Ann: Quarterly Activities and Cashflow , page-26

Todays Stonebrige report

stonebridgegroup.com.au
ASX code | KRL
Last price | $0.205
Fully diluted shares | 1,067M
Market cap | A$218M
52 week hi/low | $0.33 / $0.02
12 month price target1 | $0.60
Valuation1 | $0.60

KRL has secured an initial off-take partner and sales contract for export
quality thermal coal. The sales contract agreement is for a total of
150,000 tonnes of thermal coal (in three shipments) over a two month
period. With successful completion of the three shipments, KRL has
indicated that it intends to extend the agreement for additional tonnes.
The coal to be sold into the agreement with be an optimized blend from
the GPK and Mamahak projects, both in East Kalimantan, Indonesia.

Chinese off-take partner Guangdong Yudean Group is one of the largest
power suppliers in China and has significant requirements for thermal coal. The power generation capacity controlled by the group was around 19,800MW at the end of 2009 and comprises mainly coal-fired power plants2.


Contract sales agreement Is not exclusive and therefore allows KRL to
consider other off-take partners for additional tonnages in the near term.


Coal Pricing the price received for the coal importantly will be based on a
formula that uses the Chinese Coal Index as opposed to pricing taken from the local Indonesian thermal coal market.


Cash Margins At the current run rates the margin from this initial sales contract
is estimated by KRL to be in the range of US$15-20 per tonne.

Coal blending The coal to be sold into the initial 150,000 tonne sales contract will be a blended coal from KRLs Mamahak and GPK coal projects. The Mamahak coal is a semi-soft coking coal whilst GPK is a thermal coal with a targeted blend ratio of approximately 1:3 respectively. Notably, due to the individual coal qualities of the two projects the blended coal significantly
increases the overall revenue for KRL compared to selling two separate product streams. Its a case of the sum of the parts is less than the whole.


Why Blend? If the coal was not blended and sold as two separate products
(semi-soft and thermal) the margins would be in the order of US$30-US$35/t for
the Mamahak coal being sold and Importantly the Mamahak coal produces a quality semi-soft coking coal which has qualities including high energy (7,500kcal/kg) with moderate sulphur levels that vary between the coal seams within the project area. The coal that is being sold from Mamahak under this initial sales contract comes from a seam which has higher sulphur than the other seams which make up the JORC Resources at Mamahak and therefore of lesser value as a semi-soft coking coal product. The GPK coal has low sulphur and when combined with the this Mamahak coal produces a quality export thermal coal product.


In summary we see the securing of a large off-take partner and an initial
sales contract as a significant positive step for KRL. This leads the way for
further off-take agreements and sales contracts over larger volumes in the
coming months. We will be visiting site in the first week of May which will
be followed by a full update report and valuation of KRL.