Fundamentals of PDZ’s Jan Karski Project enhanced by latest study
In the last six weeks, Prairie Mining’s (ASX:PDZ) share price has increased circa 30% from 47 cents prior to the release of its Debiensko coking coal project Scoping Study to hit a high of 60 cents, but there appeared to be some profit-taking occurring last week as the company’s shares closed at 52 cents on Friday. This could represent a buying opportunity, particularly in light of the promising news released by the company today in relation to its Jan Karski ultra-low ash coking coal project located in Poland.
PDZ’s shares traded approximately 4% higher in the first hour of trading on Monday morning in response to the Jan Karski study.
There could be more upside to come given that the consensus price target is $1.45, representing a premium of approximately 170% to this morning’s opening price of 54 cents.
However it should be noted that price targets are only estimates and may not be met. Also, 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.
Strong fundamentals of Jan Karski further enhanced by latest study
To provide some background, in March 2016, PDZ announced the results of a Prefeasibility Study (PFS) for the Jan Karski mine, confirming the technical viability and robust economics of the project, as well as highlighting its potential to become one of the lowest cost, large-scale strategic coal suppliers to be developed in Europe.
The strong project fundamentals and significant margins above steady-state operating costs are demonstrated below, but it needs to be borne in mind that SSCC that commands a premium price would substantially bolster the average annual free cash flow indicated in the following table.
The study utilised an updated coal resource estimate (CRE) for the project which comprised a global CRE of 728 million tonnes including an indicated resource of 181 million tonnes from two coal seams. The PFS incorporated a mine plan based on an initial marketable ore reserve estimate generated from the indicated resources within seams 389 and 391 as shown below.
How Jan Karski stacks up against its peers
Being competitive and realising above-average prices in the coal industry is very much a function of quality of product.
The independent analysis of Jan Karski semi-soft coking coal (SSCC) demonstrated that it has the ability to produce ultra-low ash (less than 3%), making it highly sought after by steelmakers due to the considerable commercial advantages of enhanced value in use and lower carbon dioxide emissions.
As well as demonstrating low ash qualities, coke oven tests demonstrated exceptional results with Coke Strength after Reaction (CSR) of 51.5, exceeding typical CSR parameters of internationally traded semi-soft coking coals.
Preliminary discussions with select European steelmakers have confirmed the suitability of Jan Karski’s ultra-low ash, high CSR SSCC to be utilised in coke oven blends.
Benchmarking against similar products currently produced by OKD in the Czech Republic (as indicated below) demonstrates the potential of the Jan Karski product to replace these coals in the regional market.
The key features to focus on in the table above are the percentage ash and CSR numbers. The percentage ash of 2.6 is well below coal produced from the two OKD mines, and the CSR of 51.5 is significantly above the midpoint of coal produced from both Darkov (46.5) and Karvina CSA (47.5).
Jan Karski could come into production as supply of SSCC contracts
The next step for PDZ is to conduct additional drilling at Jan Karski in order to provide more detailed coking coal analysis and develop a comprehensive marketing strategy around its premium product.
With the project only in the early stages it is important to consider the medium-term supply demand outlook for this coal. Importantly, the two Czech Republic mines produce approximately 1.8 million tonnes per annum of semi-soft coking coal, but reportedly these mines will cease production by 2022.
This would see Jan Karski potentially enter the market as supply, particularly to the heavy industrial hubs in Europe, is contracting.