Australia’s Cardno Inc., which conducted the study for Paringa, projected a total initial capital cost of $127 million to develop Buck Creek, which would be located along the Hopkins County/McLean County border and produce about 3.8 million tons annually from an estimated reserve base of 62.6 million tons of western Kentucky No. 9 seam coal. Included in the infrastructure costs is roughly $33.9 million to construct a 700-tons-per-hour on-site coal preparation plant and $4.7 million for a barge load-out facility.
David Gay, Paringa’s CEO, said the study “has confirmed that the Buck Creek No. 1 mine is a strategic, high margin, low capex asset located in the heartland of the Illinois Basin coal industry, one of the world’s best mining jurisdictions.”
Paringa, he added, is in “an enviable position in that we have a low capex and permitted coal project with steady-state annual production of 3.8 [million tons a year] that generates strong EBITDA margins of circa 35% in the current market, with further potential for the project’s strong financial returns to materially improve as domestic and international coal markets recover.”
The study estimated the initial mine — Paringa is considering eventually developing two or even three deep mines as part of the complex — would have average operating costs of $30.19/ton. In 2018, when Buck Creek 1 is slated to begin production, the mine’s coal is expected to receive a price of $47.36/ton, the study said, rising to more than $63/ton in 2030. Buck Creek 1 has a projected life of 18 years.
Based on latest available data, the study indicated Paringa’s target market, largely electric utility power plants along the Ohio River, received more than 50 million tons of coal in 2013. The study said latest available 2014 data also indicated the average delivered cost of coal (at the plant) for Paringa’s target market was $53.18/ton, which is equivalent to a natural gas price of $2.29/mmBtu. “Direct access to Illinois Basin coal via river transportation provides significant cost advantage to these coal-fired power plants,” the study said. “The cost of coal transportation via barge using the major waterways in the U.S.,” the Ohio River, for example, “is significantly lower than the cost of transporting coal via rail.”
Gay, a former executive with Alpha Natural Resources and the Pittston Group, said his company now will proceed to the financing phase of the project.