NEW AGE EXPLORATION LIMITED New Age Exploration Limited provided an update on its Lochinvar metallurgical coal project located on the border of England and Scotland in the United Kingdom. The project consists of three adjacent exploration and conditional underground mining licences known as Lochinvar, Lochinvar North and Lochinvar South. All three licences are 100% owned by NAE.
Economic outlook for Lochinvar continues to improve amid increased demand for metallurgical coal: Since the start of the 2022 calendar year, the economic outlook for NAE's Lochinvar metallurgical coal project has continued to improve. Import bans on Russian coal imposed as a result of its invasion of Ukraine have led to increased global demand and prices for metallurgical coal. Prior to the bans, Russia typically supplied 30% of European Union and UK metallurgical coal needs and, based on provisional data, was the UK's largest source of metallurgical coal in 2021.
NAE is cautiously optimistic that geopolitical events, combined with the UK's recent change in government leadership, will continue to lead to an improved regulatory environment for metallurgical coal projects such as Lochinvar. In an environment of elevated metallurgical coal prices and where global demand for metallurgical coal remains strong, NAE are pleased to announce that Palaris has been commissioned to undertake a further update to the Scoping Study. The update will focus on the areas of coal price assumptions, capital and operating cost structure and is expected to take approximately six weeks to complete.
Market and Infrastructure: Lochinvar is ideally located to become a supplier of low cost, high volatile hard metallurgical coal to the European steel industry as a result of: Located 7km from the main West Coast Main Line railway which links directly to UK steel mills and nearby ports to access European market; Lower labour rates when compared to Australian mining costs; Excellent UK fiscal regime with low corporate taxes and royalties; European Metallurgical Coal imports forecast to grow from around 52Mt (2017) to 61Mt (2035); European High Volatile Hard Coking Coal (HV HCC) imports forecast to increase from 10.4Mt (2017) to 15.9Mt (2035); Lochinvar anticipated 1.4Mtpa annual production per the Scoping Study completed in 2017 would represent ~12% of UK/Europe High Volatile HCC metallurgical coal imports in 2021; Lochinvar coal enjoys a clear distance and freight cost advantage over competing imported coal and the benefit of regular local deliveries reducing customer inventories. Metallurgical Coal: Metallurgical coal, as found at Lochinvar, is used in the steel-making process in blast furnaces. It has very different demand dynamics to thermal coal which is used to generate electricity in coal -fired power stations.
Global steel production is continuing to grow in-line with global GDP, and is particularly fast growing in the developing world (e.g. India). KPMG forecast global metallurgical coal seaborne trade to grow from 317Mt in 2021 to 335Mt in 2025. At this stage there are no commercially viable substitutes for metallurgical coal in the blast furnace steel-making process.
Metallurgical coal provides three important functions in making steel in blast furnaces; a source of the energy, a reducing agent to convert iron ore to liquid iron and CO2 and provides the structure and permeability within the furnace to prevent the furnace becoming clogged. Steel is an alloy of iron and carbon, and metallurgical coal also provides the carbon atoms to produce steel. Metallurgical coal prices recently spiked above $500/t due to supply/demand imbalances post the Russian invasion of Ukraine, well above the KPMG long-term forecast of $150/t. NAE expects prices to remain elevated for a number of years due to strong demand, ongoing trade imbalances post the Russia/Ukraine war and a lack of investment in new mine capacity over recent years.
Next Steps/Outlook for Project: The following areas will be considered in the Palaris scoping study update: Marketing review coal price relativities and make update where required; Financial model updates valuation date, discount rate, macroeconomic assumptions, opex, capex, production split and coal price relative to benchmarks.
