recent overview of attractive coal deposits

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Atomic Resources 18 Jun, 2008
Early mover in Tanzanian coal
ATQ; Buy up to 25 cents
Atomic Resources is a junior mineral exploration company which until recently, had been focused on uranium projects in Western Australian and Tanzania. As part of its exploration activities in Tanzania, the company has been able to negotiate entry into a number of attractive coal projects with significant tonnage potential.
“With a refocus on coal in Tanzania, Atomic has been an early mover in establishing a significant position in this country. While there are some infrastructure constraints, there is significant option value to be gained in the low market capitalisation of Atomic and worldwide, major undeveloped coal deposits are attracting a premium.”
With global thermal coal prices remaining robust in an energy focused world economy, Atomic appears to have the early mover advantage in Tanzania. It has secured joint ventures over the Mgaka and Muhukuru Coal Projects in Southern Tanzania and which have potential for tonnages in excess of 120 million tonnes. It is also conducting due diligence over a deal to enter the Muse, Mkolomo and Namwele coal prospects in the Rukwa Basin region of southern Tanzania.
Investors will focus on the success of companies like Riversdale Mining and given the low market capitalisation of Atomic Resources, we believe it is an attractive but high risk investment. Hence, Stock Resource recommends Atomic Resources as a Buy up to 25 cents for all Members.
Share Price Graph
Mgaka and Muhukuru Coal Projects (Atomic earning 70%) In December 2007, the company signed a MOU to enter a JV with the National Development Corporation of Tanzania to explore and develop the Mhukuru and Mgaka Coalfield concessions within the Karoo Basins sediments of southwestern Tanzania.
The Tanzania Government reports that there is a total of about 1 .5 billion tonnes in reserves have so far been identified within the country with the only reported active coal mine at Kiwira having an average annual output of 35,000 tonnes and is consumed locally for power generation.
While the potential reserves are very large, the remoteness of the coalfields, lack of markets and poor infrastructure have mitigated against their exploitation and the country has never been a significant producer. However this could change with global coal prices soaring and major companies looking for significant deposits across the world.
The company reports that the Karoo Basin of southwestern Tanzania was systematically investigated in the early 1930s by G.M. Stockley, who established a stratigraphic column for the coal measures in the principal Ruhuhu depression and produced the initial estimates of coal potential. Between 1947 and 1953 both the Tanganyika Geological Survey (TGS) and the Colonial Development Corporation (CDC) conducted exploration programs in the coalfields, but activity ceased when plans to extend the railway network in southern Tanganyika at the time were abandoned.
Located about 90km SSW of Songea and occupying an area of some 3,600 hectares, the Mhukuru Coalfield is an “orphan” Karoo remnant well removed from the main coal bearing Ruhuhu depression. NDC Prospecting Licence PL3290/2005 covers all but the southwestern corner of the field. Geologically Mhukuru is unique amongst the better known Karoo coalfields in that potentially workable coal lies wholly within the Upper Coal Measures (Mhukuru Formation), which are locally unusually thick (>360m), rather than the Lower (Mchuchuma Formation), host to all other known Tanzanian coal resources. Mchuchuma Formation coal measures appear to be absent.
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Over the period 1947-1949 the TGS conducted an exploration program on Mhukuru, completing 7 drillholes to an aggregate metre tally of 1,520m (Harkin, 1953). In the northern part of the field drilling confirmed the presence at depth of the composite “Main Seam”, exposed in the Mhukuru River as a 2.1m thick seam containing 2-3 mudstone partings, however coal quality deteriorated with depth. Upside potential of the Mhukuru Coalfield lies in demonstrating thickening of the Main Seam or development of other seams along strike, as well as extending continuity to the dip in the northern part of the field.
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The Mgaka Coalfield is located within the Ruhuhu depression about 100km WNW of Songea, 40km east of Lake Nyasa, and 30km southeast of the larger and better known Mchuchuma Coalfield, to which it bears many similarities. Mgaka is naturally subdivided into two fundamentally different segments, the “Mbuyura Sector” in the north, which possesses little economic significance, and the “Mbalawala Sector” in the south, where a significant resource has been defined. NDC Mgaka Prospecting Licence PL3289/2005 covers the greater part of the Mbalawala Sector.
