Bathurst Resources is well placed to be producing several million tonnes of high quality metallurgical coal in New Zealand later this year.

The company, which is dual listed on the Australian and New Zealand stock exchanges, is developing the cost efficient, high quality Buller project on the West Coast of the South Island.

Poised to achieve its goal to become a significant producer, Bathurst is targeting annual production of 4Mt per annum from its coal mines in the South Buller and North Buller areas once developed.

The company’s key development at Buller is the Escarpment deposit on the Denniston Plateau, which is currently the subject of an environmental appeal by local entities after licences to mine at the site were granted in August last year.

Bathurst chief executive Hamish Bohannan said the company was confident it would be successful in cementing these permits despite the appeals process.

He said it would only be a “matter of months” for the mine to be in production once this process had been completed.

“We believe that with best practice mining and rehabilitation, combined with significant offsets to benefit the Denniston Plateau and areas of high environmental significance identified with local stakeholders, that we will retain the licences following this appeal,” Bohannan said.

“We would like to think that we are not too far away from a start to mining at Escarpment.”

The Buller region is recognised globally for its high quality coal.

Bathurst’s product is targeted by the Asian market for steel-making because it is low in ash, low in sulfur, has exceptional swell and fluidity, is very high in fixed carbon and is ideal for export metallurgical markets.

At Escarpment, Bathurst is targeting initial production of 500,000tpa of high-grade blend hard coking coal, which would later increase to 1Mtpa by the third year of production.

Despite Escarpment being the company’s primary focus, Bathurst became a producer of coal in the region in November last year through its Cascade mine, which sits adjacent to Escarpment on the edge of the Denniston plateau.

Cascade is an open cut operation that Bathurst plans to have producing at a rate of 150,000tpa of semi-soft coking coal for the local cement market and metallurgical coal for export.

Bohannan said that by producing at Cascade first the company was able to develop and establish its routes to the export market for when production starts at Escarpment.

“A vital aspect of any product today, but particularly coal, is having clear routes to market,” he said.

“We have a clear route to market and we don’t need to build any infrastructure – we are on a rail line and have direct access to two ports.

“We are comfortable with the existing infrastructure so that when our flagship project does come online we won’t have any infrastructure related delays.”

Adding further strength to its infrastructure in the region, the company has secured a block of land between the North Buller and South Buller areas where a single stockpile facility and coal processing plant for all of its mines will be constructed.

The company has also outlined plans to construct an aerial conveyor that will transport coal from the Denniston Plateau to this stockpile area.

The conveyor, which will cost $NZ40-50 million and will take up to 24 months to construct, will replace the trucking system that will initially haul the coal off the plateau.

Beyond Cascade, Bathurst is looking towards the pending start to production at the Coalbrookdale mine, an underground and potential open-cut operation it has targeted to produce 200,000tpa.

The remaining portion of Bathurst’s 2Mtpa target at South Buller is expected to come from Whareatea West, which is the company’s second major mine and is expected to produce 1Mtpa when in production in two to three years.

Overall, the company has established an 81.7Mt resource at Buller with what it believes to be significant exploration potential in the future.

Economically, the company looks set to benefit from the combination of a strong global coking coal market and low-cost environment at Buller.

In the first two years of production the company has forecast operating costs in the range of $US110-120/t.

However, it expects these costs to fall to $US80-90/t once the associated infrastructure, particularly the aerial conveyor, for the mine has been completed.

“At those costs with today’s prices at more than $US200 a tonne, that is a significant margin and is what makes this project so attractive,” Bohannan said.

Bathurst has also confirmed two offtake agreements for 67.5% of its coal over the first five years of production with Stemcor Australia and CITIC Resources Australia.

The agreements could be worth up to $US90 million, but the company does not intend to sign any further offtake agreements and instead plans to take advantage of the spot market for coking coal.

Bathurst’s subsidiary Eastern Coal, which was acquired from Galilee Energy along with the Cascade mine in March last year, has further operations in the South Island.

Eastern Coal’s assets include the small-scale Takitimu thermal coal mine near Nightcaps, the Ohai exploration permit, the Albury prospecting permit and a coal handling centre in Timaru.

Bohannan said the Takitimu mine provided the company with up to$NZ2 million profit each year.

New Zealand may be a modest producer of coal on a global scale, with annual production in the vicinity of 5-10Mt, but the country’s product does enjoy qualities found rarely around the world.

“The difference we have from other global coal domains is that New Zealand has a very high-quality metallurgical coal in this South Island district on the West Coast,” Bohannan said.

“Steel producers around the world recognise this coal when it arrives; it is a very clean coal, very high levels of fixed carbon and has excellent fluidity to blend into another coal, a thumbprint that clearly identifies the coal as being from South Island, New Zealand.

“It is that blending capability in this day and age that is so important. This coal is generally used as a sweetener.”

New Zealand, which is still recovering economically from the impact of last year’s earthquake in Christchurch, will reap a number of benefits through the development of the Buller project, according to Bohannan.

Bathurst expects the Escarpment mine to inject around $1 billion into the country’s economy over the first six years of production.

This would include more than $100 million each year in payments to employees, suppliers, contractors and transport providers. In addition, Bathurst expects to pay about $60 million each year in royalties and taxes and more than $40 million annually in salaries and wages.

The company has already committed to investing more than $30 million in the area on associated infrastructure, including a $10 million haul road, a $10 million water treatment plant and a $5 million upgrade to port facilities at Westport.

Hundreds of jobs will also be created in the local community, with Bohannan saying the company expects to lift its workforce from 100 to 400 as productions ramps up.

“We have already provided a boost to the local community and this will take it to another level,” Bohannan said.

*A version of this report, first published in the August 2012 edition of RESOURCESTOCKS magazine, was commissioned by Bathurst Resources