Coal developer Cuesta Coal is well positioned for a big year in 2014, having achieved a series of milestones in 2013 that have the company on track to successfully produce first coal by 2016.

A close look at the company’s major backers will show Beijing Guoli Energy Investments subsidiary Longluck Investments has been on Cuesta’s share registry since it listed in 2012 and owns 36% of the company as its top shareholder.

More recently, Hong Kong-based mining investment firm Hanford Holdings was brought on board, having invested $8.5 million for 19%, while Cuesta’s management has 12.5%.

Cuesta completed the second tranche of the Hanford Holdings transaction the day founder and managing director Matthew Crawford spoke to RESOURCESTOCKS in late December.

So when Crawford declared “we’re a cashed-up junior, which is pretty rare at the moment”, it’s a significant statement, especially in the current market where many juniors are struggling to keep the lights on, let alone being able to actively progress their projects towards production at the same rate as Cuesta.

“We’re a well-funded junior with two large Chinese cornerstone investors to underpin our capital requirements for all development moving forward,” Crawford told RESOURCESTOCKS.

“It is very beneficial to have the two major Chinese investors on board because they understand the mining industry and the coal market. We will also be assessing a potential offtake agreement in the next six months.

“The process will include discussions with Beijing Guoli and they will have some important negotiating influence and substantial contacts in China.

“Having two substantial Chinese shareholders on the board as part of the company has also given us a really good insight into what’s happening with coal demand in China. It’s actually a big benefit in understanding the demand cycles for coal.”

For the past 12 months Cuesta has been focusing on its flagship Moorlands thermal coal project in Queensland. It completed a 50-hole exploration program prior to this edition of RESOURCESTOCKS coming out in February and this program will allow Cuesta to move into a bankable feasibility study in the first quarter of 2014.

In the lead up to the BFS, Cuesta has completed a scoping study that revealed the details of a 1.9 million tonne per annum open cut mine at the proposed Moorlands South Pit for at least 30 years.

“The key drivers for the economics are a low stripping average of 3.2:1, excellent yield of around 90%, which gives us a free-on-board cost of $63 per tonne excluding royalties. So we’re definitely in the lower quartile,” Crawford said.

The project’s development capital costs are estimated at $148 million including the coal handling and preparation plant, rail spur and train load-out facilities.

Importantly, the project is in close proximity to existing infrastructure as it is well-placed in an active coal mining region.

Speaking of which, there has been significant corporate activity in Cuesta’s neighbourhood in recent months.

A joint venture between Glencore Xstrata and Sumitomo spent more than $1 billion acquiring a 50.1% stake in the 12Mtpa a Clermont coal mine from Rio Tinto. Having started production in 2010, it has a remaining mine life of about 13 years.

In addition, rising Australian company Linc Energy acquired the old Blair Athol mine, which is only 14km from Cuesta’s Moorlands project.

Blair Athol has 46.1Mt of JORC resources and 11.3Mt JORC reserves. Linc has proposed to recommence production in June 2014, with mining having ceased in November 2012. To put the neighbouring Blair Athol project into perspective, Linc had the asset valued at $181 million in November last year.

The bonus is that Cuesta’s Moorlands project has very similar coals to both Blair Athol and Clermont.

“It gives the company quite a bit of confidence that majors like Glencore and Sumitomo would invest in the region,” Crawford said.

With a number of burgeoning projects in close proximity, the infrastructure options for Cuesta are plenty and will make life significantly easier once its flagship project comes online.

The potential also exists for the company to leverage off existing rail loop infrastructure at Blair Athol. There is a dedicated train load-out, rail loop and spur connected to Wotonga-Blair Athol branch, plus a private 11km haul road to haul coal to train load-out so haulage options can be optimised.

Coal can be railed to Dalrymple Bay coal terminal or Abbot Point coal terminal.

Cuesta is also in negotiations to secure long-term port allocation from the existing user at DBCT.

The company is also evaluating port allocation options beyond 10 years, which speaks to the substantial potential of Moorlands.

Importantly, Cuesta has representation from its major investors on the board and has beefed up its in-house personnel to get the job done.

In the past 12 months, Cuesta appointed Brian Johnson as non-executive chairman.

“We appointed him because he’s been involved in a number of resource start-up companies where mines have been brought into production, founding Mt Gibson Iron, Portman and he was a major shareholder and chairman of South Blackwater Coal in the 1980s,” Crawford said.

Keith McKnight and Crawford are the two founders and executives on the board, while Megan McPherson has been chief financial officer since the company was listed in 2012.

Just over a year ago Cuesta also brought in Blair Richardson, an experienced coal executive in Queensland, as general manager of exploration and development.

Richardson and McKnight are heading up the development of Moorlands and Crawford said the pair were working extremely well together and had a good team under them.

Richardson has been involved in a number of mine start-ups for New Hope Coal, Rio Tinto and BHP Billiton, so has significant experience to meet the demands of bringing Moorlands into production.

Cuesta also has a JV with QCI, a wholly owned subsidiary of Hancock Prospecting, in a Snake Creek JV in the Eastern Galilee Basin. As part of the deal QCI will spend $3 million to earn 51% in two projects.

With the BFS scheduled to commence at Moorlands in early 2014 the company is hoping to obtain the mining lease in 2015 then produce first coal in 2016.

Another major milestone due for completion in 2014 will be the delivery of an expected resource increase in Q1 from its 2013 exploration program undertaken at Moorlands.

“The exploration we’ve completed in 2013 was designed to define an indicated resource over the entire deposit,” Crawford said.

The Moorlands deposit is divided into the North and South pits, with Cuesta having undertaken infill drilling between the two deposits, which will form the basis of the anticipated resource upgrade.

Crawford said the south pit had the lowest stripping ratio of any coal project owned by an Australian junior.

Importantly, the CHPP will be located adjacent to the pit, with an impressive expected overall yield of 90%, a very high recovery rate which means there is little loss of coal.

South Pit has several benefits, according to the recently completed scoping study.

The cumulative coal thickness is up to 40m with an average of 25m, it has shallow coal in thick seams amenable to simple truck and shovel mining operation, it has a simple mine schedule – north to south mine plan minimising out of pit dumps – and a mine design that minimises rehabilitation liability at mine closure.