Penrhyn coal exploration acreage acquired cheaply ~$0.4m plus royalty
Coal Assets
WPG concluded an option agreement with Stellar Resources Limited (SRZ) in late 2009 over the Penrhyn coal deposit located to the southwest of Coober Pedy in South Australia.
In addition to the $350,000 WPG paid for the coal assets WPG will also pay Stellar a royalty of $0.60/tonne on any coal or iron ore mined from the tenements.
SRZ retains the right to acquire a 49% joint venture interest in any non coal or iron ore mineral resources
identified during WPGs exploration activities.
Well located to WPGs proposed iron ore rail loop
The Penrhyn coal deposit is located ~20km from the proposed Peculiar Knob rail loader. Physically it lies within the Arckaringa Basin, in a syncline approximately 25km long by 5km wide. Drilling and other data indicates the presence of multiple, relatively flat lying sub-bituminous coal seams up to about 4m thick, with a cumulative thickness up to 15.5m, sedimentary cover is around 60m or more over the deposit.
A low ash / midenergy subbituminous coal - potential power station grade
Coal quality analyses from Penrhyn confirm the projects potential as a large tonnage, low ash coal possibly
suitable for power station use or upgrading using clean coal technology.
In WPGs view, the exploration target is 250 to 350mt of coal, with moderate in-situ ash 6.5-20% high moisture (up to 36%) and energy content of 27.7mj/kg for at least one sample seam.
We note that the deposit is a conceptual resource and further drilling/testing will be required to qualify as a
JORC resource.
The best intersections reported to date are:
3.74m @ 9.8% raw ash (db) in PCWP-001 from 92.8m; and
2.20m @ 10.9% raw ash (db) in PCWP-002 from 106.8m.
Recent and historic drilling have confirmed the presence of two significant and continuous seams at Penrhyn within an open pit-able depth that have a cumulative thickness of the order of 8m. A follow-up program of resource drilling comprising 25 holes for an estimated 3,500m with holes on a 500 x 1,000m grid is expected soon.
This places WPG on the path towards defining a JORC compliant resource. This definition of a JORC compliant resource is potentially a value adding proposition for WPG, while infrastructure associated with Peculiar Knob opens up additional options for commercial development.
Portfolio of Four Coal Leases
In addition to Penrhyn, WPG has applications for three new coal exploration tenements. We ascribe no value to these prospects until further evaluation studies are completed and the tenements are granted.
One of these applications includes most of the Snowtown coal deposit, situated 150km north of Adelaide and, is one of five deposits known within the large Northern St Vincent Basin.
Previous drilling intersected several coal seams with a maximum cumulative thickness of 8.4 metres within a
sequence that is up to 40 metres thick.
Other projects In addition to the Hawks Nest and Peculiar Knob projects WPG has several other greenfields iron ore projects in South Australia.
VALUATION
Target $1.56, current price $.82
Our valuation of $1.56/share is based on risk weighted NPV/share for the Peculiar Knob mine and nominal values for the coal assets and exploration potential.
Production 3.5mtpa In our DCF valuation for Peculiar Knob we have assumed a 5 year mine life at a rate of 3.5mtpa, with a short ramp up period. Ore is to be trucked and railed to Pt Pire for export utilising transhipping loaders.
Risk Weighting Risk weighting we have risk weighted the production profile by 20% to reflect the fact that there are still some permits required and that the terms of project financing are yet to be announced. Also, we await the detailed results from the updated BFS to be released.
Capital Costs For the purposes of our modelling we have assumed capital costs in the range of A$120-A$130m. This is
based on the results of the 2007 BFS and market information on similar proposed operations.
The updated BFS results will provide more guidance on final capital numbers, with a reduction in capital costs from our conservative numbers possible.
We have assumed that the capital required will be funded by a mix of debt and equity in the ratio of 60% debt and 40% equity.
MRRT has an impact
We modelled the impact of the full proposed Mineral Resource Rent Tax (MRRT). We believe it to be material,
with a negative 10% impact on our Peculiar Knob NPV.
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