Having over the period 1949-1952 been the initial centre of attention of the CDC’s substantive “Tanganyika Coalfields Investigation”, the Mgaka Coalfield is reasonably well known. The CDC program was conducted to a very high standard and comprised detailed mapping, sampling and diamond drilling, 40 drillholes for a total metreage of 11,106m being completed over the two-year period. Work began in the Mbuyura Sector, then progressed to Mbalawala when its greater economic potential was realised. No further work has been done at Mgaka since termination of the CDC program in 1953.
CDC drilling at Mbalawala largely closed off the coalfield at an average drillhole density of just over 1/km2. Four reasonably persistent “workable” seams were identified over areas as great as 20,000 hectares. Most economic potential is found in the spatially persistent Upper Split Seam, which averages 3.4m in thickness. Mbalawala coal is a good quality, high energy, moderate ash, medium to high volatile bituminous coal.
Mbalawala is tightly constrained geologically, as well as by the boundaries of the NDC PL, which truncate its dip extent at depth to the east. The main part of the basin has been reasonably well drilled out, however better definition of the mineable resource is needed, since few CDC boreholes were sited in the shallow up-dip end of the basin.
In summary, the company’s independent consultant states that the Mgaka/Mbalawala project can be described as rather remotely located, reasonably well defined, resource of good quality thermal coal. Whereas it may prove large enough to stand alone, as a possible adjunct to exploitation of the larger Mchuchuma Coalfield 30km away its development prospects would be greatly enhanced.
Muse, Mkolomo and Namwele coal prospects In late May 2008 Atomic announced that it had entered MOU with the Upendo Group Limited of Tanzania, to explore and develop the Muse, Mkolomo and Namwele coal Prospects in the Rukwa Basin region of southern Tanzania.
Under the terms of the MOU, Atomic has a 90 day period to complete due diligence on the project concessions and to verify historical technical data. On completion of successful due diligence, PCEA will enter into a Joint Venture agreement taking up to an 80% interest throughout project development. Upendo will be free carried for its remaining 20% interest.
PCEA has agreed that as part of the JV terms not less than US$500,000 will be spent on the project areas within the first 24 months with expenditure contributions from Atomic deemed to be loan funding to the JV to be recovered from any future earnings.
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Whilst no JORC-compliant resources are currently available, there is public literature available on the coalfields – with very small scale open cast production in operation at the Namwele deposit. To date only 9,685 tonnes has been produced and sold for industrial use as steaming coal to the Mbeya Cement Factory, Mbeya Textile Factory and Mufindi Paper Mills at Iringa.
Based upon the technical information provided, as well as Government geological publications, Atomic is seeking a potential target size of between 40 to 50 million tonnes of thermal coal within the three prospect areas combined. These estimates cannot be categorized as resources, in accordance with section 18 of the JORC Code, and are therefore regarded only as potential target tonnages which require additional geological investigation.
The coals are considered to be potentially thermal quality coal with moderate to low sulphur and moisture, and high ash content. Geologically the coal seams lie within the Karoo sediments preserved within depressions in the Precambrian basement. Free Report - Call 1300 367 597 www.stockresource.com.au
The Board Atomic Resources comprises:
• Clive Hartz (Chairman)
• David Holden (Executive Director)
• Alastair Walker (Non-Executive Director)
• Patrick Michaels (Non-Executive Director)
• Prof Thomas Neff (Non-Executive Director)
Capital Structure and Funding As outlined below, we estimate that the enterprise value of Atomic is around $7m.
Market Valuation
Issued Shares (m)
Share Price (A$)
Market Cap (A$m)
Fully paid shares
57.8
$0.23
$13.0
Options
7.0
$0.23
$1.6
Cash from options
$1.8
Diluted Market Cap
$12.8
Cash
$5.6
Debt
$0.0
Enterprise value
$7.3
The options are listed below.
Options
Issued Shares (m)
Exercise Price
Amount Raised (A$m)
30-Jun-12
7.0
$0.25
$1.8
Disclaimer
Breakaway Investment Group Pty Ltd, and its authorised representative Stock Resource, have made every effort to ensure the reliability of the views and recommendations expressed in this report. Our research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication.