Upload
others
View
9
Download
0
Embed Size (px)
Citation preview
Development of Chulmakanskoye Coalfield Lokuchakitskiy Site
Dolguchan LLC
as of April 2019Brief Investment Memorandum
Strictly confidential
August 2018
Page 2 of 16
► Dolguchan LLC (hereinafter – the “Company”) formerly was a part of Kolmar Group, now is anindependent metallurgical coal mining producer. The Company is engaged in a development ofChulmakanskoye Coalfield (hereinafter – “Project”, “Dolguchan”), located on the territory of theRepublic of Sakha (Yakutia), Neryungri District, Russia. The Project includes development ofthe following principal objects:§ Open pit;§ Processing plant with an installed capacity of 1.5 mln t per annum;§ Underground mine with planned capacity of 1-1,5 mlt t per annum.
► Coal reserves estimation according to JORC criteria was prepared by IMC Montan in March2018. As of 01 January 2018 the Company had total coal reserves of 103 mln tons (Measured+ Indicated).
► The Company’s assets are in the Far East region of Russia. Railway infrastructure is readilyavailable for coal export routes through Vanino and Primorsk seaports.
► As of 2018 Company has successfully recovered operations on Open pit. In 2018 volume ofcoal mined by open-cast method will reach 0.15 mln t.
► Currently, the Company is looking for potential strategic partnership to boost investments intoprocessing plant and underground mine construction.
Dolguchan is a promising mining asset located in the Russian Far EastBrief Project Description
ChinaJapan
Korea
RussiaDolguchan
Approved license for dangerous works on site –
fire and blasting. Nov 2017
20152013 2017 2019
20182022
2020 2025Develop. and mining program by Rostekhnadzor. Jan 2018
Dolguchan LLC obtained a mining operations license
Approved design for open cut mining – listed on
minutes of RCC on Hard Fossils. Oct 2017
Approved permission for industrial safety on site from Rostekhnadzor. Dec 2017
Commissioning of open-pit mining. 2018
20112009
20072005
Planned start of processing
Planned start of underground mining
Preparation of interim report by IMC Montan. 2018
Supply of raw coal to local consumers (Neryungrinskaya
power station) as thermal coal
- exporting seaports
Geographic LocationSource: Management
Key MilestonesSource: Management, IMC Montan
Normal operations Open cut mining
August 2018
Page 3 of 16
The Company has distinctive investment attractiveness
Key Investment Considerations
Substantial resource base
Premium coking coal
Favourable cash costs
Well-developed infrastructure
§ As of 01 January 2018 the Company had 103 mln tons of Measured and Indicated coal reserves according to JORC and82.3 mln tons according to Russian standards (A+B+C1).
§ Company’s license area is surrounded by several undistributed parts of nearby coalfields. Resource base can beincreased up to ~700 mln tons potentially.
§ Dolguchan targeted to produce grades “K”, “KZh” and “SS” coals, according to Russian classification, where K and KZhgrades outperforming international benchmarks like HCC and SHCC with even higher specs, like 99% vitrinite contentand low Sulphur.
§ Dolguchan is located near the city of Neryungri in developed coal mining region and has already have establishedadjacent infrastructure.
§ Neryungri is connected by rail to the Baikal-Amur and Trans-Siberian highways. The proximity to the largest seaportprovides extensive logistics opportunities for export procurements.
§ In 2021 coking coal from Dolguchan will be favorably positioned on the global metallurgical coal cost curve just as acomparable Denisovsky project and with almost the same level of cash costs.
§ In subsequent years the company has an upside potential to move in the first quartile of the curve with the Total CashCost of about 90 USD/t FOB.
Scalability of the Project
§ Depending on market conditions and availability of funds Project team examines three scenarios for Projectdevelopment. Currently the Company successfully recovered mining operations on open pit and laid a foundation forsubsequent expansion of production what will create positive cash flow. A transition to the large coal enterprise willrequire additional capital expenditures but will allow to create the highest value for shareholders and utilize the resourcebase of Lokuchakitskiy coalfield in the most efficient way.
