- Cokal awarded the Mining Services Contract to the PT. Harmoni Panca Utama (HPU) for its Bumi Barito Mineral (BBM) coking coal project.
- The Mining Services Contract will help CKA strategically and financially in saving upfront capital requirement and near-term development of the BBM Project.
- The price of metallurgical coal has slid down in recent months and reached to four-year low due to drop in demand during ongoing COVID-19 pandemic. However consensus that prices will increase in the new year and currently China is paying a higher price for non Australian coal.
The ASX listed metallurgical coal explorer Cokal Limited (ASX:CKA), aims to have a global presence as metallurgical coal producer. It has announced the award of Mining Services Contract after the successful tendering process to the PT. Harmoni Panca Utama (HPU).
The contract is believed to provide a significant step towards the near-term development of the Bumi Barito Mineral (BBM) coking coal project in Indonesia. The Company notes that the contract would provide financial leverage and will help in reducing upfront capital investments in the project.
Aahana Mineral Resource SDN BHD, largest shareholder of Cokal, helped in the tendering and selection process of the contract. Aahana Minerals have vast experience and expertise in the related geography. The Company is planning to produce high-grade premium coking coal and PCI products to cater to the Asian steel markets.
The Mining Service Contract is for the period of 5 years and includes the following services:
- Open-pit overburden removal.
- HPU to provide the mining fleet and its associated equipment required during the project.
- HPU need to do the coal-hauling from the pit to the intermediate stockpiling facilities.
HPU has agreed to the activities mentioned in the contract and will mobilise the fleet and manpower upon receiving the notice from Cokal.
BBM Tenement Areas (Image Source: ASX Update 29 October 2020)
BBM Project Details
Cokal holds 60% interest in the BBM project located in Central Province of Kalimantan, Indonesia. The project is spread in 14,980 hectares of land. The BBM permit contains multiple high-quality coal seams. Cokal has provided full funding to 60% BBM over the last 10 years . Accordingly BBM owes Cokal cieca US$45million and accordingly 100% of the net cash flows will go to Cokal until this is repaid.
The entire tenement contains coal-bearing sediments with the open cut area well suited for mining activities controlled by three faults.
Cokal has secured mining license for the period of 20 years which can be extended up to 10 years twice during the life of the mine. The environmental regulation will allow Cokal to produce up to 6MT of coal per year.
Port construction and forest department approval for the mining activity has been already granted to the Company.
Other Major Project Details of Cokal
Tambang Benua Alam Raya (TBAR) Tenement
- Cokal holds 75% interest in the project. The project is located in Central Province of Kalimantan, Indonesia and spread over 18,850 hectares of land.
- The four seams in the tenement indicate 17km strike length with a vast resource of high-grade coking coal through the outcrop mapping.
- Cokal is working on the exploration plan to delineate resource base on the tenement.
- No exploration activity was done on the project during the September quarter.
Borneo Bara Prima (BBP) Tenement
- Cokal holds 60% interest in the project. The project is located in Murung Raya Regency of Kalimantan, Indonesia. The project spreads over 13,050 hectares of land.
- The Company has received the Exploration Forestry Permit from the government.
- Work plans and budget for the project has been submitted to the government and waiting for approval.
- No exploration activity was carried on the project during the September quarter.
Anugerah Alam Katingan (AAK) Tenement
- Cokal holds 75% interest in the project. The project is located in Central Province of Kalimantan, Indonesia and is spread over 5,000 hectares of land.
- The project is in the initial regulatory license phase. Cokal has applied for various approval and permits, and the same is under process.
Metallurgical Coal Outlook
According to Resources and Energy Quarterly report for the period ending 30 September 2020, the price of metallurgical coal has slid down in recent months and reached to the four-year low due to drop in demand because of ongoing COVID-19 pandemic. The demand for steel bottomed globally impacting the demand for metallurgical coal.
The demand is further forecasted to slide by 41MT to 296MT in 2020. The steel industry is expected to grow rapidly in 2021 and 2022. The boom in steel market will drive the demand for metallurgical coal and is expected to increase by 32 MMT in 2021 and further by 24 MMT in 2022.
Currently, CKA is in a comfortable position in terms of funding. The company has received a firm commitment for raising US$20 million in debt. Proceeds provided by China Railway 21st Bureau Group International Engineering Co., Ltd (“CR”) & Beijing Fidick International Trade Co. Ltd will be used for the development of the BBM Coking Coal Project. Total cash and cash equivalent at the end of the quarter has been US$0.11 million. In addition Cokal has a US$800,000 debt facility from Aahanna to bridge the gap to when the China Railway facility can be activated in early December 2020.
Share Price Movement
The Company closed the day trade at A$0.61 having a market cap of A$55.4 million as on 13 November 2020 (AEDT:02:14pm)