June 2009 quarterly report

Transcription

1 June 2009 quarterly report HIGHLIGHTS Canning Basin Coal Projects, WA Resource at Duchess-Paradise upgraded to over 500Mt thermal coal Pre feasibility study on coal export project underway Myroodah Underground Coal Gasification target of Mt Target calculation underway at Liveringa Asian countries continue plans to import thermal coal Corporate Takeover offer launched by Gujarat Board recommends shareholders REJECT offer Rights Issue to raise $2.75M (before costs) For further information, contact: ABN ASX Code: REY Phone: info@reyresources.com Web:

2 (REY) listed on the ASX in June Rey Resourcess is focusing on the development of its thermal coal properties. It owns coal, oil and gas tenements in North-West Australia that have excellent potential for medium to large scale development. The Company aims to create shareholder value through the development of its wholly owned coal properties and the divestment or joint venturing of the other properties. Australian Energy Projects Canning Basin Coal: Rey s Canning Basin Coal Projects are located in the Fitzroy Trough of the Canning Basin with Exploration Leases covering approximately 8,000 square kilometres (refer Figures 1 and 2). The company estimates the Canning Basin Coal Projects to contain in excess of one billion tonnes of coal to a depth of 500 metres. Rey s aim is to develop a thermal quality coal resource to support an initial export mining operation as a precursor to a larger scale operation in this extensive coalfield, which will feed the strong Asian demand for Australian export coal for power generation. Rey is also examining the potential for underground gasification from coal resources that are too deep for export. Figure 1: Location of Rey Resources coal leases in the Canning Basin, Western Australia 1

3 Canning Basin Strategy: The company s strategy is to concentrate on the near surface coals of the Canning Basin Coal Projects which may be extracted by conventional open pit or underground mining. Rey estimates there is about 250 kilometres of sub- crop target in the company s leases of which only 20 kilometres have been fully explored in the total 8,000 square kilometres of current leases. At Duchess-Paradise (refer Figure 2) a resource of 511 million tonnes of thermal coal was reported and is detailed below. This resource is expected to underpin an initial export operation using the Port of Derby to ship up to two million tonnes per annum which is the basis of the current prefeasibility study. The great extent of the coal prospects in Rey s leases indicates that much larger mining operations may be possible. These will require export through a new deepwater facility. The site of Point Torment has been identified as suitable for this purpose (refer Figure 1) and will require further investigation as part of future feasibility studies. Reinterpretation of historical oil exploration seismic data suggests there is a very large amount of deeper coal in the basin that is too deep to be mined conventionally. The Myroodah target (refer Figure 2), at 55 square kilometres, represents a small part of this deeper coal and is considered potential suitable for underground coal gasification (UCG). The company is in discussions regarding partners on one or more export coal project areas and in respect to a farm-out or sale of the deeper coals to parties with demonstrated expertise in UCG extraction. Figure 2: Rey Resources coal leases in the Canning Basin with geology Update on Coal Market The location of the Canning Basin projects makes countries in Asia, in particular the growing market of India, the logical buyers for Rey s coal. At a June 2009 Coaltrans Conference, both producers and power station operators illustrated the growing importance of low-rank coal supply (4,800-5,400 kcal/kg gar). It was also noted that Japanese utilities have started studies on the use of low-rank coal for their existing power plants. In November 2008, a Business Wire article noted that in India, the Expert Committee on Road Map for Coal Sector Reforms forecast a shortfall of 100 million tonnes of thermal coal is expected in the country by the end of financial year To meet this demand-supply gap, the Indian Government is looking at various alternatives, for example, 2

4 foreign direct investment, acquisition of overseas coal report, captive mining, faster project approvals, better technology and the like. In financial year ending 2008, India imported approximately 21 million tonnes of thermal coal. The major source of imported thermal coal is from Indonesia. The close proximity of Indonesia gives Indonesiann coal a freight advantage over others, particularly coals exported from the eastern states of Australia. Export from Derby in Western Australia would also exhibit a freight advantage over coals from the eastern states of Australia. In March 2009, ABARE estimated China s imports of thermal coal to have declined by 18 per cent in 2008 to 34 million tonnes. Imports are forecast to decline marginally in 2009 because of slower domestic electricity demand growth. However, the competitiveness of coal imports into China has increased owing to lower international coal prices and freight rates, while growth in domestic production is likely to ease, presenting an upside risk to this forecast. ABARE projects China s imports of thermal coal to increase at an average annual rate of 12 per cent a year to 65 million tonnes in The Western Australian Government continues to look at the potential for diversification of the State s energy supplies and Rey continues to examine at how some of its potential product may meet these needs. Duchess-Paradise Project (EL04/1519) An initial JORC estimate at the Duchess- Paradise project in the Canning Basin, Western Australia (refer Figure 3, below) was announced in April, This estimate was based on 29 cored holes, drilled in the 2008 field season. Six cored holes were excluded from the calculations as the core recovery was less than 95 per cent. The additional 180 open holes drilledd in 2008 were subjected to geophysical logging. Geostatistical analysis on both open and cored holes was completed and the results announced in June This showed the typical strong relationship in coal between ash and density. In line with normal practices a revised JORC estimate was prepared based on all the data. This resourcee comprises two coal seams in the Duchess-Paradise project area, an Upper Seam (P1) and Lower Seam (P2). JORC resources have been calculated for both seams and are presented in Table 1, below. Seam Measured (Mt) Indicated Inferred Total (Mt) (Mt) (Mt) P P Total Table 1: Duchess- Paradise Resources by category as at June,

