Hi Guys,
Let me start by saying that this is my own, personal review of what I saw and experienced during my visit to BMB Polish HQ in Katowice. No one had asked me to do this and to post it on HC. I’m doing it absolutely from my own free will.
Prior to my visit I’ve notified Mike who in turn advised Derek that I will be visiting.
Now to business.
Office:
3rd floor office (no lift), modestly appointed but comfortable and very busy.
Derek L. introduced me to every staff member in the office. Nearly everyone speaks adequate English so there were no problems with communication. I’ve had a good chat with BMB’s head geo Kevin Alexander as well as our main geo in Poland, Marcin and supporting geo’s Szymek and Robert.
First impression – excellent as everyone was genuinely busy but very friendly and happy to spare few min to answer my questions.
As Derek was going to a meeting at the Siersza Power Station that arvo he offered to show me the Mariola Project.
The following day, our Polish geo Marcin was going to Nowa Ruda and I was invited to join him. The 3hr drive each way was a good opportunity to have a good chat about Poland’s coal mining past and future and of course about Balamara’s part in that future.
We all read in Aus papers of how the low coal prices are causing Australian mine closures and job loses, how coal is out of favour with Aus and US investors and so on. It doesn’t take an Einstein to work out why Aus mines are not feasible but it’s harder to work out why so many Polish mines have closed down, are still closing down and why there’s still so much unsold coal in Poland when in fact Poland is a net importer of coal.
Poland has a long and rich history of coal mining. Up until the very recent times all coal mines were owned by the Polish government. In the late 1990’s/ early 2000’s when Poland was preparing to join the EU the govt made a decision to close all “unprofitable” mines and lift up the image of Polish industry and improve the Polish economy.
What everyone forgets is the reasons why those mines were unprofitable. In those years the unemployment was nearly non-existent as the mines employed thousands of workers more than necessary. Nowa Ruda for example employed over 6,000 people yet now BMB is talking about employing say 1,500 and producing 50% more coal than the 6,000 workers did.
The mines of the Communist era subsidised the local governments, paid for roads, schools, busses, communal holiday homes for workers etc, etc. On top of that if you worked underground your years to retirement counted as 1.5 for every year you worked so thousands of workers retired still in their 40’s and the mines still to this day pay them a special yearly payment which they can take in either cash or in coal to heat their homes.
Since Solidarity came to power a law was passed that the govt can not sack any mine workers to make the mines more profitable. The only option they had was to entirely close the mines and that’s exactly what they did. Funny that as soon as they close them, the better ones got reopened by private firms who made them profitable.
And the reason for the millions of tons of coal lying there unsold is that the govt mines are not allowed to sell their coal below the cost of production! So they can’t sack workers and they can’t sell their produce below cost.
It’s a vicious circle but one that opens up huge opportunities for companies like Balamara.
Mines that are already in private hands are doing very well and are profitable even at the current coal prices. With wages for mine workers averaging AU$1,200-AU$1,500 per MONTH they are miles cheaper to run than similar mines in Australia. Add to that low CAPEX and you are on a winner.
MARIOLA:
Not only did I get to see the section of Mariola where the future Mariola Coal Mine will be located, while Derek was in the meeting I got a quick tour by the security guard of the Siersza Power Station. Although the guard said: No photo, no photo, I managed to snick few in.
Last time I was in Poland I thought that Nowa Ruda was the jewel in the BMB's crown with its all established infrastructure and a much higher priced coking coal but I’m not so sure any more.
In my opinion Mariola has it all:
- A very shallow deposit easy to get to with a decline which reduces the CAPEX to somewhere around $50M.
- Fantastic location less than 2km from the Siersza Power Station and close proximity to other power stations. Siersza currently uses 1.6M-1.8M ton of coal pa. They bring in the coal from their own mine some 60km away but their mine is running out of coal and has about 2 years supply of coal left. Siersza has a well developed on-site rail facility and apparently are thinking of expansion to cater for a growing power demand.
