Bathurst’s due diligence of Buller from February to May 2010 has proved up commercial terms and the prospects for a 1 million tonne per annum coal mine with a 30-year mine life.

The agreement has been structured on the premise of Bathurst paying L&M on a staged basis as and when value is proved up for the project.

The principal terms of the agreement involve payment of a $US5 million (about $A6 million) option by June 30; payment of $US35 million by November 5, 2010, once the definitive feasibility study has been completed; and payment of $US40 million once 25,000 tonnes of saleable coal has been shipped.

A further payment of $US40 million will be made once 1Mt of saleable coal has been shipped.

L&M will be granted 5% of the listed equity in Bathurst once these target levels have been reached, subject to shareholder approval. In addition, Bathurst will pay L&M a 1.75% royalty on coal revenue over the life of the mine.

Assuming Bathurst achieves the lower end of its exploration target of 50-90Mt, the Buller purchase price is equivalent to less than $US1/t of coal resource once the definitive feasibility study has been completed and less than $2/t once the Escarpment mine is in operation. Once 1Mt of coal has been produced, the purchase price equates to about $3/t of resource.

Bathurst managing director Hamish Bohannan said he was confident the acquisition terms would represent fair value to Bathurst shareholders, with current coking coal prices over $US200/t and the Buller project’s estimated operating costs at $55-70/t.

“The acquisition terms agreed with L&M are both sensible and encourage the parties to work together to ensure that a coal mine is brought into production in the near term at Buller,” he said.

“The project’s high-quality coking coal, relatively low infrastructure requirements, low capital expenditure and low operating costs provide Bathurst with a clear path to implement a mine at Buller.”

Based on the work done so far, Bohannan believes Bathurst has the opportunity to develop an initial 1Mtpa coal mine that has the potential to expand to 2Mtpa in the medium term.

“The efforts of L&M in getting the Buller project to its current status over the last five years should not be underestimated,” he said.

“L&M and its founders’ experience, both in New Zealand and in successfully developing mines offshore, are well known. We look forward to working with L&M to establish a mine on the Buller project.”

Bathurst’s share price lifted 7% yesterday but is down 3% to 15c this morning.