August 2018
Page 4 of 16
► Deposit development concept has been considered in the "Technical andeconomic justification of the final parameters for calculating theChulmakanskoye coal field Lokuchakitskiy site south-eastern part coalreserves" by ООО ROSTOV NII GIPROMASHPROJECT in 2009; and OOOIMC Montan performed open-cast optimization based on the deposit 3Dmodel.
► Lokuchakitskiy site seams are not continuous in thickness and the reservessuitable for underground mining are spread sporadically. This will significantlyimpact the completeness of reserves extraction.
► Lokuchakitskiy site assumes a combined method of extraction, including open-cast and underground mining. Scoping study prepared by IMC Montanassumes gradual production volume increase in open-pit from 0.5 mln t in2018 to 1.0 mln t in 2020 and later. Coal mining by open-cast method will finishin 2027. According to open-cast optimization prepared by IMC Montan averagestripping ratio will be 13.8 m3/t in 2018-2027. Underground mining will start in2022 with a mining of ROM coal during the construction of a mine, will reach aproduction capacity of circa 1.0 Mt per annum in 2025 and continue until 2050.
► According to the Production Program on Lokuchakitsky site the Company willmine coking coal of grades K, Kzh, oxidized coal of the same grades and asmall volume of thermal coal grade SS.
► Expected losses during production period on both open pit and undergroundwill reach a level of 15%, dilution will account for 4%.
Starting from open-cast method the Company will move to underground mining operations in 2022-2050 …Project Development
Production Program of Lokuchakitskiy Site Source: IMC Montan
0
500
1 000
1 500
2 000
2 500
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
th. t
Open pit
Underground
Mining Operations by Type of WorksSource: IMC Montan
100% 97%84% 86%
48% 48% 45%
3%16% 14%
52% 52% 55%
100%
0%
20%
40%
60%
80%
100%
2018-2021 2022 2023 2024 2025 2026 2027 2028-2050
Open pit Underground
August 2018
Page 5 of 16
Processing Operations► One of the main coal quality characteristics is ash content that shows the
proportion of inorganic mineral residue after complete combustion of coal tothe total weight. The average ash content value of the site coals is in the rangefrom 17.12% to 27.54%, which indicates that it is impossible to use the ROMcoal for coking. In this regard, the coals of coking grades should bebeneficiated.
► The main coal reserves belong to a difficult and very difficult category ofbeneficiation. Given this fact, effective processing technology for the site coalsis a heavy medium processing of coarse and middle sizes, as well as gravityprocessing of coarse slurries. Coal processing flow sheet may also comprisefine-grained sludge flotation.
► As a result of the processing, a concentrate will be obtained that satisfies therequirements for coking (Ad<10%), as well as the middlings product which isused as power fuel. The predicted concentrate yield, based on the results ofexisting studies, will be in average at the level of 60%. Middlings predictedoutput is 10 - 12%.
► Specified commercial output will be determined at the subsequent stage ofproject development, taking into account the calculation of processingtechnology. On a current stage of a project development an expected averagevolume of concentrate K, Kzh production is 0.5 mln t per year in 2020-2024,1.3 mln t per year in 2025-2027 and 0.6 mln t from 2028 to 2050. A smallproportion of production will be accounted for mid-coal. Oxidized coals will beproduced in the first two years of the Project before commissioning of aprocessing plant and in the first years of a Mine construction (ROM coal). Thepredominant direction of oxidized coals is power fuel.