All the other benefits and advantages of Mariola are explained in the Co’s announcements so I won’t repeat them but what I would like to touch on is the JORC as that’s the Australasian Code for reporting of exploration results and ore reserves aimed at improving the transparency and materiality. Hmm, great but at what cost and really for whose benefit?
My gripe with JORC relates to the core recoveries. In layman terms it’s the percentage of solid, cylindrical pieces of rock recovered from the borehole during drilling expressed as a percentage of the full core run.
In terms of coal drilling it’s the percentage of coal and other rock materials recovered from the hole during drilling. The latest JORC standard (2012) which became mandatory from 1st Dec 2013 specifies that core recoveries should EXCEED 95% linear recovery and that a Competent Person can reduce this figure to 90% based on his experience and knowledge (see BMB Ann dated 15 Oct ’14).
What does this mean?
Imagine you are drilling a hole and you are at say 700m depth. Your geo tells you that based on historical data you are coming up to a coal seam which you should intersect at say 710m. You start coring as you need to get samples of rock at least 6m above the seam, the coal seam and then at least 3m below the seam. When you are coring you are trying to recover as much as possible of all rock and coal so you can send it to the lab for testing. In most cases the drilling Co’s use 3m long pipes to recover the core. Remembering that the pipe is open at the bottom and that sometimes there’s sand and moisture as part of the core you are not always able to recover the full 100% of the core. The drilling technology has greatly improved over the last 10 or so years and using the latest techniques you are now able to recover most of the core but this was not the case with the historical drilling (holes drilled 20 or more years ago) when they were consistently pulling out 70-90% of the core.
And here comes the problem. Let’s assume that you pull out a core which shows that you have about 2m of coal in it but you have only recovered 80% of the core. So how does this affect your JORC calculations? A reasonable person would assume that if you only recovered 80% of the core then you should enter the thickness of the seam as 2m x 80%=1.6m.
Well apparently not. As the 2012 JORC standard specifies a min 90% recovery
NONE of your core gets counted. You have
NO coal at all. That’s not all. If you have few holes in a row which are below 95% then you lose continuity and can’t apply the reduction to 90%. This is one of the reasons why our JORC’s for both Mariola and Nowa Ruda are not as high as we might have expected. This does not mean that there’s no coal there as the old drill holes show that there’s plenty of coal there but under the 2012 JORC standard many of the holes and seams couldn’t be counted.
If we could have counted the JORC under the 2004 (much more lenient) standard our JORC would have been considerably higher which in turn would have considerably increased the mine life of our projects (as perceived by the shareholders) but in all reality the coal is there and the mine life in the end will have nothing to do with the JORC standard.
100’s of mines existed and many still exist in Poland and they made Poland one of the largest coal producers in Europe. Ask KGHM (one of the largest Cu producers in the world) if they considered JORC when they were building their mines.
PDZ managed to report their JORC in Feb ’13 thus still under the 2004 standard. Wonder what their JORC would have been under the 2012 standard. In the end who cares as the amount of coal in the ground does not change.
So who does the ever increasing JORC standard benefit?
The drilling companies, the geo’s and the mining consulting firms who charge an arm and a leg for their services. They want you to forget about any historical drilling and drill all new holes giving them long term jobs and future at a considerable cost of time and money to the shareholders.
Sorry about this digression but I think it’s relevant to both Mariola and Nowa Ruda.
So what’s Mariola really worth?
In comparison to NR and Sawin which we got basically for free (plus few govt fees) it would seem that we are paying quite a bit for Mariola
BUT both NR and Sawin require considerable drilling which cost both time and a lot of money, are much deeper so have much higher CAPEX, will have higher OPEX, have no power stations next to them and are at least 2-3 years further away from production.