5 Key Findings the two seams are separated by up to 15 metres of silty sandstone interburden but can be locally contiguous to form one thick coaly sequence the coal ranges in depth from five to 10 metres below the surface at the weathered subcrop to over 300 metres down dip the seams dip between seven and ten degrees to the south in the Duchess region and between two and five degrees to the east in the Paradise region nearly all of the Measured and Indicated Resources occur less than 250 metres; the majority of the Inferred Resource occurs less than 300 metres P1 seam thickness averages 2.2 metres (range metres) over the Duchess-Paradise region P2 seam thickness averages 6.8 metres at Duchess but thins to the north and averages 2.3 metres in the Paradise area Coal Properties Washed coal quality analysis for the two seams in the resource at Duchess-Paradise is provided below in Table 2. The Upper seam (P1) is of higher quality than the Lower seam (P2). P1 seam can be characterised as a moderate ash, moderate energy coal that can upgraded to a product that is typical of the thermal power station market in Asia P2 seam can be characterised as a banded dull coal that is most typical of domestic thermal power station markets sulphur content is higher than East Coast Australian coals however many overseas power stations are equipped to handle such material Float Density Yield P1 F= F= F= Moisture Volatiles Ash Total Sulphur %(adb) 1 % (adb) 1 % (adb) 1 % (adb) 1 % (adb) Specific Energy 2 kcal/kg 6,029 5,221 4,956 P2 F= F= , ,509 1 Air Dried Basis 2 As calculated from averages Table 2: Washed coal analysis for the Duchess-Paradise resource Further Work The resource calculated from the 2008 drilling program has fulfilled initial expectations and forms an attractive base for further evaluation. The resourcee is open to the west and down dip to south in the Duchess region and down dip to the east in the Paradise region. Once further evaluation in the pre-feasibility study is completed a drilling program can be designed to provide the information required for an export operation. 4

6 Figure 3: Overburden thickness to P1 seam, Duchess-Paradise Pre-Feasibility Study Rey has started a pre-feasibility study to investigate if a commercial export mining operation can be sustained on the resource. The study is focusing initially on selecting the higher quality, near surface areas of coal within the approximately half billion tonnes of resource reported to date. Rey s expectations are for an initial open pit operation of about two million tonnes per year of export-quality coal that can be exported via the Port of Derby with production commencing in The study is due for completion by the end of Further drilling and sampling at Duchess- Paradise as part of a full feasibility study is anticipated for Environmental studies are expected to commence in the last quarter 2009, before the start of the wet season. Liveringa Project (EL04/1219) The Liveringa Project occurs along strike from the Duchess Project, approximately 60 kilometres to the west. In 2008, eight open holes and one cored hole were drilled at the Liveringa Project. As reported, geophysical and visual logging of five holes confirmed the presence of a coal seam at median thickness of 3.3 metres. In addition, a thick, banded coal seam of up to 30 metres was identified in geophysical logs below, and apparently joined to the Upper seam. The seams dip to the south at approximately 25 degrees. 5

