East Kutai Coal Project

The East Kutai Coal Project is a thermal coal mine development in Indonesia, situated approximately 160km from the East Kalimantan coast.

The mine covers 350km² and includes four contiguous coal concessions, two of which include defined resources. The project is owned by Churchill Mining with a 75% interest and its Indonesian partner Ridlatama Group with a 25% stake.

The feasibility study of the $1.2bn project was completed in September 2010, and confirmed the project’s technical and economic viability.

The mine will produce 30mtpa over a lifetime of 25 years.

The project will include construction of a mine stockyard, a conveyor, a deepwater port facility and a power station.

Construction was expected to begin in 2010 with completion slated for 2012. However, a legal dispute between the company and the local administrative tribunal over the validity of the mine’s licence has delayed the project. The company has been alleged to have forged the mine’s licence.

The project is estimated to cost $1.8bn. As of December 2010, the company in association with Credit Suisse is negotiating with prospective buyers to form a joint venture for the mine.

Reserves

The mine contains 2.73bn tons of resources including 693mt measured, 825mt indicated and 1.2bn tons of inferred resources.

Proven and probable reserves amount to 961mt.

Geology

The mine area consists of an 18km long and 3km wide defined coal system. The seams range up to 33m in thickness and vary in nature from north to south. In the northern section of the deposit, the seams are relatively uniform with better quality.

The south hosted seams are characterised by more faulting, are relatively thicker and have a lower strip ratio. Across all tenements, however, the seams are more contiguous and remain open along strike.

Mining

The mine will have three open pits. The deposit will be mined using the standard truck and excavator method and the average strip ratio will be 3.7bcm/t.

Coal production from the northern pit will average between 25mtpa-30mtpa while 5mtpa of coal will be produced from the southern pit.

The extracted coal will be stockpiled or crushed immediately in a two-stage in-pit crusher to a market specification of minus 50mm. The final product will be delivered to a mine stockyard with a storage capacity of 528,000t and an underground feeder reclaiming system. The different seams will be separated and blended by stacker-reclaimers as per the requirement.

Coal will be transported from the mine stockyard to a new port stockyard via a 160km overland conveyor with eight 20km long conveyor flights, a 1,600mm wide belt and a capacity of 3,600tph. The conveyor will be powered by a 100MW power plant run by EKCP coal.

The land purchase deal for the port stockyard was completed in December 2010. The location of the port stockyard will provide immediate access for delivery of the coal to the ship loader and deepwater berths.

The port stockyard will have four stock piles with a storage capacity of 852,000t. The loading rate is projected to be 6,000tph.

Coal quality

The mine includes high-quality sub-bituminous coal seams containing less than 5% ash content and less than 0.15% sulphur, 36.89% total moisture and 17.45% inherent moisture. Across all seams, the coal has been classified as medium calorific.

The calorific value of East Kutai averages 5,151kcal/kg on an air-dried basis.

Contractors

The mining operations at East Kutai Coal project have been contracted to PT Leighton Contractors Indonesia.

Under an Alliance Heads of Agreement, Leighton Contractors will offer advisory services to the company as it continues with the engineering, procurement and construction for stage 1 and stage 2 of the project.

Stage 1 will include the fast track operational mining study while long-term infrastructure and mining study will be covered in stage 2.

Churchill Mining will grant a preferred contracting status to Leighton for works in both the stages following an evaluation of the contractual, technical and financial proposals submitted by Leighton.