The LG&E/KU contract covers an initial two-year construction period — 2016 and 2017 — for the mine to be located near the Green River along the Hopkins County/McLean County border, plus a five-year production period from 2018 through 2022.
LG&E/KU, subsidiaries of Pennsylvania’s PPL Corp., are two of the largest fuel buyers within Paringa’s target Ohio River market. The two utilities serve more than 1 million customers and own about 8,000 megawatts (MW) of mostly coal-fired generating resources.
Buck Creek 1 is expected to produce about 3.8 million tons of western Kentucky No. 9 coal annually, with estimated total operating costs of $29.37/ton and average sales prices received of $45.99/ton in fiscal year 2018 and $55.63/ton in fiscal year 2035, according to results released in December from its bankable feasibility study. The mine has an initial marketable reserve of approximately 83 million tons of coal, enough for at least an 18-year life.
David Gay, Paringa president and CEO, said the study confirmed the mine “will be a world-class, low-capex, high-margin coal mine, and will generate EBITDA of more than $87 million per year, even at current depressed coal prices.”
Perhaps just as important, he said, the study concluded it will cost about $105 million to construct the mine, considerably lower than a previous projection of $127 million.
The company said it is in advanced discussions with equity and debt financiers and expects to close on financing for the new mine in early 2016. A roughly 18-month construction period then will begin with the mine up and running in late 2017 or early 2018.
With the required environmental permits already in place for Buck Creek 1, the study was in the final stage before the start of construction, Gay noted.
Paringa said it hopes to secure additional sales contracts by participating in ongoing and future coal solicitations by utilities in the region. In addition, the company “will assess opportunities to sell coal into a secondary target eoutheast market, which is a growing market for Illinois Basin coal,” it added.
Parringa has begun to assess opportunities to incrementally expand production at the Buck Creek complex, and results of a “scoping study” for a proposed Buck Creek No. 2 underground mine are expected to be released soon.
Buck Creek 2 would be somewhat smaller, producing about 2 million tons a year. It has not yet been fully permitted.