Waratah Coal takes Queensland by storm

It’s a coal exploration company that many investors in Toronto may not have heard of, but Waratah Coal (WCI-V) is making a big splash in Australia.

In mid-July, the premier of Queensland endorsed Waratah’s A$5.3 billion proposal for a thermal coal mine in the Galilee Basin linked by a new 495-km rail line to a purpose-built export facility on the Queensland coast.

Premier Anna Bligh designated the mine and infrastructure project of “state significance”a classification that is only given to critical infrastructure projects and is designed to help fast-track construction.

In an interview with The Northern Miner, chief executive Peter Lynch explained that the designation will halve the time it takes for the company to nail down approvals, partly because the company will be assigned a project manager by the government whose job it is to make sure the timeframe for approvals is as timely as it can be.

Lynch said the proposed port was the most attractive natural deepwater port location on the coast of Queensland and the new facility would be built to accommodate the new, 350,000-deadweight-tonne Chinamax class bulk carriers.

Waratah will build a heavy haul, standard gauge rail system to support 21,000-tonne train units. The system will be equipped with dual gauge rail from the Bowen Basin mining camp to the port to accommodate third-party users.

Lynch notes that all the major coal companies have operations in the Bowen Basin and Waratah already has had a number of calls from companies that are interested in purchasing the third-party access tonnage.

The Bowen Basin is home to projects owned by BHP Billiton (BHP-N, BLT-L), Anglo American (AAUK-Q, AAL-L), Xstrata (XSRAF-O, XTA-L), Rio Tinto (RTP-N, RIO-L), Vale (RIO-N, MacArthur Coal.

“They just can’t get coal to the market in the quantity that is being demanded by the market, so there’s huge bottlenecks in the infrastructure,” Lynch said.

Waratah’s proposed train would have six locomotives and 180 wagons that could carry 21,000 tonnes of coal. The 500-km trip to the coast would take about seven hours and twenty-seven minutes, Lynch said. By comparison, trains currently used in the region are narrow gauge ones that carry a maximum of 7,000 to 10,000 tonnes.

“We’re looking to establish the infrastructure as a stand-alone business, and we’ve been in discussions with major infrastructure builders in Asia and North America,” Lynch adds. “Now we’ll assemble the parts of the puzzle. We need to sign up the users in the Bowen Basin and the builders of the infrastructure.”

Waratah’s Galilee Basin tenements contain an inferred resource of 4.3 billion tonnes of thermal coal. Its proposed open-pit mine would have an initial export capacity of 25 million tonnes annually and is expected to commence production in late 2012.

“We have about A$40 million in the bank so that’s enough to fund our feasibility studies on the infrastructure and the mine through the next 18 months,” Lynch said.

Of the A$5.3 billion, about A$3.5 billion will be spent on building the rail and port infrastructure and the remaining A$1.8 billion will go toward developing the mine.

Currently Waratah has six drills with another four on their way. By the end of the year management hopes to have increased its resource estimate to between 6-9 billion tonnes of inferred.

Coal will be processed at an on-site facility north of the town of Alpha, 160 km west of Emerald. The processed coal will then be sent by rail to the planned export port facility on the coast.

Lynch noted that Waratah’s proposed project is “on the doorstep” of India and China, enormous economies that “haven’t slowed down one bit.”

And with high oil prices, thermal coal has become a much more attractive option. “Only five years ago, 20% of the world’s power was generated by oil-fired power stations,” he said. “A lot of that is converting to coal because it’s cheaper. At these prices it’s still about one-third the price of oil-fired power generation.”

In Toronto, the Aussie junior is trading at about $2.92 a share, and over the last year has traded within a $1-$4.25 band.

It has a market value of about $120.9 million with roughly 41.4 million shares outstanding.

“We’re trying to get people in Canada to realize that there is a company listed on their stock exchange that has a fantastic coal resource in Australia that is on the doorstep of the Asian market,” Lynch said. “We are in a stable economic climate and in the biggest coal-export nation in the world and we have long-term relationships into those Asian markets.”