Mr. Gill Winckler reports

COALSPUR MINES LIMITED (ASX:CPL) FINAL VISTA PHASE 1 CAPITAL PLAN

Coalspur Mines Ltd. has finalized and received board approval of the development plan for its Vista coal project. The development plan for phase 1 of Vista involves:

• Constructing and commissioning a six-million-tonne-per-year-capacity thermal coal facility by mid-2015, with the capability to expand to 12 million tonnes per year;
• A development capital cost of $458-million, with a lump-sum turnkey contract covering $221-million (U.S.) (approximately $226-million) of this expenditure;
• Constructing the six-million-tonne-per-year facility in one stage, as opposed to the previously envisaged two stages:
  • This accelerated development is the result of a modified execution strategy and efficient re-engineering of the materials handling infrastructure and process flow sheet, and presents significant savings (approximately $197-million).

This final phase 1 facility and design is consistent with Coalspur's regulatory application for Vista phase 1, which is currently under final review with the Alberta regulators.

President and chief executive officer Gill Winckler said: "We are extremely pleased with the development plan that the board has approved, as it significantly enhances shareholder value. Shareholders will benefit from reduced capital requirements and a faster production ramp-up than previously contemplated. Furthermore, being able to construct the facility in one stage as opposed to the previously envisaged two stages provides for more effective project execution and delivery.

"The current downturn in the commodities industry, with the associated pressure on commodity prices and service industries, afforded us considerable opportunity as we finalized our project execution strategy and capital. This is evident through our capital efficiency of $76 per tonne of capacity, which is very competitive with comparable thermal coal greenfield and brownfield expansion projects.

"We are pleased to have selected an EPC [engineering, procurement and construction] contractor, Taggart Global, who have an extensive track record in North America in designing, constructing and commissioning coal preparation and material handling plants. We are confident that the combination of Taggart, together with our management and owner's team, which has been significantly strengthened over the last 12 months, will ensure Vista is constructed on time and within budget.

"We continue to make good progress with the Alberta regulators. The regulatory approval process is taking longer than anticipated; however, the review process is in its final stages, and we remain confident that we will be able to commence construction in the coming months and deliver our first coal in mid-2015."

Project execution strategy

Over the past few months, Coalspur completed a competitive front-end engineering and design (FEED) process with reputable contractors as it finalized its development plans for Vista. The FEED process included a review of the engineering design and an evaluation of the process alternatives for Vista, with the aim of delivering a fully costed proposal to engineer, procure and construct the major raw and clean coal handling components of the project. The process resulted in the development of Vista being significantly derisked through an enhanced process flow and provided a high degree of certainty around capital costs and schedule.

Taggart has been selected as the preferred EPC contractor for a fixed-price contract of $221-million (U.S.) and a fixed date of mid-2015 for first production. Taggart will be responsible for the design, construction and commissioning of the coal handling, preparation and processing plant (CHPP), the overland conveyors, and the load-out infrastructure.

Coalspur's owner's team will manage the development components that Taggart is not responsible for, which include site development and utilities. Site development activities incorporate the rail siding, access corridor, plant site and all water management structures to support construction and operations, all of which have been re-estimated using tender prices from preferred bidders. The contracts for installation of high-voltage power connections, a communications network and the mine infrastructure area are prepared and await execution upon receipt of regulatory approvals.

Development plan

The development plan focuses on phase 1 of Vista and will support a six-million-tonne-per-year-capacity thermal coal facility. The facility will be completed in mid-2015 and produce three million tonnes of clean coal in 2015, and be capable of producing six million tonnes per year from 2016 onward.

 FINAL DEVELOPMENT PLAN CAPITAL COST SUMMARY
     (excluding mobile mining equipment)
Item                                        $M

EPC                                   $  235.7
Site preparation                          84.6
Rail siding                               29.3
Infrastructure and utilities              54.6
Owner's costs                             26.4
Equipment                                  7.0
Contingency                               20.4 
Total                                    458.0

Capital efficiency at six million tonnes per
year -- $76.3 per clean tonne.

