Australian Pacific Coal (ASX:AQC) is streamlining its portfolio to five core projects, with two being joint ventures that are providing considerable excitement about the coal junior.

Importantly in the current commodity and capital environment, AQC is fully funded to carry out value-adding drilling activity and geophysical work to prove up targets in prime locations.

The granting on May 1 of EPC2011 (exploration permit for coal), otherwise known as the South Clermont project, is the latest in a string of milestones for the company.

Initial indications about South Clermont are that it has the potential to be an open cut operation.

Under a JV agreement the tenement will be transferred to a new entity with AQC initially retaining 50% equity in the project and the project partners will provide the funding. AQC will be paid a monthly fee for services that it provides the operation over three years.

AQC CEO Paul Byrne said it’s a “great JV for the company”, not least of which because AQC controls the exploration side with an agreed budget and an agreed work program.

“We’ll be going full steam ahead on that now, getting on the ground and formulating a drilling program as quickly as we can,” Byrne told RESOURCESTOCKS.

“It’s a very exciting project for us.

“We’ve done a fair amount of desktop work on that already and we’re fairly confident that there is an extension of the Wolfang Basin, which forms part of the 12-million-tonne-per-annum Clermont mine operated by Glencore in a JV with several major players, including Japanese conglomerate JCOAL.

“If it is what we believe it is, it will be a fairly high-ranked export-quality thermal coal that you won’t have to wash and with the hundreds of millions of dollars’ worth of infrastructure in place there, and the shutdown of the Blair Athol mine, there is certainly some spare capacity there.

“We’re really going to fast-track that project and we’ll have the funding available to do it.”

Another major string to AQC’s bow is its 100%-owned Cooroorah project, which has a 107Mt indicated and inferred JORC resource, targeting PCI and semi-soft coking coal, critically located near the rail network and developed infrastructure.

Cooroorah will be a shallow underground mine between the operating Jellinbah open cut mine to the east and the Curragh open cut to the west, where the ground abuts a recent acquisition by Wesfarmers. Wesfarmers bought Mineral Development Licence 162 for $70 million from American company Peabody Energy in January.

“We have previously identified a potential opportunity for the expansion of our Cooroorah underground project into neighbouring MDL 162,” Byrne said.

“The acquisition of MDL 162 by Wesfarmers may enable a mutually beneficial agreement to be reached in due course.

“We’ve done a lot of modelling on how we may best develop that Cooroorah resource with a partner and we’re talking to other companies in the general vicinity. There is certainly more scope to discover further ore there and that’s our intention some time later this year.

“Our own exploration over the coming year is focusing on our Clermont, Bluff, Dingo and Carlo Creek projects.”

AQC recently completed drilling at its Dingo project, targeting Rangal coal measures, which is on the main railway line 30km east of operating mines at Blackwater and Curragh.

The company’s infill drilling program at Dingo is to elevate the project to a JORC resource.

The Dingo project abuts the ground where Bandanna Energy has a resource at Dingo West, which has an identified inferred resource of 91.1Mt of coal.

“From what we can see, the geology at our Dingo project is a very similar type of structure to what Bandanna has,” Byrne said.

“We are getting some very good intersections there and are having coal quality data analysis done on that and those results will come to hand soon.

“We’ve done a drilling program on Carlo Creek and

although we’ve hit coal in the first hole, we hit sporadic coal in the other holes we drilled there, so we need to do a bit more work out there to find out how it works geologically.

“We did note up there that there are other companies drilling in tenements that abut us, so we’re in discussions with our neighbours on how best we might be able to do a joint drilling program to further examine the potential of that project.

“Given the difficulties in securing cash for exploration activities in today’s market environment, we have entered into an exploration agreement that will enable our drilling partner to earn an equity interest in Dingo and Carlo Creek.”

Another major project of AQC’s that is tracking nicely is its JV with giant Rio Tinto in the Mt Hillalong tenement, where Rio is planning the next round of drilling.

“That project is one of our priorities,” Byrne said.

“That transaction was done at the top of the coal market, so it’s still very much on track. They’re drilling a number of targets in that area. Hail Creek is one of their premium-quality coking coal mines, and the feedback we’re getting from Rio is that it’s all systems go in that project.”

Amid all of this, AQC has been looking to relinquish a number of projects that don’t quite stack up to save money for the company, and to remain focused primarily on the Rio project, South Clermont, Cooroorah, Dingo and Carlo Creek.

“The balance of the projects that we have in the company, other than the 10% JV with Cuesta Coal, are projects that are ‘second tier’ now and ones that we are likely to ultimately relinquish,” Byrne said.

“All in all, I believe the future for us is looking bright through those two key projects – the Rio Tinto JV and South Clermont. I would hope to be able to say before the end of calendar year 2014 that we’ve drilled a number of holes at South Clermont and it could be a very, very exciting project for many reasons.

“The main reasons are where it is located, the infrastructure in place, the ability to get access to infrastructure and if we’re lucky enough, to hit the mammoth seam that’s there which could be greater than 40m thick.

“There are some shallow coal seams that sit above that; there has been some direct drilling done, which suggests that we’re in the right sequence.

“We’ve done a fair bit of gravity work on it and we’re using a number of other geophysical tools to assess the target before we start drilling.

“That will certainly be an exciting project for Australian Pacific Coal, as will the other ones.”

As for the coal price, Byrne says it’s inevitable that it will bounce back.

“Undoubtedly the coal market will bounce back. It’s an integral energy product that has global demand and from what I read, see and what people tell me who know a lot more than I do about the subject, I think it’s just a moment in time where the market is repositioning itself,” he said.

“The market will certainly come up – the demand is too great, the infrastructure we have in Australia and the quality of our coal would suggest that people are going to buy it and they’re going to pay a reasonable price for it.”

*A version of this report, first published in the June/July 2014 edition of RESOURCESTOCKS magazine, was commissioned by Australian Pacific Coal.