… and create beneficiation complex which will allow to produce 0.6-0.7 mln t. of high quality coking coal concentrateProject Development
Volume of ProductionSource: IMC Montan
Concentrate Yield on a Processing PlantSource: IMC Montan
49,75%
68,06%
54,39%
69,40%
59,40%
0%10%20%30%40%50%60%70%80%
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
Processing plant launches in 1Q 2020. Prior to that all mined coal is going to be sold as rough coal without processing
800929
1 547
890 821717
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
th. t
K, Kzh Rough cocking coal Rough thermal coal Mid-coal
August 2018
Page 6 of 16
2017 2018 2019 20201Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
1Recovery of production at an open pit
Preparation of additional research work (seismic, topography, surveyor study of a site)Adjustment of the project aimed on extraction of remaining reserves with stripping ratio <5Preparation of the Technical Project and its approval by government bodiesObtaining mandatory permits and licensesPreparation of Mining plan for 2018 and its approvalPurchase of own drilling rig
2 Feasibility study of a project
Preparation of a 3D model for Lokuchakitskiy siteEstimation of reserves according to JORCThe calculation of the optimization of production at the Open pitPreparation of Scoping Study by IMC Montan.
3 Design of a processing plant
Design works for Processing plant for coal from open cast miningSite SelectionDevelopment study and engineering works for pouring of the foundation
4 Expansion of the resource base
Recalculation of reserves to increase production to 9.5 mln tProject adjustmentsDevelopment of a new technical projectReconciliation of reserves in Rosnedra
5State review of the Project. Start of construction
Approval of a project by GlavgosexpertizaObtaining a building permit by local authoritiesStart of construction of the main processing buildingPurchase of equipmentStart of construction of ground infrastructure facilities.
6 Participation in an auction for the neighboring site (15 mln t)
7 End of construction and launch of a processing plant
9 Fund raising Attraction of an equity investor. Negotiation with banks and other potential lenders
The Company has detailed plan for the implementation of its strategy …Project Development
3Q 2017 4Q 2017
4Q 2017 2Q 2018
4Q 2018
3Q 2018
1Q 2019
1Q 2019 2Q 2019
1Q 2020
2Q 2018 2Q 2019
1Q 20181Q 2019
2Q 2018
August 2018
Page 7 of 16
… and managed by professionals with a significant experience in coal mining businessProject Development
[1] Independently owned mining consulting company
Anatoliy Mitroshin § Co-founder of Kolmar group, rapidly developing coking coal producer;§ Has more than 20 years of experience in coal mining business;§ Shareholder in several coal enterprises.Founder, sponsor and entrepreneur
Arkadiy Ostrovskiy § Ex-member of the Board of Directors of Kolmar group;§ Has more than 12 years of experience in coal industry;§ Worked as Head of Investments and Deputy CFO at Kolmar group and held various senior positions at financial
departmentCEO
Alexander Civka § Descendent from renowned mining family, hereditary miner§ Has significant working experience in coal industry (more than 30 years);§ Worked at Kolmar group as mine director, technical directorTechnical Director
Sergey Sivirinov § Has more than 20 years of experience in coal mining business;§ Held executive positions at Yakutugol and Kolmar.Chief Engineer
Michael Johnson § President and CEO of Highcaste Group Ltd [1]
§ Michael has over 17 years of experience working in the mining industry (On Site and Consulting);§ Worked in Moscow as Operations Manager and Technical Director in CJSC Runge between 2011 and 2017 § Worked on numerous underground and opencut projects in Russia, Australia, Canada, China, Indonesia,
Mongolia and etc.
Advisor on production technology and geology
August 2018
Page 8 of 16
The Project is fully supplied by all required external infrastructure …Infrastructure
Local electric transmission line of 6kV voltage connected to the Project’s assets
High voltage electric transmission line of 110kV voltage
Power plant Nerungrinskaya of 630MWt total capacity <60% of current load
Railroad nearby the site adjacent to the Baikal-Amur Mainline - 400 km of reach
Federal automobile road M52
Airport accepting mid-size jets
Neryungri town of 70k population with coal mining infrastructure and educational institutions
Heated household/administrative facility
Coal storage and control facility
Operating mines:Mine DenisovskayaMine Inaglinskaya
Mine Denisovskaya
Dolguchan’s license area
Nerungri town
Mine Inaglinskaya
Lokuchakitskiy part
Necessary Transport Infrastructure and Utilities are readily available
Infrastructure is one of the main bottlenecks for development of coal deposits in Russia. Correspondinginvestment projects require substantial financial and administrative resources from investors, creditors,federal and local authorities to be allocated on infrastructure. Dolguchan is located in developed coal miningregion near two large coal enterprises, and has already have established adjacent infrastructure.
