Vancouver – A prefeasibility study returned positive economics for Red Hill Energy‘s (RH-V) Ulaan Ovoo project at thermal coal prices over US$68 per tonne.
As planned Ulaan Ovoo, 8-km west of Tushig Soum in northern Mongolia, would be an open-pit coal mine with an 18 year mine-life and 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 neither positive nor negative.
But at US$76-per-tonne-coal Ulaan Ovoo returns a NPV of US$250 million and an internal rate of return of 19%, both discounted at 10%.
Payback under the US$76-per-tonne-coal scenario would come in year nine of the project.
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 of coal 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 between 6 and 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 JP Morgan, thermal coal contracts are settling around a price of US$70 per tonne.
Investors reacted positively to the prefeasibility study. Red Hill’s share price gained 6.5¢ to close at 44.5¢.
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