Cokal Limited’s 60% owned subsidiary, PT Bumi Barito Mineral (BBM), has signed a binding agreement with PT Cipta Bersama Indonesia (CBI) to develop an underground mining operation at Pit 1 of the BBM Metallurgical coal mine, to produce a pulverised coal injection (PCI) product.

This strategic agreement represents a significant windfall for Cokal, as there were no plans to develop underground operations at BBM Pit 1 within the foreseeable future, given capital constraints and a high-level of requisite technical expertise, it says.

The BBM feasibility study, completed by Cokal in 2014, highlighted the importance of an underground mining operation at BBM Pit 1. A significant volume of Cokal’s JORC coal resources are considered to be most viably accessed through underground development in order to maximise financial outcomes, given lower strip-ratios, unit production costs, and the outlook for the long-term market for PCI coal products.

As part of the agreement, BBM will obtain the necessary regulatory approvals to conduct underground mining operations at BBM Pit 1. BBM has appointed CBI as the contractor in charge of the development of an underground
mine at BBM Pit 1, and the ongoing mining contractor operations for PCI coal production.

CBI has agreed to pay all mine development costs, and 100% of ongoing operating costs until delivery of coal to run of mine stockpile.

As part of this, Cokal will undertake the transport of product coal from BBM ROM to Batu Tuhup jetty, and then to market and will be responsible for the sales and marketing of the coal product. BBM shall be responsible for developing and managing additional coal transport infrastructure capacity for the delivery of coal product from the BBM Pit 1 underground mine to market.

The company added: “BBM is not required to reimburse CBI for any of the upfront capital or ongoing operating costs incurred by CBI. Rather BBM and CBI will share revenue from sale of the coal product in the following proportions: BBM 40%/CBI 60%.”

CBI has also undertaken to develop coal processing infrastructure at BBM in the near term, for use by both the underground operations and other BBM production.

The term of the agreement is for the life of the mine for the underground mining at BBM Pit 1.

BBM and CBI will immediately commence development of the BBM Pit 1 underground coal mine operations, with three key stages, each designed to optimise operations and ensure seamless integration with existing infrastructure. Stage one constitutes feasibility study and reconnaissance. Stage two is infrastructure development. Stage three is operations and logistics.

The timeline for stage one is six months, while stage two is expected to be completed in next 12 months thereafter.

Cokal CEO, Karan Bangur, said: “This agreement is another major milestone in BBM’s development and production ramp-up. Importantly, prior to the agreement with CBI, BBM did not anticipate any underground mine development for at least another decade. This agreement brings that production forward and is entirely in addition to the current targets of coal production from the open-pit operations at BBM. This will add additional cashflow and enhanced value to Cokal.

“In addition, the additional coal volumes will utilise and enhance the value of the extensive coal transport logistics chain that Cokal has developed and is expanding.

“Cokal and CBI anticipate that development of the underground project to first coal production will require approximately 18 months. During that time Cokal will further develop and enhance its logistics infrastructure capacity to accommodate a substantial increase in transported coal tonnages.”