August 2018
Page 9 of 16
… connected with export harbors by railroads which are planned to increase capacity by 20% by 2020 …Infrastructure
► The transport strategy of Russian Railways assumes a significant increase in the crossing capacity of the Baikal-Amur and Trans-Siberian highways. In particular, thebranches of the railway lines on the approaches to the ports Vostochniy and Vanino are planned to increase aggregate carriage capacities by approximately 20% by2020. Successful implementation of the foregoing strategy without significant deviations will fully provide market participants with the necessary railway infrastructure.
Nerungri
Bamovskaya
Elga
Ulak
Noviy Ural
Chegdomyn
Komsomolsk
Volochaevka
Baikal-Amur Railway
Tynda
- railway stations
- seaports
11.4 - volume of cargo reloading through a branch in 2016, mln t
- carriage capacity of a branch in 2018, mln t11.4
[1] - Grodekovo railway station, ports: Vostochny, Nakhodka, Vladivostok, Posiet, Slavyanka
16.823.2 23.214.4
18.8 25.614.424.6 24.6
100.6100.6 124.7
9.5 25.1 26.2
26.437.1 43.3
91.199.6 120.0
43.3 - forecasted carriage capacity of a branch by 2020, mln t
Primorskyregion1
12.7 14.4 34.2
15.5 16.0 27.7
Trans-Siberian Railway
Cargo Railway Scheme in the Far East of RussiaSource: Program of the development of the eastern operating domain (RZhD)
August 2018
Page 10 of 16
… and has detailed plans of coal delivery to markets of Asia-Pacific region Infrastructure
Transportation of finished products is planned by rail to the port of "Vanino" in two stages:
1) transportation from the mine to the main railway line;2) transportation on the main railway line to the export harbor.
Local Logistics► Dolguchan is connected to the nearest station of the federal railway "Neryungri-cargo".
Embarkation of finished goods in wagons will be realized at the railway station "Pogruzochnaya" in the immediate vicinity to the mine “Lokuchakitskaya". In 2Q 2018 the Company has purchased property of Erchim-Than LLC, including railway stub track at “Pogruzochnaya” station (4 rail lines), what will allow loading of rail wagons there.
Railway transportation and transshipment► Arrangements with Russian Railways and ports on the volume of transportation is
settled monthly. The current tariff for the transportation of coal for Dolguchan is 1,725 RUB/t.
► Transshipment of a coal concentrate will be done in Vanino or (and) Vostochniy harbors with an expected tariff for transloading of 13 USD/t. As a rule, the tariff is well correlated with world coal prices.
► Due to expansion plans of the main harbor operators in Vanino and Vostochniy potential infrastructure restrictions on the export of coal to the Asia Pacific countries are highly unlikely.
Transportation to the Asia-Pacific region will take from 7 to 10 days, of which from 4 to 5 days will be attributed to railway transportation, and freight accounts 3 to 5 days.
Delivery route Cost
Railroad rates1. Dolguchan - Vostochniy 1,725 RUB/t
Ocean freight (Panamax)
2. Vostochniy – Japan 5.4 USD/t
3. Vostochniy – Korea 4.8 USD/t
4. Vostochniy - China 5.2 USD/t
Export Delivery Route to Asia-Pacific MarketsSource: company analysis
1
23
4
August 2018
Page 11 of 16
Reserves► The Company owns a license for the development of Lokuchakitskiy site and
also has a significant potential to expand its resource base by includingbordering areas in the license.
► As of March, 2018 IMC Montan conducted an independent estimation ofresource base according to JORC. The company’s coal reserves as of 1st
January 2018 amounted for 103 mln t of Measured & Indicated reserves (bymass of rock). According to Russian classification reserves amounted for 83mln t. The reserves were calculated separately from the seams and taking intoaccount the contamination by in-situ rock layers. The reserves arerepresented predominantly by coked coals of grades KZh, K (more than 95%).A small fraction is amounted for oxidized coals.
