Already, at 1.6 billion tonnes, the company has one of the state’s largest JORC-compliant resources and now is keen to shed the explorer tag and assume the title of an asset developer and producer.
“We are going through a transition phase from being an explorer to becoming a developer and producer of coal,” former Bandanna Energy managing director Ray Shaw told RESOURCESTOCKS.
Bandanna holds 16 exploration permits for coal in the Bowen and Galilee basins in Queensland.
Starting out as Enterprise Energy, it acquired the issued share capital of Bandanna Coal in 2008.
It now holds one of the largest thermal coal inventories of any exploration company and is an ASX 300 company.
And what could nudge it from being an explorer to producer is the recent port allocation in Stage 1 of the Wiggins Island coal export terminal, in which Bandanna is a 14% shareholder.
“The gatekeeper of that transition is that we have received a 4 million tonne allocation in Stage 1 of the new Wiggins Island coal export terminal currently being constructed at Gladstone,” Shaw said.
That project will see a new port built with a capacity of 27Mt per annum between now and middle of 2014, by which time Bandanna is hoping to produce and export coal from its Springsure Creek mine in the Bowen Basin.
Bandanna’s other key projects in the Bowen basin include Dingo West, Arcadia and Arcturus. In all, it has a 100% interest in a total JORC resource of more than 1000Mt.
“The balance of our JORC inventory is held at Galilee Basin, where AMCI has farmed in and earned a 50 per cent interest in four tenements,” Shaw said.
And with tenements in two premier coal producing areas of Queensland, Bandanna has a lot going for it.
“Bandanna is the only ASX-listed company that has exposure to future development in the Galilee Basin and in the Bowen Basin, where we have significant mine development plans.” Shaw said.
It has already undertaken prefeasibility studies in the Galilee Basin and is currently involved in definitive feasibility studies for two of its projects in the Bowen Basin.
Shaw said that as a priority, the company was keen to develop Springsure Creek, an underground longwall operation, and the Dingo West project, which is an open-cut pulverised coal injection (PCI) product mine where initial production will be up to 1Mtpa.
“Springsure Creek is initially at 4Mtpa and it has a potential to increase to well over 10Mtpa, with a second longwall. But any future development will be dependent on additional port allocation,” Shaw said.
Bandanna has already lodged an expression of interest for further stages of Wiggins Island development; for a 5Mt allocation in the next stage and a 7Mt allocation in Stage 2B.
“By comparison our other definitive feasibility study is being undertaken at Dingo West, which is a smaller project with fewer infrastructure hurdles,” Shaw said.
“So its quite a small project and the cost structure is quite modest but the overall project is very attractive given the premium paid for PCI coal.”
While Bandanna was successful in securing allocation to export its Bowen Basin coal through Stage 1 of the Wiggins Island port development, it has been less fortunate with efforts to get an allocation for the Galilee Basin coal.
Bandanna was turned down as a preferred developer for a 15Mtpa allocation at the Abbot Point coal export facility, with other coal majors being named as preferred parties because they sought full 30Mtpa berth capacities.
Allocation there would have brought it a step closer to monetising its Galilee Basin assets.
“We are currently in discussions with a number of preferred parties and we believe we will be able to get desired allocation through future negotiations with one of these preferred parties,” Shaw said.
However, Shaw acknowledged that port allocation and building of an approximate 500km new rail corridor to connect the Galilee Basin with Abbot Point was the key to starting operations there.
“Typically, most rail networks don’t have under-utilisation, so if you are building a new port that is going to require some 25 to 30 million tonnes of additional throughput per year, then the rail operator will need to invest in upgrades to facilitate additional coal movements through the new port,” Shaw said.
He said that for Wiggins Island allocation, Bandanna and the other parties involved in the port development entered into an agreement with Queensland Rail, which agreed to spend $A900 million in upgrading the main rail corridor, called the Blackwater rail corridor.
But by Shaw’s own admission, the Galilee Basin is a “different kettle of fish.”
Bandanna’s tenement is south of Clive Palmer’s China First coal project, which is again immediately south of Gina Reinhart’s GVK project, and all the major proponents are looking to take the initiative in developing key infrastructure.
And with Clive Palmer’s rather public stoush with QR, clarification on rail corridor development doesn’t seem imminent.
But for the moment Bandanna is focused on the Bowen Basin and will complete an environmental impact statement this year for both Springsure Creek and Dingo West.
Meanwhile, Bandanna is also assessing potential joint venture partners for its key projects ever since a formal process to sell down some assets, run by UBS, was abandoned late last year after the global macro-economic sentiment turned for the worse.
“We have a lot of assets and tenements and clearly can’t develop all of them in parallel and on our own.” Shaw said.
“So earlier last year we looked at rationalising our holdings – either through introducing other parties or selling some of our non-core assets.
“However, the rapid deterioration of the global macro-economic conditions during July/August thwarted our completing this process.
Instead, the company tapped the capital markets and raised about $100 million and since the start of this year has engaged potentially interested parties for a possible joint venture.
“The levels of interest has been quite high, particularly since we announced that we had financial close for Wiggins Island and that we had both a port and rail solution in place for our Bowen Basin assets,” Shaw said.
Shaw noted that the company was well capitalised in the near term for its exploration work and would not be tapping the markets for additional funding, instead focusing on funding solutions involving the introduction of strategic third parties.
“What we are looking for in our JV, is to get an outcome for our funding solution for our mine development capital requirements. We have indicated that Springsure Creek will cost $700-750 million to develop the first longwall and that is a substantial amount of money.”
And with Shaw confident that a deal on a project partner could be reached “in a few short months,”
Bandanna could soon be assuming the mantle of a coal producer.
