It’s the quality of the coal that sets the company apart and has seen it attract huge interest from investors and offtake partners in the past year.

Bathurst’s flagship Buller coal project comprises 10,000 hectares on the Denniston Plateau in the northwest of New Zealand’s South Island.

Buller boasts a 72.8 million tonne resource.

Bathurst managing director Hamish Bohannan said the project had the potential for 100Mt of recoverable coal.

First production, at a rate of 1Mt per annum, is scheduled to start at the end of this year, increasing to 4Mtpa from 2015 as a second mine at North Buller is bought into production.

“The big thing is that this coal on the plateau is generally very high quality,” Bohannan said.

The Buller project itself comprises a major exploration area, which has six different mining target areas.

The recent acquisition of the Eastern Coal Group from Galilee Energy gave Bathurst an operating thermal coal mine, but more importantly gave it control of the Whareatea West Block on the plateau.

The more recent Brookdale acquisition includes licensed permits between its Escarpment Block and the proposed washplant site. The Buller project lies between existing mines, including state-owned Solid Energy’s flagship Stockton operation, located in the middle of the plateau.

The calibre of Stockton coal gives an indication of what Bathurst will be producing.

Solid Energy’s Stockton coal, up until this year, had been sold raw as it is of such high quality and contains very low levels of impurities that it has not required washing. Bathurst aims to have about 80% of its production as export coking coal.

“So New Zealand is a very modest, but high quality exporter. The downside is that only a few steelmakers have seen this New Zealand coal,” Bohannan said.

“But the people that have seen it recognise its strong qualities. It’s got high swell and fluidity, high levels of fixed carbon and low levels of impurities from sulfur, ash and phosphorus.”

And the proof is in the pudding, with two offtake and financing agreements already signed.

The first is a memorandum of understanding with Stemcor Australia, based on an agent and principal structure.

The five year agreement involves Stemcor taking 45% of the first 1Mt of production and 30% of anything greater. Once Bathurst is producing at 2Mtpa, the MoU entitles Stemcor to 37.5% of output.

The agreement came with a $US50 million finance facility.

The second agreement, a non-binding term sheet with CITIC Resources Australia, involves CITIC acting as principal for 30% of annual production for five years. It came with a finance facility for $US40 million.

Bohannan said key to the agreements was the fact that Stemcor and CITIC were brought in as partners and did not acquire equity.

He also noted that the deals gave Bathurst the option to sell more than 30% of production into the spot market.

“So we’re basically fully funded. We’ve got $90 million in the bank and $90 million by way of facilities,” Bohannan said.

“Our capital spend up front is about $60 million and we have final payments to make for the acquisitions; $40 million when we start production and $40 million when we produce our millionth tonne.”

Part of the capital spend will be on a washplant, which Bohannan said would treat half the coal produced for quality assurance and consistency purposes.

“That is really to ensure that we maintain standards,” he said.

“If you’re going to advertise yourself as a high quality producer, you need to ensure that you can deliver.”

Currently Bathurst is producing small quantities of thermal coal from the Takitimu and Cascade mines, to the south of its main landholding. Coking coal production will begin in December.

“As far as the broader development plan goes, the environmental approvals process is still ongoing,” Bohnannan said.

“But our options are open. If there are delays in the licensing for the washplant, we can just produce from the high quality resources to begin with.”

The initial licence covers three areas. These are approval for the washplant, the first mining area at Escarpment and the stockpile and railroad out.

“We need an environmental licence and that is granted by the two councils in the area – the Buller District Council and the West Coast Regional Council,” Bohannan said.

“Then we have a landholder agreement with the Department of Conservation, who is the landholder in this case, from whom we need an access agreement.

The application for this has been submitted and the department is considering the application.

“The third licensing component, also handled by the Department of Conservation, is a concession agreement.”

The nearby town and main service centre of Westport has a century-long history of coal mining.

Bohannan said the population was looking forward to the benefits that the Buller project would bring to the area.

Bathurst will bring modern, open cast mining techniques and a commitment to the highest levels of environmental management and community engagement.

“There is a chance that someone may appeal the hearings and it may be delayed but the likelihood is that it will be approved, it’s just a question of when,” he said.

The export options for Bathurst are significant.

Free capacity at Westport is 1Mtpa, and with minor upgrades this could be taken to more than 2Mtpa.

The other option is to rail through the Alps to the east coast port of Lyttelton.

There is currently 3Mtpa of free capacity on the rail route, which could be further upgraded if ever needed by electrifying the tunnel.

Bathurst recently signed an agreement with Solid Energy to ship up to 25% of its coal through the Alps to Lyttelton.

With the choice of two ports, rail infrastructure in place, offtakes signed and a near-term view to production, the Bathurst story has not been lost on investors.

After storming into the S&P/ASX 200 index in June, Bathurst was the highest riser among Australia’s blue-chip stocks in the 2010-11 financial year, with a share price increase of more than 500%.

Now, on the precipice of game-changing production, it is attracting interest from funds and institutions, which will drive the share price higher.

“What the market needs to understand is that we are not dependent on acquiring these environmental licences at Buller and have other paths to production,” Bohannan said.

“We have blocks of mineralisation that we are going to start high quality production from this year.

“We’re putting our best foot forward to move into

production as soon as we can.”

*A version of this report, first published in the September 2011 edition of RESOURCESTOCKS magazine, was commissioned by Bathurst Resources