► The company is planning to expand its resource base and substitute depletingcapacities by carrying out additional exploration works and adding C3 and P1resources to mineable reserves. The north-westrern part of the Westernsection No. 2 has a significant potential for increasing the reserves.
► According to the agreement between stakeholders of Dolguchan and JSC“SUEK”[1], stakeholders of Dolguchan have a right to buy out 100% ofshareholder capital of JSC “Kabaktinskoye”, which owns a license №ЯКУ04382 ТР dated from 30.06.2015. Accomplishment of a buyout will furtherexpand resource base of the Company.
Geological features► Resources portfolio of Lokuchakitsky site (south-eastern part of
Chulmakanskoye deposit) is represented by K and KZh coals as well asoxidized coals of the D19, D15, D15n, D13, D11, K6n, K4 and K2 seams. Theresource base will be developed by open-pit mining on the first stage andunderground mining later (0.5 mln t and 0.7-1.0 mln t per yearcorrespondingly).
► At the licensed area ash content ranges widely from 4.54% to 49.91%, meanvalues – from 17.12% to 27.54%, which indicates that it is impossible to usethe ROM coal for coking. In this regard, the coals of coking grades should bebeneficiated. D19 is characterized by minimal ash content. The highest ashcontent (27.5% and 26.5%) is in the Kabaktinskaya suite seams.
Reserve base consists of 103 mln t of coking coal according to JORC and has an option to expand by adding adjacent areas
Reserves
Licensenumber Coalfield Inception
date Validity Issued to Purpose
YKU13240 TE
Chulmakans-koye coalfield 13.07.2005 01.07.2025 LLC
Dolguchan
Exploration and coal mining in the south-eastern part of Lokuchakitskyarea
License DescriptionSource: IMC Montan
Reserves of the Lokuchakitskiy Site according to JORC, mln tSource: IMC Montan
[1] – SUEK is a major Russian coal producer
Expected life of mine: 32 years
50,4
52,7
103,0
Measured Indicated
August 2018
Page 12 of 16
Coal Concentrate of Grade K and КZh
► The key marketable product of Dolguchan is coking coal concentrate of gradesK and KZh. It’s expected to have high demand for that type of coals both inlocal and export markets.
► Dolguchan will operate on D11 floor, Lokuchakitsky site of Chulmakan deposit.Currently, the D11 floor is developing by Kolmar at the adjacent DenisovskyGOK. In accordance with Wood Mackenzie Market Report, and with actualsales of Denisovsky K4 coals, these coals generally generates strong cokewhen coked alone in a conventional coke oven.
► Lokuchakitskiy site’s coals are characterized by a medium volatile content withhigh fluidity, good sinterability, low sulfur and phosphorus content, high vitrinitecontent. Competing types of coal are medium-volatile low-sulfur coalsproduced in Australia and China (in the Chinese market).
High quality coking coal owned by Company will be competitive both in Russian and international markets due to its characteristics
Quality of Coal Concentrate
Russian benchmarks Foreign benchmarksCoal Denisovsky K4 Yakutugol К9 Leer (HVA) Poitrel Gregory Peak Downs Moranbah NorthProducer Kolmar Mechel Arch BMA BMA BMA Anglo AmericanCountry Russia Russia USA Australia Australia Australia AustraliaTM (% ar) Moisture 5 6.6 7.5 12 8.5 9.5 10
Ash (% ad) Ash-content 10 10.7 7.2 8 7 10.5 8.5
VM (% ad) Volatile-matter content 24 17 31 24 33.5 20.5 23.3
TS (% ad) Total Sulphur 0.37 0.2 1 0.4 0.65 0.6 0.5
Phos (% ad) Phosphorous content 0.001 0.06 0.035 0.3 0.04
Y Plasticity index 27-30 37 37
Ro. Max Reflection of vitrinite 0.99 1.5 1.05 1.2 0.9 1.4 1.2
CSR Coke Strength Reactivity 44 66 50 55-60 74 69
Fluidity (ddpm) Fluidity 3,200 10 +30,000 300 7,500 400 1,400
Coal Brand ComparisonSource: Wood Mackenzie
► Coal concentrate will be sold at a discount of 5% in the early years. However,it has the same characteristics relative to Australian premium coking coal (LVHCC). Thus, there is a possibility that discount will be reduced to 0%.
