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Oracle Coalfields

Oracle Coalfields is a UK based company with its primary coal projects in Pakistan. It will in time evaluate global opportunities for investment and strategic partnership for coal mining and production.

Oracle Coalfields: Strategic partner for Thar will be game-changer, says CEO

25th Jan 2013, 11:21 am by Giles Gwinnett
An upgraded implementation plan at the tail end of last year lowered the predicted costs of bringing Thar online to US$463 million - almost half the original figure An upgraded implementation plan at the tail end of last year lowered the predicted costs of bringing Thar online to US$463 million - almost half the original figure

If last year was about putting in place the fundamental strategy for Oracle Coalfields' (LON:ORCP) ambitious plans to bring Pakistan's first large coal mine on stream, 2013 is about implementation.

So says chief executive Shahrukh Khan as he outlines plans for the Thar project in Sindh province.

In 2013, first and foremost is securing a potential strategic partner to come on board and talks are already underway, he tells Proactive.

He believes this will be a "game-changer" for Oracle.

"(Investors) will be comforted that once we are able to engage a prospective partner, the coal project should proceed in a systematic way to mine development and production," he says.

The plan is that such a partner will provide operational muscle such as equipment, power, manpower and perhaps, even more importantly - dollars.

The funds will be in the form of debt financing and Khan says Oracle is hoping to get up to 75% of the financing required for the project in this way.

An upgraded implementation plan at the tail end of last year lowered the predicted costs of bringing Thar online to US$463 million - almost half the original figure.

As an example, Khan said if the company needed therefore to bring 30% from the market (having secured 70% in debt financing) that would mean around US$135 mln.

"The type of people we want to target for this equity in this whole process will be a combination of Middle East, Far East and certainly our own UK markets," he said.

Khan revealed that interest from potential strategic partner was coming mainly from the Far East, while Oracle will continue talks with potential equity investors in the Middle East.

"There is no shortage of potential investors to contact," he said, underlining the fact that interest in the whole project is now gathering.

Indeed, what any partner may also take on board when investing in Thar is the other fascinating part of the Oracle story, namely the plan to build a power plant at the mouth of the open pit.

Oracle last year signed a joint development agreement with a large Pakistani utility firm - the Karachi Electric Supply Company, which operates power plants in Pakistan.

It wants to use Oracle's handiwork and build a mine-mouth 300 megawatt (MW) power plant to address the country's energy crisis, with provision to increase it to 1100 MW.

This gives Oracle's vision a whole other dimension and potentially a totally different scale.

Khan points out that those it is engaged in talks with are also looking at the project in its entirety as an integrated mine and power plant.

"If it all comes good, these are game changers. The energy produced in Pakistan is such that coal represents less than 1% of the energy mix. If it (the project) all goes well it is forecasted that coal consumption will represent more than 17% of the energy mix.

Coal will not substitute oil and gas but contribute significantly to the country’s energy mix".

Khan explains the resource has never been an issue for the project.

In the designated 20 square kilometre mining area alone within the mining lease, the JORC resource stands at 529mln tonnes and it would take some 20 years just to mine phase 1, targeting 113mln tonnes of proven resources.

Up until now, the issue has been whether the open pit was commercial and feasible; this has now been addressed in the latest study.

This slashed capital expenditure costs and predicted more favourable production costs of US$24 per wet metric tonne over life-of-mine (LOM) compared to US$42 per tonne previously.

The project is now targeted to return 20.5%, based on fiscal incentives provided by the Sindh Government

Lignite required for a 300MW power station has been estimated at 2.2 million wet tonnes per annum, which gives Oracle sufficient reserves to support a 300MW power plant for 50 years.

Khan is keen to be realistic and build the project up steadily and carefully, with an eye on the markets, which in 2012 were hardly conducive to easy money.

"This can be a medium or a very sizeable mine. If you do a big mine, we can feed an 1100 MW power plant but then you need a substantial amount of money; we have to be realistic.

"Even if the markets are buoyant we do feel that's a very a sizeable investment to take risk."

So there is no doubt that Oracle has much to offer. Plenty of news flow is expected this year and has a potentially ground breaking project to address a long term energy need.

Demand for electricity in Pakistan, which has a population of 180mln, is projected to outstrip supply for the next 20 years, meaning the Oracle proposal comes at just the right time. It also means that Oracle continues to receive government support in its initiative.

So gaining a partner could really set this stock apart in 2013.

As broker Seymour Pierce (which rated the shares a buy) highlighted last year there is "clearly no shortage of domestic industrial and power generating demand for Oracle's coal".

From the foundations already laid that include a viable mine plan, a 30 year mining lease and a clearly defined customer base, Oracle needs to conclude off-take agreements with its customers, the finalisation of the ESIA for public consultation (baseline studies are complete) and secure the capital required to bring the project into production. It will be very busy year."

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