Asia Energy To List Its Major Coal And Power Station Project In Bangladesh On AIM

Asia Energy To List Its Major Coal And Power Station Project In Bangladesh On AIM

Minesite : March 22, 2004

Coal is making a comeback. Not only coking coal for the steel makers of China, but thermal coal for power stations and this is particularly true of Asia as it is a region short of alternative energy sources such as natural gas, nuclear power and hydro-generation. China itself generates three quarters of its electricity supply from coal and its power consumption rose about 15 per cent last year so its exports are bound to fall according to the Financial Times and more imports will be sucked in. As a result prices are rising dramatically. Thermal coal export prices from Australia have risen by 50 per cent to £25/tonne since December and this is a reflection of the situation all over the world. The problem is that it is impossible to jack up coal production quickly and the shipping industry is over-stretched anyway.

Coal in Bangladesh is therefore of real interest. The country has a population of 130 million and is steadily changing from an agricultural to an industrial economy. At this stage, however, only 18 per cent of the population has access to electricity which is one of the world’s lowest access rates. Gas reserves currently supply 85 per cent of commercial electricity, but reserves are falling and coal will have to make up the gap as electricity capacity in the country is expected to treble by 2015. At the moment most of it is imported, but Asia Energy, a company due to list on AIM next month through stockbrokers WH Ireland, has mining leases over a major coal field in Bangladesh with an estimated in-situ coal resource of 370 million tonnes. And the coal is of significantly higher quality than most of that which is being imported according to the company’s chairman Chris Eager. Remember him? Chief executive of Monterrico Metals which is pushing to new highs on the back of its Rio Blanco copper project in Peru.

Asia Energy is controlled by Deepgreen Minerals Corporation, a Canadian company in the Cambrian Mining stable, though it is hard to find a reference to the latter relastionship in the placing documents. The Phubari coal field itself was discovered by BHP back in 1994 and an inferred resource of 383 million tonnes was estimated for it. However the major decided that it was not to be part of its core holdings during a period of corporate restructuring in 1998 and it was acquired by an Australian company, Asia Energy Corporation Pty . A couple of years later consultants GeoEng were commissioned to carry out a pre-feasibility study which was based on a scoping study which had been completed the previous year.

The new study incorporated all current data plus additional geophysical work that had not been available to BHP. The result was that an open pit mining operation was pronounced viable and the in-situ resource was increased to 426 million tonnes. At this stage it is worth pointing out that the JORC resource is still 370 million tonnes, but as that would give the project a life of more than 30 years anyway, the difference is largely academic as drilling should convert the inferred resource to JORC standards over time. As already pointed out it is high quality coal with a calorific value of 6,600 kcal/tonne and is low in ash and sulphur. Just as important the seam is very thick on a world scale, varying from 15 to 45 metres in thickness. An open pit operation would therefore have a low strip ratio and the directors reckon a 9 million tonne/year production rate could eventually be established.

The big picture is that the Phubari Energy project will supply coal to a mine mouth power plant. When this has been ramped up to an output capacity of 2,500 mega watts, surplus coal will be sold to other consumers in Bangladesh and India. However it will not reach full production with 6 mtpa going into power and 3 mtpa for sale until 2017 and by that time it should still have the best part of 30 years life left. More details of this will be given when the bankable feasibilities on mining and power generation, now in process, are finished but this will not be until next year. What is clear is that this will be a very expensive project which will require the goodwill of the government of the People’s Republic of Bangladesh if it is to keep on track. This it appears to have as successful development of this project could have a significant impact on the industrial growth of the region and the company has been promised a 9 year tax holiday, low import duties, investment allowances and no export duties.

First coal will not be delivered to the power plant until 2010 provided finance is forthcoming and development proceeds on schedule. However World Bank and other similar financial institutions will want to see the emergence of Bangladesh from poverty and it has already shown that it is on the right track as it can field a good cricket team. Shareholders will have to be patient, but Philip Richards of RAB Capital, who has a 15.8 per cent stake from an earlier financing, reckons that the coal in the ground is valued at about one-tenth that of comparable coal fields elsewhere in the world on the basis of he price at which he invested. It is also worth noting that the Barapukuria coal field just to the north is being developed by Chinese contractors working for the Bangladesh government into an underground mine producing 1 million tonnes/annum with a mouth of mine power station producing at a rate of 250 MW and is on the point of starting operations. Phubari is a lot bigger and the precedent has been set.