7 A target calculation is being undertaken on the results from the 2008 drilling together with 30 holes drilled by AIE in 1972 and is expected to be released in the current quarter. Myroodah Underground Coal Gasification (UCG) Project (EL04/1383) The Myroodah Project is located about 30 kilometres south west of the Duchess-Paradise area, where the JORC resource has been confirmed (refer Figure 2). The coal at Myroodah occurs at depths of greater than 200 metres on an anticlinal structure (Deep Well Anticline) which strikes east-west for approximately 50 kilometres in the centre of a large basinal structure that appears to contain extensive coal deposits. Coal was first identified at Myroodah in an oil exploration well (Petaluma-1) in In 2005, Rey Resources confirmed the presence of a 15 metre thickness of banded coal at depths of approximately 200 metres at Myroodah through the drilling of one cored hole and completed three open holes. Three further open holes were drilledd at Myroodah in Of these, two intercepted a coal seam which has been interpreted from downhole geophysical logs as 15 and 16 metres thick from depths of 298 and 302 metres respectively. These holes were drilled approximately two kilometres east and four kilometres west respectively, from the previous core drilling at Myroodah in 2005 indicating the coal occurs extensively in this locality. The drill holes from both drilling campaigns are summarised in Table 3, below. GPS co-ords (amg) Myroodah Coal Seam Hole No Type Easting Northing Top Bottom Thick (m) (m) (m) P01 open 640, , P02 open 642,2000 7,979,750 P07 open 638,2000 7,597,715 P10 open 638,205 7,981, P01C core 640,2400 7,979, Total Hole Depth Depth (m) 228 Comment 78 abandoned hole ended above seam M01 open 636,2066 7,981, M02 open 640,2222 7,981, M03 open 632,2022 7,981, Holes designated prefix P drilled in 2005; holes designated prefix M drilled in All holes drilled vertical. 1 Corrected from release of 30 June hole ended above seam Table 3: Summary of Drilling to date on the Myroodah UCG Target Drilling and analysis of seismic data (from previous oil exploration programs and reinterpreted in 2005) has delineated a broad area of sub-bituminous coal as a single seam of up to 15 metres thick comprising interbedded coal and tuffaceous mudstone/siltstone over an area yet to be closed off. The coal from the cored hole was analysed in 2005 and reported in the company s Initial Public Offering Prospectus of that year. 6

8 The coal in this locality has high ash (46%), is banded and intermixed with siltstones and sandstones which leads to a low average energy content of approximately 2,900 kcal/ kg- and is not considered suitable as an export thermal coal in this locality. However, it is considered suitable as a target for UCG. Myroodah UCG Target Estimate As anticipated in the March 2009 quarterly report, and announced in June, a computation was completed using the results of recent and historical data. The computation has generated an estimate of the volume of coal in the target area. This estimate is not in accordance with the JORC Code, The Myroodah UCG target is broadly defined as an area with dimensions of approximately 10 kilometres by 5.5 kilometres and covers approximately 55 square kilometres (refer Figure 4, below). Coal contained within this area is estimated at 450 to 500 million tonnes, using an average seam thickness of 14 metres, specific gravity of 1.4 and assuming 45 per cent of the seam to be coal. The potential quantity and quality of the target is conceptual in nature and there has been insufficient exploration to define a Mineral Resource at this location and it is uncertain if further exploration will deliver a resource. Figure 4: Map of the Myroodah UCG target 7

9 Petroleum Licences (Rey 100% farming out to 10%) In January 2008, Gujarat NRE Resources Ltd paid $275,000 to Rey. Under the Agreement, Gujarat NRE Resources Ltd must spend $4.85 million over five years to earn a 90 per cent interest in the two Exploration Permits. Rey Resources Limited will retain a 10 per cent free carried interest in the permits until the grant of a petroleum production licence. During the quarter Gujarat, as operator, continued the reprocessing and analysis of seismic data. Rey retains 100% of the Coal Seam Methane rights to the leases. Corporate Takeover Offer Received Rey refers to the announcement by Gujarat NRE Minerals Limited (Gujarat) on 3 June 2009 of its intention to make a conditional takeover for Rey for an offer consideration of one Gujarat share for every five Rey shares (the Gujarat Offer). The preliminary and unanimous view of the Directors of is that the Gujarat Offer does not reflect the value of Rey is highly conditional and, as structured, is incapable of succeeding. It is the present intention of all Directors of Rey to recommend that Rey shareholders REJECT the Gujarat Offer. Each of the Directors, who collectively (with associates) own approximately 20 per cent of Rey s current issued shares, do not intend to accept the Gujarat Offer for their own Rey shares. The following additional information is provided in the context of the announcement of the Gujarat Offer: Gujarat is controlled by associates of its Chairman Mr Arun Kumar Jagatramka, ncluding Gujarat NRE Coke Limited a company listed on the BSE in India, who together own more than 82.5 per cent of Gujarat shares Mr Jagatramka was a director of Rey until his resignation on 3 June 2009 and accordingly would have a detailed understanding of the inherent value and excellent potential of the Rey assets, including the Canning Basin Coal Project the reliability of ASX tradedd prices as a measure of value, and the investment characteristics of Gujarat shares, are of material concern in the context of a takeover offer from Gujarat Full information regarding the Directors recommendation and a formal response to the Gujarat Offer will be provided in the Target Statement to be prepared by Rey. Rights Issue Launched In June 2009, the company announced a partially underwritten pro-rata non-renounceablee rights issue of new ordinary shares. This entitles shareholders on the record date of 25 June 2009 to subscribe for one new ordinary share for every five ordinary shares held at a price of nine cents per share. The Offer is partially underwritten by BBY Limited which has agreed to underwrite the number of Shares to be issued under the Offer excluding 3,383,697 Shares representing, in aggregate, the minimum number of Shares agreed to be taken up by the Directors of the company as part of their entitlement. The Offer will raise approximately $2.75 million before underwriting and other issue expenses. The proceeds of the offer will be used to progress the evaluation of the coal interests in the Canning Basin including further understanding of the resource and completion of the pre-feasibility study. 8

