Duchess Paradise Project

The Duchess Paradise Project is a notional coal project in north-west western Australia which has been touted by Rey Resources as a possible export thermal coal operation comprising open cut and underground mines. The company states on its website that it is considering a 2.5 million tonne per annum (Mtpa) "over an initial 10 year mine life".

Rey Resources has proposed that coal be trucked approximately 140 kilometres from the mine to the Derby Export Facility, a mothballed lead and zinc exports jetty. The company proposes that coal be loaded from a stockpile via a conveyor to a barge loader and then to barges capable of carrying 8,500 tonnes each. The company then proposes that the barges be towed approximately 12 nautical miles to an existing vessel mooring point in King Sound.

In March 2013 Rey Resources announced that, in return for an investment of $3.03 million by the Hong Kong "investment company" Crystal Yield Investments, "been granted exclusivity for 3 months to complete due diligence investigations on the Duchess Paradise coal project, with a view to financing future development of the project."

Project details
On its website Rey Resources states that "earlier drilling by Premier Mining in the 1970s reported coal in the area and Rey Resources is testing the concept that the coal is present in sufficient quantities to support an export thermal coal operation. The 2008 drilling program was designed to deliver a resource on which a feasibility study can be performed. A total of 218 open holes and 37 cored holes were drilled at an average depth of approximately 110 meters for a total meterage of approximately 24,000m. The coal occurs as two seams (P1 and P2) which strike east-west for approximately 10 kilometres before trending for a further 10 kilometers to the north. The seams dip at approximately seven-eight degrees. The upper seam (P1) averages a thickness of 2.5 metres while the lower banded coal horizon (P2) averages six to seven metres. The Company is examining the potential of the Duchess/ Paradise Coal Project to support both open cut and underground operations."

Project economics
In July 2011 Rey released a summary of what it describes as "Definitive Feasibility Study" by Marshall Miller & Associates for the project which claimed that that the mine could profitably sell 2 to 2.5 million tonnes a year of 5,500 kcal/kg thermal coal over at least a ten year mine life. According to Rey Resources, the project would achieve an internal rate of return of 27% and repay the capital cost in 3.4 years. Key assumptions the company used were that production costs would be $70 per tonne, that the A$/US$ exchange rate would "$1.05 falling to 85c in 2015" and using a 10% discount rate.

Rey stated that "the Duchess Paradise project has a freight advantage compared to non-Indonesian suppliers to south Asia, in particular India. The project offers security of supply advantages against Indonesian suppliers and is believed to be cost competitive against non-Indonesian suppliers into the region."

In a media release on the study, Rey stated that:


 * "The DFS used a marketing consultant’s prediction that all thermal coal prices will fall in 2012 with real price increases from 2013. The financial model assumes a real terms price for Duchess Paradise coals of US$99 per tonne in 2014 rising to US$103 per tonne in 2023. This compares with a mid-2011 market price estimate for Duchess Paradise coal of US$104 per tonne, and a 2014 estimate for the Newcastle benchmark price of US$121 per tonne reflecting Rey’s coals lower energy and higher sulphur content when compared to the Newcastle benchmark of 6,322 kcal/kg gar coal."


 * "Capital costs to production, including wholly owned equipment fleet are $199 million (2011 dollars). This reflects conservative assumptions with a larger than planned operation and the assumption of owning all major equipment apart from road haulage (previous studies assumed all earthmoving activities to be contracted)."

The company stated that the mine "is capable of rapid development with less than 12 months from commencement to first mine production. Actual development timing will depend on permitting and approvals but construction is expected to commence in 2013, with first mining in late 2013 and first sales in early 2014."

In an accompanying investor presentation the company stated that the coal had 17% moisture, 11% ash content and 0.7% sulphur content.

TPL's bleak assessment of prevailing coal prices
In September 2012 TPL Corporation -- which had been exploring the Lightjack Hill Coal Project in the Canning Basin -- stated that a report by CSA Global cast doubt about the viability of any possible project in the company's tenements. The company stated that the best comparator with the Lightjack Hill Coal Project was Rey Resources. TPL noted that Rey Resources estimated production costs of $70 per tonne.

TPL also stated that:


 * "in their release Rey Resources assumed the sale price of the coal would be US$100/t when the Newcastle Reference Price was US$120/t (2011). However the current selling price of 5500 Newcastle Coal is approximately US$82-85. Applying the same discount of US$20/t, gives a sale price of US$62-US$65/t making the potential selling price of a TPL processed coal product now below the assumed operating cost of TPL's Lightjack Hill Project. (Assuming ther above operating costs would also apply to TPL's project".


 * "In the current coal market, given the superior quality and availability of Indonesia low energy coals, CSA have advised TPL that it is unlikely that there would be a demand in the short to medium term term for any commercially mineable coal located at the Lightjack Hill Project".

2012 AGM presentation
In a November 2012 presentation to the company's annual general meeting, Managing Director Kevin Wilson told shareholders that the company was operating in a "challenging environment" which included "falling commodity prices", a "rising $A", a "weak financing market" and "rising costs". However, he informed shareholders that the company had $11 million in cash reserves and was proceeding with the approvals process for the Duchess Paradise project. Wilson told shareholders that a "partner search" for the development of the Duchess Paradise project was "ongoing".

The development of the project, Wilson told shareholders, required a benchmark price of over US$100. For 2013 the company plans expects that the project will go through the Public Environmental Review process, it will "complete" negotiations with Aboriginal traditional owners and the mining licence process would be underway. Ongoing exploration work in 2013, he said, would be funded from the company's cash reserves.

Environmental assessment
In late October 2011 Rey Resources stated that a draft outline of the "contents of the Public Environmental Review (PER) has been submitted to the Office of the Environmental Protection Authority for approval. Work is proceeding on writing the PER which will address both State and Commonwealth environmental requirements and which is expected be released for public comment in 2012."

Project financing
In March 2013 Rey Resources announced that they had issues 55 million shares at $0.055 cents to raise $3.025 million to Crystal Yield Investments Limited. In a statement filed with the Australian Stock Exchange the company stated that the proceeds of the share issue would be used "for the Duchess Paradise permitting process."

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