Red Hill Prefeasibility Sees US$337M Mine At Ulaan Ovoo

VANCOUVER — A prefeasibility study has returned positive economics for Red Hill Energy’s (RH-V, RHFFF-O) Ulaan Ovoo project at moderate thermal coal prices.

As envisaged, Ulaan Ovoo, 8 km west of Tushig Soum in northern Mongolia, would be an open-pit coal mine with an 18-year mine life. It would cost US$337 million to build and US$155 million to sustain.

At a coal price of US$68 per tonne, the project’s net present value (NPV) is zero.

But at US$76 per tonne coal and at a discount rate of 10%, the NPV rises to US$250 million, with an internal rate of return of 19%.

The payback period at the higher coal price is estimated at 9.5 years.

All told, Red Hill would produce about 108 million tonnes of thermal coal. Over the mine’s life, Red Hill would send about two-thirds of coal directly to its stockpiles after crushing. The other third would require washing.

In the first three years of the proposed mine, however, Red Hill would selectively mine higher-grade areas at Ulaan Ovoo and would not need to send any coal for washing.

Red Hill sees two years of construction, starting in 2009, and a commission date of 2012. It would produce 6-7 million tonnes of coal per year until 2021.

Last year, thermal coal prices soared to about US$125 per tonne. However, this year, according to J. P. Morgan, thermal coal contracts are settling at around US$70 per tonne.

Investors reacted positively to the prefeasibility, sending Red Hill’s share price up 6.5¢ to 44.5¢. At presstime, the stock traded at 57¢ in a 12-month range of 20-97¢.