10 Board Mr Arun Jagatramka and Mr Mihir Dave (alternate to Mr Jagatramka) resigned as directors of Rey on 3 June, Financials The cash balance as at June 30 was $528,000. This excludes the $2.75 million (before costs) to be raised under the rights issue. More financial details will be released in the Company s Appendix 5B. Outlook for 2009 The company has a number of substantial initiatives to progress during 2009 and is confident that projects being investigated remain robust. However, in light of the current global economic situation, one or more partners will be sought to advance the projects and discussions with interested parties continue. 9

11 Corporate Directory Board of Directors Julian Ludowici Chairman Kevin Wilson Managing Director Bruce Preston Technical Director Alan Humphris Non-Executive Director James McClements Non-Executive Director Company Secretaries Julian Ludowici Rolando Tinoco Capital Structure Rey Resources is listed on the Australian Stock Exchange (ASX: REY) and has 153 million ordinary shares on issue and 38.7 million options at various exercise prices as at 30 June Share Registry Registries Limited Level 7, 207 Kent Street Sydney NSW 2000 Australia Tel Fax Registered Office Suite 802, Level 8 50 Clarence Street Sydney NSW 2000 Australia Tel Fax

12 Company Announcements Date Headlinee 30/06/2009 Canning Basin Coal Project 30/06/2009 GNM: Update Re Proposed Takeover offer for 26/06/2009 Despatch of Offer Letter and Entitlement and Acceptance Form 25/06/2009 Rights Issue- Cleansing Statements 22/06/2009 Panel Receives Application 22/06/2009 Management Update /06/2009 Letter to Shareholders 18/06/2009 GNM: Update regarding proposed T/O offer for Rey 18 June 09 17/06/2009 Non-Renounceable Issue 17/06/2009 Disclosure Document - Cleansing Statement 17/06/2009 Appendix 3B 17/06/2009 Responsee to GNM Offer/ Non-Renounceable Issue 15/06/2009 Trading Halt 10/06/2009 Final Director's Interest Notice 05/06/2009 Appendix 3B Cancelation unlisted employee options 04/06/2009 Gujarat Proposal 04/06/2009 Director Resignation 03/06/2009 GNM: Intention to Make Takeover Bid - 3 June /06/2009 Upgrade to JORC Coal Resource in WA`s Canning Basin 28/05/2009 Presentation at BBY 2009 Resources Conference 11/05/2009 Amended Appendix 3Y 08/05/2009 Appendix 3Y Change of Directors Interest Notice 30/04/2009 Appendix 5B March 2009 Quarterly Report 30/04/2009 March 2009 Quarterly Report 01/04/2009 Initial JORC Coal Resource in WA`s Canning Basin 27/02/2009 Appendix 4D Half Yearly Report to 31 December /02/2009 Appendix 3Y Change of Directors Interest Notice (KW) 24/02/2009 Appendix 3B Options Granted 30/01/2009 Appendix 5B December 2008 Quarterly Report 30/01/2009 Company Secretary Resignation and Appointment 30/01/2009 December 2008 Quarterly Report Geological Attribution The information in this report that relates to Exploration Results or Mineral Resources is based on information compiled by Bruce C Preston who is a member of The Australian Institute of Geoscientists ("AIG"). Dr Preston has sufficient experience to qualify as a Competent Person for the purposes of the 2005 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Dr Preston is the Technical Director of and he consents to the inclusion in the report of the matters based on their information in the form and context in which they appear. Dr Preston has a beneficial interest in 5,538,375 shares or 3.6% of the issued capital of Rey Resources Limited. The estimation of the Duchess-Paradise Coal Resources has been provided by Mr Richard Campbell, who is a Member of The Australasian Institute of Mining and Metallurgy ( AusIMM ) and is a full time employee of Blackrock Mining Solutions Pty Ltd who were contracted to provide the JORC estimate. Mr Campbell has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 Edition of the Australian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code). Mr Campbell has over 10 years of coal specific experience including coal exploration, resource modelling, estimation and assessment, and geotechnical assessment and modelling. Mr Campbell consents to the inclusion in the report of the matters based on their information in the form and context in which they appear 11

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