Determination of Feasibility Stage Coal Price

Released : 17 June 2016

RNS Number :

Oracle Coalfields PLC

17 June 2016



17 June 2016

Oracle Coalfields PLC

("Oracle" or the "Company")

Determination of Feasibility Stage Coal Price

Oracle Coalfields PLC (AIM:ORCP), the UK energy developer of a combined lignite mineral resource and mine mouth power plant located in the Thar desert in the south-east of Sindh Province, Pakistan, announces that the coal price, based on the mine feasibility study, has been determined by the Thar Coal and Energy Board ("TCEB"),  Government of Sindh, at an average price of US$60.23/tonne for an annual production of 4.0 million tonnes per annum.

Highlights :    

·     Coal price regulated at an average of US$60.23/tonne over the thirty year period of the lease for a 4.0 million tonne per annum mine;

·     Mine capital costs (including financing costs) reduced from US$879 million, as included in the original coal price petition, to $673 million, as determined by the regulator;

·     70:30 debt to equity financing structure permitted;

 Shahrukh Khan, CEO of Oracle, said :

"The determination of our coal price by TCEB is an important milestone for the Company and represents the latest step towards our goal of developing a producing mine capable of supplying indigenous coal.  The regulated coal pricing mechanism that applies to Thar coal isolates the project from the price fluctuations of internationally traded coal and provides an element of certainty to the equity investor. 

"We thank the relevant authorities in Pakistan for their work in determining our coal price.  We remain steadfast in our determination to develop a long term sustainable solution to the acute shortage of power in Pakistan.

"I look forward to updating the market on further progress in due course."

To encourage the development of the major coal resource discovered in the Sindh Province, the Government of Sindh has put in place fiscal incentives that include a cost-plus arrangement, under which holders of mining leases in the Thar desert are allowed a coal price and electricity tariff that give a US Dollar based project internal rate of return of 20%. 

On the basis of this determined coal price, the Company will proceed to apply to the National Electricity Price Regulation Authority for an initial electricity tariff for the power plant. To ensure that the internal rate of return is sustained throughout the thirty year lifetime of the project, the Thar Coal Tariff Determination Rules 2014 (the "Rules") allow for further coal price petitions as costs change. These can be submitted at:

·     Contract Stage, when the Engineering Procurement and Construction (EPC) contract price is agreed with the mining contractor;

·     Financial Close, when all costs of finance have been agreed; and

·     Commercial Operations Date and periodically thereafter through the lifetime of the project, to reflect actual costs. 

The electricity tariff is adjusted through a similar process, on the basis of the changing coal price and other input costs, to also maintain the allowed internal rate of return.

The price as determined by the TCEB is lower than the original price petitioned by the Company ($76.48/tonne).  This is due to the TCEB applying lower capital and operating costs than presented in the Company's original petition.  Financial close is to be achieved on or before 31 December 2016 for this feasibility stage tariff to remain valid. The Company is confident that, if the need be, it can ask the TCEB for an extension of this date. When capital and operating costs are finalised with the mining contractor, a Contract Stage petition will be submitted so that the coal price is adjusted to maintain the allowed project internal rate of return of 20%. 

In addition, further to the announcement of 3 June 2016, the Company is continuing to progress matters in relation to the Shareholder Framework Agreement, which is subject to conditions precedent, which include inter alia the finalisation of terms sheets in respect of the EPC and Operation and Maintenance contracts for both the mine and power plant, completion of an environmental and social impact assessment and submission of an electricity tariff petition for the Power Plant. The Shareholder Framework Agreement will enable the parties to enter into a shareholder agreement, subject to the satisfaction of the conditions precedent. The Chinese partners are leading discussions on financing with Sinosure, the Chinese Export Credit Corporation. The Company will make further announcements as matters progress.

The detailed Determination can be viewed on the Company's website, www.oraclecoalfields.com.

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