NEW YORK, May 25, 2016 /PRNewswire/ --
- Successful amendment to the cornerstone coal sales
agreement with LG&E and KU for coal to be delivered from
Paringa's proposed No.2 Mine, with future sales totalling
US$205 million.
- Importantly, 60% of No.2 Mine's annual production
during the 5 year sales agreement is now contracted with LG&E
and KU, significantly de-risking the project for potential
financiers.
- Emergence of the No.2 Mine has transformed the economics
of the Buck Creek Mine Complex and Paringa will now develop the
No.2 Mine first, followed by the No.1 Mine
- A new staged development strategy will ultimately allow
Paringa to become a strategic 5.6 Mtpa supplier of high
quality coal into the Eastern US power market.
- Based on work completed to-date as part of the BFS for the
No.2 Mine, Paringa expects significant reductions to the
operating and capital costs.
- Potential for No.2 Mine to generate approximately 30%
EBITDA margins based on these "bottom of the market" fixed
sales prices.
- Construction at the No.2 Mine to start during Q2
2017 and begin production by mid-2018.
Paringa Resources Limited ("Paringa" or "Company")
is pleased to announce that it has successfully amended its coal
sales contract with Louisville Gas and Electric Company and
Kentucky Utilities Company ("LG&E and KU") following the
Company's recent change in strategy which will see the low capex
Buck Creek No.2 mine ("No.2 Mine") developed first, ahead of
the Buck Creek No.1 Mine's ("No.1 Mine") proposed 3.8
million tons per annum ("Mtpa") coal project.
In October 2015, Paringa signed a
coal sales agreement with LG&E and KU to deliver coal from the
No.1 Mine. In February 2016, the
Company decided to develop the No.2 Mine first following
exceptional results from a Scoping Study which demonstrated the
No.2 Mine to be a high margin 1.8 Mtpa mine with low capex of only
US$44 million.
As a result, the amended cornerstone coal sales agreement with
LG&E and KU now reflects delivery of coal from the No.2 Mine.
The amended contract is on substantially the same terms as the
original contract. Most importantly, coal volumes and coal
specifications remain unchanged. Fixed sale prices have changed
slightly to reflect recent sales data, and the project development
milestones and delivery schedule have been updated for the No.2
Mine.
Commenting on the revised contract, Paringa's President and CEO,
Mr David Gay, said: "We are
extremely pleased to formalize the transition of our coal sales
contract from the No.1 Mine over to the No.2 Mine. The fact that
LG&E and KU are prepared to sign this major amendment to our
sales contract confirms their belief that we will become a
significant new source of production in the Illinois Basin and confirms the quality of the
No.2 Mine. We are progressing rapidly with our Bankable Feasibility
Study on the No.2 Mine and have already identified significant
reductions in our operating and capital costs which have the
potential to increase the value of the project
considerably."
Amendment to the LG&E and KU Contract
Paringa is expected to start construction of the No.2 Mine
during second quarter of 2017, begin production by mid-2018, and
reach full production of 1.8 Mtpa during 2019.
Following the Company's change in strategy to develop the No.2
Mine first, Paringa needed to amend the original sales contract for
this change in strategy and to update the fixed sales prices to
reflect recent coal sales data from the utility's recent coal
solicitation period with US coal producers. The fixed sales prices
contained in the original coal sales agreement have changed
slightly and have resulted in a fall of 7% in the nominal total
value of the coal sales contract from US$220
million to US$205 million.
Under the amended coal sales agreement, Paringa is contracted to
deliver a total of 4.75 million tons of its 11,200 btu/lb product
over a 5-year period, starting in 2018. The amended contracted
fixed coal sales prices for Paringa's 11,200 btu/lb coal spec
begins at US$40.50 per ton for the
first 750,000 tons of coal delivered to LG&E and KU, escalating
to US$45.75 per ton for the final
1,000,000 tons sold. The new fixed sales prices are as follows:
Table 1: Summary
of Key Terms
|
Contracted
Production
|
Fixed Contract
Price
(FOB Barge; 11,200
btu/lb)
|
0 - 750,000
tons
|
US$40.50 per
ton
|
750,001 –
1,750,000
|
US$41.50
|
1,750,001 –
2,750,000
|
US$43.00
|
2,750,001 –
3,750,000
|
US$44.50
|
3,750,001 –
4,750,000
|
US$45.75
|
Total Sales
Contract Value
|
US$205
million
|
The No.2 Mine's access to the Green and Ohio River systems
provides a significant transportation advantage to other
Illinois Basin coal producers. The
LG&E and KU coal sales agreement calls for fixed sales prices
based on a Free-on-Board ("FOB") basis delivered at the Buck
Creek barge load-out facility on the Green River.
The LG&E and KU agreement includes coal specifications for
deliveries of Buck Creek No.2 Mine's coal on an "as received"
basis:
Table 2: Summary
of LG&E and KU Contract Coal Specifications
|
Specifications
|
Guaranteed Monthly
Weighted Average
|
Heating Content
(Btu/lb)
|
min. 11,200
Btu/lb
|
Moisture
|
max. 10.00
lbs/mmbtu
|
Ash
|
max. 11.00
lbs/mmbtu
|
Chlorine
|
max. 0.18
lbs/mmbtu
|
The amended LG&E and KU agreement includes standard project
development milestones that are in line with the proposed Buck
Creek No.2 Mine construction program. During this construction
period, LG&E and KU will progressively monitor Paringa's
performance in meeting these milestones. If the Company fails to
achieve the relevant milestones, then LG&E and KU may terminate
the agreement and the Company shall have no further
obligations.
About LG&E and KU
LG&E and KU are subsidiaries of the PPL Corporation (NYSE:
PPL) family of companies and are regulated utilities that serve a
total of 1.2 million customers. LG&E and KU have consistently
ranked among the best companies for customer service in
the United States. LG&E and KU
own three power plants within Paringa's initial target Ohio River
Market (Trimble County, Ghent and
Mill Creek) that are almost
exclusively supplied by the Illinois Basin.
PPL Corporation is one of the largest investor-owned companies
in the US utility sector. PPL Corporation has a Moody's/S&P
investment grade credit rating, market capitalization of
US$25.2 billion, US$7.6 billion in 2015 annual revenue and 10.5
million utility customers in the US and UK.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/successful-amendment-to-the-coal-sales-contract-to-deliver-coal-from-no2-mine-300275206.html
SOURCE Paringa Resources Limited