The sales agreement signed in October 2015 included delivery of coal from the proposed No. 1 mine, which is projected to produce 3.8 million metric tons (mt) per year. In February, the producer opted to develop No. 2 first after a scoping study determined that the 1.8-million-metric-ton-pear-year (mtpy) operation possessed a lower capex of $44 million.
Both mines are located in western Kentucky, within the Illinois Basin (ILB).
The amended deal is substantially the same as the prior one, with volumes and specifications remaining unchanged. LG&E and KU’s fixed sale prices have changed slightly to reflect recent sales data, officials noted, and the project development milestones and delivery schedule have been updated for the No. 2 mine.
Specifically, the contract outlines 4.75 million mt of 11,200 btu/lb product over a five-year period starting in 2018; the figure represents 60% of the No. 2 mine’s annual production over the course of the deal. The contracted fixed coal sales prices for Paringa’s 11,200 btu/lb coal spec in the new deal now begins at $40.50/t for the first 750,000 t of coal delivered, an increase to $45.75/t for the final 1 million t sold.
“The fact that LG&E and KU are prepared to sign this major amendment to our sales contract confirms their belief that we will become a significant new source of production in the Illinois Basin and confirms the quality of the No. 2 mine,” Paringa President and CEO David Gay said. “We are progressing rapidly with our bankable feasibility study on the No. 2 mine and have already identified significant reductions in our operating and capital costs, which have the potential to increase the value of the project considerably.”
The No. 2 mine is expected to start construction in the second quarter of next year and begin production by the middle of 2018. Prime production should be achieved in 2019.