While much of the hype in the Australian coal market centres on the emerging Galilee Basin, East Energy Resources has looked two steps ahead of its counterparts to focus on the next high-profile coal region.

And the move by the Australian explorer looks set to pay off, as the company is expected to announce a revised JORC indicated and inferred resource in the third quarter of 2012 at its Blackall project in the Eromanga Basin in central Queensland.

The exploration program, which began in 2008, included drilling in excess of 350 exploration holes on the tenement, and is predicted to meet East Energy’s target of 1.8-2 billion tonnes of open-cut mineable thermal coal.

East Energy Resources managing director and chairman Mark Basso said he envisaged an open cut thermal coal mine with a 15-20 million tonnes per annum production target over a 30-year mine life.

“We are the first cab off the rank in the Eromanga Basin, which is a fairly new area as far as mineral discoveries go, so we will be the first player in the region to get up with a rather large JORC indicated and inferred resource,” Basso told RESOURCESTOCKS.

“The volume of coal we have is substantial and it’s all open cut mineable. Several explorers in the Galilee Basin are announcing substantial discoveries but they require underground mining for a large portion of the resource.

“We have purely targeted resources that are suitable for open cut mining with a cut-off depth of approximately 150m.”

Exploration on the Blackall tenement has primarily focused on two fields, Carlow and Alambi. The the tenement itself covers about 900sq.km of the Eromanga Basin.

A Xenith Consultancy study released in April 2011 found the Carlow field held a JORC indicated resource of 469Mt and an inferred resource of 280Mt of thermal coal.

East Energy has since found that the mineralisation extends from Carlow to Alambi.

And there is still further potential to the Blackall project, with past exploration campaigns carried out by East Energy only covering about 50% of the tenement.

With a cut-off depth of 150m, there is also the probability of mineralisation extensions further underground. For now, East Energy is focused on open-pit mining.

Basso said the coal quality at the Blackall project was suitable for thermal power projects in power-hungry countries such as India and China.

Basso said he expected the Galilee and Eromanga basins to play a crucial role in supplying thermal coal to these countries as demand increased and expansion capabilities from traditional coal regions, such as Newcastle and South Africa, remained limited.

With exploration wrapped up, East Energy is now turning its attention to development.

“We have finished as much exploration work as we want to at the moment so we are turning our attention to infrastructure studies,” Basso said.

“What we will move onto is a scoping study, looking at predictive costs for extraction of the coal, transport costs, port costs, etcetera.”

East Energy is looking to take advantage of the rail system proposed for the nearby Galilee Basin.

To transport its coal to market, the company proposes a 280km rail line from its Blackall tenement to link into the Galilee rail line which will run to the Abbot Point coal terminal on Queensland’s central coast.

“We are looking at a rail link from our site, but not just for East Energy – it could also serve other players in the Eromanga Basin,” Basso said.

“Some other players have just kicked off exploration programs around our tenement and a few have contacted us to ask if we can work together on rail.

“We are more than happy to team up with other miners in the area because the more people who work together, the more feasible it is to get the infrastructure built.”

East Energy has undertaken discussions with several companies that are planning to construct a new rail line from the Galilee Basin to Abbot Point.

Basso said the responses were all-round positive.

“We have been keeping a close eye on what the other players are doing upstream from where we are, those miners in the Galilee Basin, to see how their projects are developing and watching their approval processes,” he said.

“The company most advanced in the Galilee Basin is GVK Hancock. They recently obtained state government approval for their project, which is a great achievement.”

While Basso admits East Energy’s project is somewhat reliant on the Galilee rail system, he doesn’t expect the company to encounter major problems with rail access as developers appear to be keen to accept additional tonnage down the line in order to maximise their return on investment.

With the conclusion of the company’s most recent exploration program, East Energy is now pursuing a number of critical milestones to advance the Blackall project.

Among these is to gain its mineral development licence, which the company lodged earlier in the year, to commence work on a scoping study and to secure port capacity at Abbot Point coal terminal.

Despite some initial minor delays with the Galilee to Abbot Point rail line – as can be expected when several billion-dollar miners are jostling for their stake – Basso believes it is only a matter of time before the infrastructure is commissioned and built, particularly given there is more than $30 billion of projects proposed for the region.

And when construction ofthe line begins, it will provide East Energy with the surety to make investment decisions for the Blackall project.

“I believe that it’s just a matter of time before the Abbot Point to the Galilee Basin rail line starts to be built, and the day that happens we can get more serious about our infrastructure,” Basso said.

“With our JORC resource tonnage versus our market cap, there is a massive discrepancy against most other coal explorers in the market.

“I would think once there is an infrastructure solution in place there is the ability for a substantial gain in our share value.”

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