Prairie Mining surges nearly 30% following Debiensko Scoping Study
Published on: | by Trevor Hoey
Shares in Prairie Mining (ASX: PDZ – LSE:PDZ) spiked substantially on Thursday morning after the company released the results of a Scoping Study in relation to its Debiensko coal project located in the south-west of the Republic of Poland.
The study pointed to the prospects of developing a large-scale, low-cost, long life premium hard coking coal project which could generate annual EBITDA of up to US$282 million over a mine life of 26 years.
PDZ’s share price increased from the previous day’s close of 47 cents to hit a high of 60 cents in the first 15 minutes of trading, representing an increase of 28%. By midday it had settled in a range between 55 cents and 57 cents, still making for a substantial increase, and also representing a near three-year high.
It should be noted that this is an early stage stock and share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.
With quality, low-cost, long life hard coking coal projects located in stable jurisdictions difficult to come by it wouldn’t be surprising to see PDZ continue to trade strongly, particularly given there is the prospect of corporate activity from global players with nearby operations.
Debiensko to benefit from premium coal quality and proximity to end markets
PDZ’s Chief Executive, Ben Stoikovich, highlighted the key takeaways of the Scoping Study in saying, “The Scoping Study results confirm Debiensko’s potential as a Tier 1 premium hard coking coal asset by virtue of the significant potential production scale and resource size, exceptionally low estimated cash costs and low capital intensity of the mine”.
Another key factor that Stoikovich pointed to was the fact that the project has existing rail, road, power, water and other mine infrastructure already in place.
Debiensko will also have pricing power with its premium hard coking coal comparable with internationally traded benchmark hard coking coals. Stoikovich is of the view that there is the potential to obtain significant pricing premiums against imported seaborne coals owing to transport advantages of some US$15 per tonne.
Heavy industrial activity in the Central European region creates substantial demand for hard coking coal, which should work in PDZ’s favour. Based on PDZ’s data, Europe consumes 47 million tonnes of hard coking coal annually with 85% currently imported.
Debiensko offers strong cash flow, low costs and long mine life
Life of mine saleable hard coking coal production is estimated to be 65 million tonnes. Estimated steady-state cash costs are an extremely attractive US$47 per tonne. The group has the benefit of leveraging off existing infrastructure at the Debiensko mine site, and it is important to note that permitting is already in place.
As a backdrop, the mine was originally opened in 1898 and was operated by various Polish mining companies until 2000 when mining operations were terminated due to a major government led restructuring of the coal sector caused by a downturn in global coal prices.
In early 2006, New World Resources plc acquired Debiensko and commence planning to comply with Polish mining standards with the aim of accessing and mining hard coking coal seams, and in 2008 a 50 year mining license was granted.
PDZ has been quick to move on progressing this venture having only acquired it in October 2016. The company’s strategy has been aimed at revising the development strategy in order to potentially allow for early mining of profitable premium hard coking coal seams, whilst minimising upfront capital costs.
The fact that Debiensko is a former operating mine and is in close proximity to two neighbouring coking coal producers in the same geological setting reaffirms the significant potential to successfully bring the mine back into production.
Commenting on capital expenditure, Stoikovich said, “Leveraging off existing infrastructure at the Debiensko mine site potentially results in exceptionally low capital intensity of US$197 per tonne of annual saleable production capacity compared to an industry average of over US$400 per tonne for global hard coking coal mines developed in the last decade”.