Poland has a well-established history of coal mining, at one time being the world’s second largest coal exporter behind the USA. Today the country remains Europe’s largest producer of hard coal, producing more than 60 million tonnes per annum (mtpa) and relying on coal for almost 90% of its energy needs. Poland only opened its mining industry to foreign companies in 2011 and, unsurprisingly, there was a lot of interest. Australian exploration company Prairie Mining Limited (ASX: PDZ) was one of the first foreign minerals companies to get its licence applications in and managed to secure one of the best positions in the low-cost Lublin Coal Basin, right on the doorstep of industrial Europe.
CEO Ben Stokovich says that starting a new project in Poland was an easy decision. “Poland is known for the scale and quality of its coal assets, particularly in the Lublin Coal Basin, and obviously it also has a great heritage for coal mining and the expertise that goes with it,” he remarks. “It’s also a very good country to work in and a safe jurisdiction to invest in.”
During the 1970s and 80s the Polish government conducted an extensive exploration programme throughout the Lublin Basin, identifying massive resources of high-quality coal. It planned to develop a complex of seven coal mines in the area but was only able to finance one – the Bogdanka mine, with a current enterprise value of around US$760 million – before the collapse of the Soviet Union when government funding dried up. In 2012 Prairie had the advantage of applying for four of the seven areas designated as future mines and inherited a large database of drilling information from the government.
The availability of existing exploration data gave Prairie a significant head start on the project, as well as a massive cost saving. “To replicate the 200 holes and 200 kilometres of drilling the government did in the past would cost us more than US$100 million today,” Ben explains. “Instead, we agreed with the government to drill seven holes in order to enhance the historical drill data and geological model, delineate outer boundaries of the various coal seams and to update the coal quality and washability database.”
Prairie also prepared for its new venture by assembling a strong Polish operating team. This includes Mr Miroslaw Taras, former CEO of Bogdanka; Mrs Patrycja Wolińska-Bartkiewicz, former Deputy Minister of Infrastructure; Dr Jacek Jezierski, the former Chief National Geologist; and Artur Kluczny, former Deputy Chairman of the Polish Financial Supervision Authority.
The Lublin Coal Project
Using the historical data and its own drilling results, Prairie recorded a JORC-compliant coal resource for the Lublin Coal Project of 1.6 billion tonnes across its four coal exploration concessions. The company completed a Scoping Study for the project in April 2014 that confirmed its potential to become a large-scale, long-life mine with the ability to produce both metallurgical coal and premium thermal coal.
The Scoping Study showed that the Lublin Coal Project could support steady-state production of 7.7mtpa run-of-mine coal, yielding 6mtpa of saleable clean coal over a 22-year mine life. It estimated average annual operating cash costs of $37 per tonne and EBITDA of up to $391 million utilising analyst consensus sales pricing assumptions.
“The project’s greatest advantage is certainly the low cost potential of the mine; when in production it will be the world’s lowest-cost hard coal mine for coal delivered into Europe,” says Ben. “Another key indicator for success is the Lublin Coal Project’s location next to Europe’s most successful coal mining company and mine, Bogdanka. Bogdanka actually tried to apply for a mining concession over our exploration concession last year, and the government rejected it. Bogdanka then appealed the initial rejection, only to be rejected again. I believe this demonstrates what a strategic and valuable asset we own.”
Another significant advantage of the Lublin Coal Project is the availability of high-quality infrastructure throughout the region in the form of railways, roads, power lines and water. This facilitates low capital intensity development. The rail and port infrastructure in Poland is extremely well developed and has significant latent capacity that Prairie can tap into to gain easy access to all major European coal markets. Although coal prices are currently at seven-year lows, Ben points out the importance of being positioned at the bottom of the cost curve where a long-term future is secured. “There is a lot of high-cost production coming off-stream in the next few years and we believe that our project will be well placed to supply coal into an improving coal-market dynamic in the future.”
The road ahead
Now halfway through its Pre-Feasibility Study, Prairie is moving the Lublin Coal Project along at a fast pace. However, it wouldn’t have been able to get this far without the help of a few key business partners. Lublin’s Scoping Study was prepared by British mining consultancy Wardell Armstrong, while the ongoing Pre-Feasibility Study has been entrusted to Golder Associates and Royal HaskoningDHV. Norway’s Multiconsult has managed the environmental work to date and Wood Mackenzie the coal marketing studies, which are due to be published soon.
Prairie is waiting for the Polish government to approve its Polish Standard Resource Report, after which it will be granted a three-year exclusive right to apply for the mining concession for the project. The company expects to publish a Pre-Feasibility Study mid-year and to move onto the Bankable Feasibility Study immediately afterward. Mine construction could begin as soon as early 2017.
Ben and the rest of the Prairie team have a straightforward plan and ambition for the future. “Lublin is one of the best undeveloped coal assets globally and we’re 100% focused on moving it forward,” he remarks.
“In bringing our mine into production, we aim to become a highly profitable European coal mining company that has introduced global best-in-class international mining capabilities and mine design into the Polish market.”