The decision to construct a six-million-tonne-per-year facility in one stage as opposed to two stages was chosen when the FEED process resulted in significant capital savings compared with the previous plan. The process resulted in capital for a three-million-tonne-per-year coal facility of $437-million (compared with the previous estimate of $445-million for a three-million-tonne-per-year facility), and capital for a six-million-tonne-per-year facility of $458-million (compared with a six-million-tonne-per-year facility in two discrete stages for a total capital of $655-million). The economics were clearly in favour of developing the larger coal facility in one stage, which is consistent with the design phasing of the regulatory application.

The capital estimate for the development plan of $458-million, which excludes mobile equipment as it assumes the use of mining contractors, is approximately $197-million lower than that in the previous development plan. The savings have been achieved through the optimization of the mine and plant design, as well as a refocused execution strategy. Savings were also possible due to reductions in raw material supply costs and construction inputs, which have come about through a downturn in development activity worldwide.

The development plan includes the ability to efficiently expand to 12 million tonnes per year, as the FEED studies and design optimization focused on extracting maximum infrastructure capacity in the first stage of development. For example, the overland conveyor and train load-out will be constructed with 12-million-tonne-per-year capacity in phase 1, and the coal processing plant will be modular and able to expand to 12 million tonnes per year.

EPC contract

Coalspur has agreed the key terms for a fixed-price, fixed-term EPC contract with Taggart, which has extensive expertise in turnkey design, supply, construction and commissioning of coal preparation plants and material handling systems. Between 2007 and 2012, Taggart constructed 23 greenfield CHPP projects in North America.

Taggart will be responsible for the design optimisation, construction and commissioning of the CHPP, the overland conveyors, and the load-out infrastructure. The contract will be for a fixed price of $221-million (U.S.) and a fixed completion date of mid-2015, on the condition that construction commences before 2014. The EPC contract will contain liquidated damages related to plant performance and project schedule, and will offer incentives for early completion. This strategy with the EPC contractor has significantly derisked the capital budget and schedule to first production.

Other significant development expenditures include over $103-million for civil earthworks and the rail siding. Capital estimates for these components are based on unit price rates and payments linked to milestones, providing Coalspur with budget certainty.

Regulatory approval process

The company previously disclosed that it anticipated regulatory approvals by June 30, 2013. The approval process for Vista phase 1 is now nearing completion; however, progress has been slower than anticipated. Decisions are required in the following key areas:

• Aboriginal Affairs branch of Alberta's Sustainable Resources and Environmental Management department -- a decision regarding the adequacy of Coalspur's consultation with various first nations groups: This decision is expected shortly, and no issues have been identified by the government to date.
• Energy Resources Conservation Board (ERCB) -- decision on the technical completeness of the company's application: Coalspur is well advanced with respect to this element, and the company's environmental impact assessment has been deemed complete. The technical completeness discussions are far advanced, and the company is addressing final technical questions from the ERCB.
• ERCB -- decision on the standing of the filers of statements of concern and statements of objection: In this regard, the company continues to engage with all relevant parties and is close to agreement with a number of aboriginal groups.
• Canadian Transportation Agency (CTA) -- decision to proceed with construction of the rail siding: CN Rail is advancing these discussions with CTA, and a decision is expected early in the third quarter of 2013. A temporary field authorization was already obtained for the siding, and the forest clearing in this area has been completed.

Coalspur continues to make progress with all the relevant parties relating to the above decisions. The company expects to receive full approvals to enable construction on Vista phase 1 in accordance with the timeline set out below, maintaining the schedule to achieve first production in 2015.

Project financing

On April 18, 2013, the company announced that it had entered into a senior debt facility with EIG Global Energy Partners for up to $350-million (U.S.). This facility, subject to shareholder approval on June 27, 2013, and other conditions, will provide approximately 80 per cent of the total development capital expenditure for Coalspur to construct Vista phase 1. Financing under the EIG debt facility will be available following shareholder approval. Vista phase 1 is accordingly substantially financed, with the company confident of securing the remaining financing over the next nine to 12 months by way of a strategic partner, marketing or off-take-related transaction.

Timeline

With the contract with Taggart finalized, Coalspur has developed a timeline to first production. The timeline envisages on-site construction, subject to regulatory approvals and permits, in September, 2013, and first coal in mid-2015 as follows:

• EPC award -- July, 2013;
• Commence construction, subject to regulatory approval -- anticipating September, 2013;
• Mining mobilization -- early 2015;
• First coal -- mid-2015.