The technical report, completed by Norwest for Homeland Energy, showed the 114Mt along the Kentucky/Tennessee border to be measured and indicated.
Norwest’s evaluation was part of the company’s due diligence process as it works to complete the acquisition of Appolo Fuels and associated coal marketing company Diversified Energy that was announced earlier this year.
The consultant’s assumptions were based on a long-term coal price of $US90 per ton via free-on-board rail car. It also anticipated earlier cash operating costs of $60/t and $70-80/t in the long term.
Also taken into consideration was a 15% discount rate and 0% inflation rate for costs and coal prices as well as a capital expenditure estimation of $2.3 million early on to a peak of $10 million and decreasing again towards the end of the mine life.
The Appolo mining operations are situated in Bell County, Kentucky and Claiborne County, Tennessee, and comprise three company-operated highwall operations, one contractor-run highwall mine, one contractor-operated underground mine and a 3.5Mtpa capacity preparation facility and rail loadout.
Appolo began extracting from all of them in 1972, and 2007 production was 1.2 million tons clean.
Homeland Energy Group currently controls operations in the Witbank region of South Africa. The company said it was currently in negotiations to acquire additional interests in more coal properties within eastern South Africa and its neighbouring countries as well as in the United States.
In late August, Homeland said it would purchase Appolo in a $105 million deal.
Despite current mine production levels, Homeland is anticipating ramping up to 2Mtpa through 2009, all of which is high-quality thermal coal.
While its product holding more than 1.5% sulfur is sold for gasification, the balance is shipped to industrial customers.
“Homeland management expects all new and renewed contracts to be priced within the context of the NYMEX Central Appalachian coal futures market,” the company said at the time, with total cash costs forecast by the producer anticipated to be in line with coal production costs for the Central Appalachian region.
Homeland president Stephen Coates said the Appolo mine was an excellent example of the type of asset that Homeland plans to focus on for future acquisition.
“The growth profile for these assets, both in terms of operations and in terms of sales, is going to assist in the significant movement of Homeland toward the mid-tier of international coal companies," he said.
Added chief operating officer Mike Nell: “[Appolo’s] operations, environmental and management track records are enviable and fit well with Homeland's corporate mandate for safe, clean, efficient and profitable operations.”