We’ve been asking the management to finally put something into production and quickly so we can stop the dilution and start earning some money. I think that Mariola is the answer to our prayers. I also think that the announced production target by the end of 2016 will be reached few months earlier as I’m told that everything to do with Mariola is progressing faster than anticipated.
I have also found out that there’s another project VERY similar to Mariola for sale in Poland. It has similar size and resource at a similar depth but is nowhere near as advanced, has no power station next to it, has mineral water wells on it (much harder to get a mining licence) and in accordance with the conditions of their concession granted by the Minister they must drill a minimum of 4 holes. The price is 20M Euro for a 51% interest with an option to buy the remaining 49% at 1Euro per ton of JORC when it’s calculated. This is a 100% correct and genuine info which I’ve obtained well prior to my visit to Poland from my own sources in Europe.
Although this project is still on the market (not sold) I’m aware that there are 2 parties doing their due diligence on it. If it sells I’ll find out and will report it here.
There are also recent articles in the Polish press mentioning opening of another coal mine in Poland.
We are not alone or being just pioneers. There are other Polish, German and French Co’s working fast and hard on Polish coal.
NOWA RUDA:
As most of the issues I’ve mentioned in the Mariola section also relate to Nowa Ruda I’ll try to make this section fairly short.
The drilling is progressing but at a slower rate than anticipated. One of the rigs encountered some problems in losing mud while the other rig blew a gearbox and was being fixed. I’m told that this sort of problems do happen from time to time especially when you are getting close to the 1,000m depth.
Two more rigs arrived on site so now there are 4 rigs working on both Waclaw and Lech. Our geo’s are pushing the drillers very hard to complete the job ASAP but no one can predict how fast or slow they can get through the rock.
The Local Govt support is still as strong if not stronger that what I reported last year. In fact the Mayor is already claiming that the NR mine WILL open for certain.
The Co is preparing to lodge the docs for the mining licence early in the next quarter.
SAWIN:
It was way too far so I didn’t get the chance to see it but from what I’m told it’s a fantastic tenement with thick coal seams. The Co is working on the JORC. That’s all I know.
SUMMARY:
As I’ve mentioned in my previous post I met up with Mike earlier this week to give him my thoughts on what I saw and experienced.
I have no doubt that everyone at our Polish HQ is working their backsides off. I’ve seen it with my own eyes and as much as I’m appalled with the current share price, I’m satisfied with the progress on the ground BUT I had to express to Mike my dissatisfaction with the amount and quality of news we are getting.
Why can’t we get a fortnightly or monthly updates on what’s going on and where we are?
If a drilling rig packs up (and yes it’s normal and it does happen) and there is a delay why not tell us that? Why not say that Drill rig 3 and 4 arrived on site? Or that we are now at the depth of xxxm?
There’s always something to say and I feel that I’ve said in this post more than the Co has done over the last few months. In my opinion our SP is down because our current shareholders don’t see the light at the end of the tunnel yet the light is there and is shining very brightly. TheWay99 said that one of the main reasons why he sold out was that “
there’s nothing else on the near term horizon to drive value”. Maybe if the Co better looked after us shareholders by keeping us advised fewer people would feel like TheWay99 and selling.
Mike’s argument was that they must report within the ASX guidelines. Yes, I agree and understand but we do have a website on which the Co can post anything they want and there are other means to relay their message to the shareholders like Boardroom Radio etc etc.
Please don’t misunderstand me here as Mike is a very nice and very approachable guy who is willing to talk to anyone whether they are a small or a large shareholder but I feel that sometimes these guys get so wrapped up in the work they are doing that they forget to pass on the information or maybe they think that we are all mind readers. I hope that Mike will take our discussion on board and start keeping us well updated. I'm sure that's not too much to ask for our loyalty.
That’s all guys. If I remember anything else I will post it here.
I’ll post some photos in a separate post as this one got a bit out of hand.
The views expressed in this post are my own and whether they are right or wrong I don’t want anyone to make any financial decisions based on them.
