid-vol HCC”) and Low volatile matter hard coking coal (“Low-vol HCC”). Future study phases will determine the precise Debiensko premium hard coking coal quality specification on a year by year basis depending on final adopted mine plan, mining schedule and extent of coal blending. Both Debiensko’s Mid-vol and Low-vol HCC lie within the range of premium hard coking coals produced globally. Indications are that the Mid-vol HCC at Debiensko is present between 850 m to 1,000 m from surface and the Low-vol HCC is present 1,000 m to 1,300 m below surface i.e. at depths similar to adjacent operating mines owned by JSW - the largest coking coal producer in Europe. Preparation for the Next Phase of Project Studies Pre-qualification of contractors for the major components of the next phase of Debiensko studies were commenced including: • Drilling contractors for the planned in-fill drilling program • Coal Handling and Preparation Plant (“CHPP”) • Shafts and bulk coal winder • Desalination plant • Surface facilities Demolition of old surface structures of the former Debiensko mine was commenced during the quarter, including the bathhouse, switchgear building and locomotive garage. In addition, drilling of 28 shallow geotechnical holes for engineering design of foundations for structures was commenced. JAN KARSKI MINE Coking Coal Quality Results Establish Jan Karski as a High Value Ultra-Low Ash Semi-soft Coking Coal Mine During the quarter, Prairie announced the results of enhanced coal quality analysis and test work from the completed borehole, Cycow 9, at the Jan Karski Mine (“Jan Karski”). Key results from the expanded coke oven and washability test work indicated the potential to produce a high value ultra-low ash Semi-Soft Coking Coal (“SSCC”) with a high Coke Strength after Reaction (“CSR”) and a high 75% product yield. Preliminary analysis by independent consultants indicates that the Jan Karski ultra-low ash SSCC could achieve a 10% premium to international SSCC benchmark prices, due to several superior qualities. Cycow 9 was a large diameter, PQ size borehole and the first of its kind to be drilled at Jan Karski enabling sufficient quantities and sized coal from the 391 seam to be collected to meet the requirements for physical coke testing, specifically confirmation of CSR and extended coal washability test work. The analysis and testwork was conducted at leading fully accredited European laboratories in Poland, Germany and the UK. The CSR test is considered vital in testing for a coal’s coking properties important to steelmakers as it is an indicator of the performance / strength of the coke produced from the coal. The full range of standard coking tests were also conducted as shown in table 3 below: Table 3: Analysis results from Cycow 9 borehole – 391 seam TOTAL MOISTURE ar% 10-12% ULTIMATE ANALYSIS COKING PROPERTIES Carbon daf% 81.90 FSI 5.5 PROXIMATE ANALYSIS Hydrogen daf% 5.42 Gray King Coke G5 Inherent moisture adb% 3.4 Nitrogen daf% 1.91 Roga Index 69 Ash ar% 2.6 Sulphur ad% 1.16 CSR % 51.5 Volatile Matter ar% 33-36 Oxygen daf% 7.10 CRI % 39.1 Fixed Carbon ad% 57 Ash in Coke % 3.3 RO(MAX) & MACERAL ANALYSIS Sulphur in Coke % 0.87 ASH CHEMISTRY Vitrinite % 74.40 SiO2 db% 33.32 Liptinite % 13.20 Giesler Plastometer Al2O3 db% 29.63 Inertinite % 12.40 Initial Softening °C 379 Fe2O3 db% 20.30 Mineral Matter % 0.00 Max Fluidity temp °C 416 CaO db% 4.49 RoMax % 0.88 Resolidification °C 435 MgO db% 1.73 Max Fluidity ddpm 90 TiO2 db% 0.98 OTHER COAL PROPERTIES NaO2 db% 0.96 Sulphur ar% 1.09 ASTM Dilation K2O db% 1.10 HGI average ad% 44 Softening Temperature °C 370 P2O5 db% 3.41 Phosphorus ad% 0.034 Max Contraction Temp °C 408 SO3 db% 2.36 Max Dilation Temp °C 433 Other db% 1.72 Max Contraction % C 32 Max Dilation % D 35 Jan Karski Coking Coal Key Quality Advantages Ultra-low Ash Washability analysis from the Cycow 9 borehole and previous boreholes drilled by Prairie across Jan Karski has demonstrated that due to the low inherent ash and excellent washability characteristics of the 391 seam, Jan Karski SSCC coal is unique with typical ash product level of less than 3% (air dried) and far superior to typical ash levels for major coking coal brands (both hard and soft) traded internationally and produced domestically in Europe. Figure 7 shows there is a range of ash specifications for SSCCs. With an average ash specification of 2.6%, the Jan Karski SSCC is an ultra-low ash product compared to all the comparison coals. Low ash provides a number of technical benefits including improved coke strength and caking properties, and reduced fuel rate in the blast furnace. The ultra-low ash content increases the coals value-in-use to steel and coke makers, making the product