With a large Western Australian thermal coal project containing more than 511 million tonnes, Rey Resources is seeking a cornerstone investor to help bring the project into production. The Canning Basin coal project covers about 8000sqkm in the north-west of Western Australia, providing easy access to the coal hungry markets of India and China. Rey has drilled around 20sqkm of the area which confirms the potential of the basin and is confident further exploration will enhance resources, possibly to more than 1 billion tonnes. It is working on a pre-feasibility study focused on developing a 2 million tonne/year project and believes this can be adequately exported through the port of Derby, 150km to the west. The company is also progressing environmental surveys as a precursor to a full feasibility study next year, with reserve definition drilling and engineering drilling planned. While Rey has received a predatory takeover offer from one of its majority shareholders, Gujarat NRE Coke, its managing director Kevin Wilson believes shareholders would be better served if this is rejected and the company secures a cornerstone investor. Gujarat owns almost 17% of Rey and has made a 9 cents per share cash bid. Kevin Wilson says the Board believes this vastly undervalues the company, which “has an excellent future and is well placed to deliver greater value”. “The offer is opportunistically timed at a low point in the Rey share price. We have completed a capital raising and the share price should trade up. Since the offer the shares have traded much higher and in August have been around 17-19 cents. “We had a rights issue at 9 cents and with 72% of shareholders taking part it is unlikely the bid will succeed. “Rey Resources has been talking about the growth in Indian demand for thermal coal for the last 18 months. Gujarat’s takeover bid is trying to capitalize on this growth market.” Kevin Wilson envisages the operation will be a simple ‘starter-kit’ development with an open cut mine supplying the export market, with coal transported to Derby via trucks. While Rey has rejected Gujarat’s offer, it is banking on thermal coal demand from India driving prices and tonnage requirements, and making development of the Canning Basin assets possible. “What you are starting to see is confirmation of what we suspected – that the Indian economy will need to import about 200 million tonnes of coal in 2012, up from 40 million tonnes last year,” Kevin Wilson says. “That is a massive increase if you think that the whole seaborne global coal market is 600 million tonnes. People are now recognizing that the story for thermal coal is not just China, it is India.”
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