Characteristics, by which Denisovsky coal surpasses competitors
Mid-Coal and Thermal Coal of Grade SS► A small share in the sales structure (less than 5% of revenue) is also taken
by high-ash thermal coal and mid-coal. These coals are going to be sold to local energy plants.
Comparable coal from adjacent Denisovsky project
August 2018
Page 13 of 16
Project team considers three scenarios for the Project development of which the baseline scenario will create the highest value for stakeholders
Financial Plan
Scenario UoM Option 1 Option 2 Option 3Option for development: OPEN PIT OPEN PIT + PROCESSING
PLANTOPEN PIT + PROCESSING PLANT +
MINEKey investment indicators
NPV mln USD (32.6) 133.6 349.2IRR % 6.5% 16.8% 16.4%PBP years 8.0 2.8 7.4External financing mln USD n/a 20.2 61.0
Key production indicators
Production capacity mln t 0.5 (mining) Up to 1.0 (mining and processing)Up to 0.8 (concentrate production)
Up to 2.0 (mining and processing)
Volume of mined reserves mln t 2.0 9.2 36.8
Life of Mine years 3 10 32
Production facilities - Processing plant “Lokuchakitskaya” Processing plant “Lokuchakitskaya”Mine “Lokuchakitskaya”
Financial indicatorsCapital expenditures(without VAT) mln USD - 34.1 338.2
Average revenue mln USD 67.5 100.9 138.4
Average EBITDA mln USD (7.1) 30.9 66.9
BASELINE SCENARIOCONSERVATIVE SCENARIO
August 2018
Page 14 of 16
Each scenario has its pros and cons as well as opportunities for developmentFinancial Plan
Scenario Option 1 Option 2 Option 3Option for development: OPEN PIT OPEN PIT + PROCESSING PLANT OPEN PIT + PROCESSING PLANT + MINE
Advantages
ü No capital expenditures. All works are done by subcontractors;
ü Minimal risks.
ü Low risks. Processing plant is the same as processing plant of Kolmar;
ü Life of mine is 10 years;ü The company already has established
adjacent infrastructure;ü Favorable EBITDA ≈ 30 mln USD per
annum.
ü Life of mine is 32 years;ü Status of a “large” coal mining company; ü The richest valuation of the business.
Disadvantages
û Life of mine is less than 3 years;û Poor profitability. Revenue will cover
only current costs.
û Capital expenditures of 34 mln USD (project + research works + construction of a processing plant).
û Capital expenditures of 338 mln USD;û Risks of underground mining operations;û Investments in infrastructure.
Opportunities for development
ü Expansion of resource base by including bordering areas in the license;
ü Sale of rough coal to Kolmar for processing with a premium to market prices. Life of mine will increase to5-6 years.
ü Expansion of resource base by including bordering areas in the license;
ü Purchase of own mining equipment will increase profitability per tone of mined coal by 5-10 USD;
ü Purchase of a huge bordering license and creation of “Kolmar-2”.
ü Attraction of the government grant for the development of infrastructure;
ü Creation of strategic partnership;ü IPO/ICO of the company;ü Purchase of a huge bordering license and
creation of “Kolmar-2”.
BASELINE SCENARIO
ü
û
CONSERVATIVE SCENARIO
August 2018
Page 15 of 16
Please feel free to contact us via phone or emailContacts
Arkadiy Ostrovskiy
CEO
Tel.: +7 (925) 762 0446
[email protected] [email protected]
Dolguchan LLCRussia, Republic of Sakha (Yakutia), Neryungri,
Karl Marx street, 8 / 2Tel.: +7 (411) 476 23 21; +7 (411) 476 23 24
E-mail: [email protected]
Contact persons