highly saleable in both the domestic European and international markets. One of the key outcomes of utilising ultra-low ash coking coal to produce low ash coke ash is the resulting decreased fuel rate. This has a key environmental benefit for steel makers that results in a reduction in CO2 emissions per tonne of hot metal produced. Prairie’s analysis predicts increasing global demand for ultra-low ash coking coal for blending with HCC, because of a continuing trend of rising average ash levels in globally traded hard coking coals. Premium hard coking coal resources with low ash are becoming increasingly scarce, forcing consumers to make concessions on HCC ash levels. Ultra-low ash coking coals for blending are becoming increasingly sought after by consumers seeking to “blend-down” the ash levels in their coke blends. This is a particular advantage for European steelmakers where EU regulations focus on reduced CO2 emissions. This trend has important implications for the future marketability of Jan Karski ultra-low ash SSCC. Coke Strength After Reaction Figure 8 shows the measured CSR (51.5) of the 391 seam from Cycow 9 borehole at Jan Karski is at the top end of the range for semi-soft coking coal. A CSR figure of 51.5 shows the coal has the ability to form a coherent coke mass. The Jan Karski coal has a number of features conducive to forming good coke for a semi-soft type coal: 1. the coal is ultra-low ash and low inertinite, meaning the coke has few inertinites to bind; 2. the coal has higher rank for a semi-soft compared to typical Hunter Valley and Maules Creek semi-soft coking coals; and 3. the coal exhibits moderate fluidity and reasonable total dilatation. Further CSR analysis will be undertaken as part of future drilling programs. Other Positive Attributes Other Jan Karski ultra-low ash SSCC quality positives are its high vitrinite content, and low phosphorous levels, mid-range FSI (5.5), Gray King Index (G5). The volatile matter is in the range typical for Australian traded SSCCs, with the rank of the Jan Karski coal being slightly higher and closer to a semi-hard coking coal specification. Price Benchmarking Independent coal market specialists CRL Energy Ltd (“CRL”) were appointed by Prairie to analyse the potential value of Jan Karski ultra-low ash SSCC in the market. CRL took two approaches to price benchmarking. The first approach applied the method used by the Platts publication of international benchmark coal prices. The second was a proprietary approach adopted by CRL based on value in use assessment incorporating assumptions regarding a typical Western European coking coal blend used by steel makers and proportions of Jan Karski ultra-low ash SSCC included in the blend. The Platts coal market publication shows a number of penalty/premium factors that can be used to calculate relative value of coking coals against a stated benchmark (Figure 9). The limit of this method is that it assumes all markets would derive the same value from a particular coal; this is not strictly applicable in all cases, since value is also a function of the other coals in the blend, coke versus PCI rate and plant configuration. The “benchmark” coal used in this evaluation is the Rio Tinto Hunter Valley semi-soft, hence this coal is calibrated at 100% of the benchmark. The Platts benchmarking shows the Jan Karski coal specification is valued at 112.7% of the Rio Tinto semi-soft specification. The only comparable coal is the Blackwater coking coal (which is more of a semi-hard type specification) and the NZ SSCC (a low ash semi-soft coking coal). Both Platts benchmarking and value in use modelling show Jan Karski is a high value semi-soft, driven substantially by the ultra-low ash. The Platts specification benchmarking suggests Jan Karski should be priced at a 10% premium above the benchmark Rio Tinto Hunter Valley semi-soft coal. Washplant Design Update And Coking Coal Yield Dargo Associates, specialist coal handling and preparation consultants were appointed to re-evaluate the potential yields of ultra-low ash coking coal from the Jan Karski mine, and develop a conceptual washplant flow sheet. To evaluate the yield of ultra-low ash coal, the washability tests were extended to give more information on separation in the lower density ranges. Separating at low density increases the quantities of near density material and the extended washability test work was used to identify the most efficient wash plant process. The washability results from the recently drilled Cycow 9 borehole were consistent with the results from washability analysis conducted for all of the eight boreholes Prairie has drilled across Jan Karski, demonstrating exceptionally high yields of ultra-low ash ( | |
