The Duchess Paradise project is part of the explorer’s wider Canning Basin coal project and has 35.2Mt of measured resources, 143.6Mt indicated and 331.5Mt inferred, from two thermal coal seams, P1 and P2.
The prefeasibility study confirms the best approach is an initial 2Mt per annum trench highwall mining operation.
Mining will target the measured and indicated resources using highwall miners working within a series of trenches cut into the P1 seam from the outcrop.
When the coal has been washed onsite, Rey will truck it 180 kilometres to its wharf at Derby, then barge it to ships for export.
Capital expenditure is estimated to be $A130 million, including the $10 million slated for the definitive feasibility study, $31 million for the wash plant, $28 million for highwall mining equipment and $12 million for a mine haulage road to link up with the Great Northern Highway.
Rey aims to use contractors to take care of the trucking operation.
The highwall mining is expected to reach 2.5Mtpa of run-of-mine coal production at an average quality of 5528 kilocalories per kilogram on a gross as received basis.
Rey expects sales to total 15.9Mt over a mine life of eight years for this type of mining.
Cash costs are expected to reach $A60 per tonne, free on board, with payback for the development expected in 2.0-2.5 years if the Australian dollar is in the US80-90c range.
Cash flow is estimated at $A42-61 million per annum.
Using funds from a capital raising in December, Rey will kick off its DFS after it finalises the team to undertake the studies.
The DFS will cover reserve definition, engineering and hydrological drilling, combustion testing, along with environmental and marketing studies.
The explorer will apply for a mining licence and is continuing the environmental and community consultation.
Rey will also start an 18km exploration program along a predicted outcrop to the north of Duchess Paradise to find more surface coal.
Coal found in this area would also be closer to Great Northern Highway, reducing transportation costs.
Drilling is expected to start in April/May after the necessary approvals are received.
Underground opportunities
The prefeasibility study investigated underground coal mining options to follow the 20Mt of highwall mining.
Bord and Pillar mining is forecast to result in a 2Mtpa ROM operation with cash costs of $A63/t FOB at a $167 million capex.
Longwall mining is projected to produce 4.4Mtpa of ROM coal and 3.2Mtpa of product coal with lower cash costs of $48/t FOB but at a higher capex of $579 million.
Both underground options are expected to have a mine life of 21 years.
“The conceptual underground mining cases examined suggest that positive financial returns can be generated before taking into account the required new transport infrastructure,” Rey said.
“When transport infrastructure estimated at $206 million is included, the conceptual studies demonstrate that a scale of above approximately 6 million tonnes per year is required to generate economic returns.”
Additional conceptual studies are required before Rey will launch a separate DFS into future underground mining.
New South Wales coking coal producer Gujarat NRE Minerals has extended its offer for Rey shares, at 9c per share for the cash option, until February 19.
Rey shares shed 1c to 18.5c this morning.
