Cobalt Coal Ltd.
TSX VENTURE : CCF

Cobalt Coal Ltd.

July 17, 2012 15:03 ET

Cobalt Coal Ltd.: NI 43-101 Technical Report Results on Proposed Property Acquisition

CALGARY, ALBERTA--(Marketwire - July 17, 2012) - Cobalt Coal Ltd (TSX VENTURE:CCF) ("Cobalt" or the "Corporation") is very pleased to announce the results of the technical report which was prepared to evaluate the metallurgical coal bearing properties located in Virginia, USA that are proposed to be acquired by Cobalt, all of which were the subject of Cobalt's February 29, 2012 news release (the "C&B Acquisition") and Cobalt's March 8, 2012 and July 11, 2012 news releases (collectively, the "KMH Acquisition"). The qualified person responsible for the preparation of the technical report was Mike Clisso, PE, President of Engineering Services Inc. ("ESI"). The report was prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and is dated effective May 24, 2012 (the "ESI Technical Report"). The following is a summary of the metallurgical coal resources identified in the ESI Technical Report:

METALLURGICAL COAL RESOURCES SUMMARY

In-Place Underground Clean Coal Resources (Tons)
STM Group
Measured

Indicated
Total Measured & Indicated Additional Inferred
Bituminous 51,411,000 68,297,000 119,708,000 127,580,000

The Metallurgical Coal Resources estimated above are situated on six different tracts, each containing multiple seams of coal as further detailed in the "General Information" section below. A detailed economic evaluation was then performed, to a feasibility study level of confidence, on 2 seams out of the 11 identified seams, located on 3 of the 6 tracts proposed to be acquired. The economic evaluation identified estimated Proven Metallurgical Coal Reserves as follows:

METALLURGICAL COAL RESERVES SUMMARY

ASTM Group In-Place Underground Clean Coal Reserves
Proven Probable Total
Bituminous (tons) 15,874,000 - 15,874,000

The feasibility study estimated the net present value of future net cash flows for the Proven Metallurgical Coal Reserves at different discount rates, including required capital, as follows:

DISCOUNTED NET PRESENT VALUE OF FUTURE CASH FLOWS OF PROVEN METALLURGICAL COAL RESERVES, INCLUDING REQUIRED CAPITAL

Discount Rate 0 % 8 % 10 % 12 % 15 % 18 %
NPV $ 386,252,220 $ 230,072,456 $ 205,050,919 $ 183,652,766 $ 156,990,438 $ 135,437,385

KMH Acquisition

The properties associated with the KMH Acquisition are located proximate to Clinchco, Virginia. Cobalt will be acquiring leases on 6 separate tracts covering approximately 5,400 acres which lie within the drainage areas of the Cranes Nest River in Dickenson County, Virginia. Numerous seams of mid vol metallurgical coal have been identified to exist on the tracts including the Hagy, Splashdam, Upper Banner, Lower Banner, Raven, Jawbone, Upper Seaboard, Middle Seaboard, War Creek, Lower Horsepen, and Pocahontas No.3. One of the tracts to be acquired, the Mill Creek Tract, is currently permitted for both surface and underground mining involving approximately 900 acres (the "Permit"), with a pending amendment to include an adjoining lease which will also be acquired by Cobalt pursuant to the C&B acquisition described below, such that the permitted area will expand to approximately 1,600 acres. The ESI Technical Report estimated Proven Reserves included in the Upper and Lower Banner seams of the Davis Tract and the Hagy and Splashdam seams of the Mill Creek Tract. Payment options in relation to payment of the total purchase price of USD $15,000,000 for the KMH Acquisition are more particularly described in Cobalt's March 8, 2012 and July 11, 2012 news releases.

C&B Acquisition

The C&B Acquisition involves lands covering approximately 700 acres that are immediately adjacent to the Mill Creek Tract being acquired, pursuant to the KMH Acquisition, such that the Mill Creek Tract will expand in size from approximately 900 acres to approximately 1,600 acres and is the subject of the Permit extension described above. Numerous seams of mid vol metallurgical coal exist on this expanded Mill Creek Tract and Proven Reserves of mid vol metallurgical coal were established in two seams on this Tract, being the Hagy and Splashdam seams. Payment terms related to the total purchase price of $1,000,000 for the C&B Acquisition are more particularly described in Cobalt's February 29, 2012 news release.

General Information

The following information is extracted from the ESI Technical Report which is NI 43-101 compliant. A full text version of the ESI Technical Report has been filed on SEDAR and is available at www.sedar.com.

ESI used the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") Definition Standards on Mineral Resources and Reserves ("CIM Definitions") adopted by the CIM Council on December 11, 2005 during the classification, estimation and reporting of mineral resources and reserves for the KMH Acquisition and the C&B Acquisition.

ESI conducted physical inspections of all 6 Tracts including the Mill Creek Tract and the Davis Tract for which the ESI Technical Report has assigned Proven Reserves. ESI has also examined the environmental conditions of the Permit and has determined that all applicable environmental regulations have been complied with such that the Permit is in substantial compliance with applicable regulations. In addition, the ESI Technical Report contains a study of the other tracts associated with the KMH Acquisition and C&B Acquisition presented accordance with the provisions of NI 43-101.

Basis of Presentation

The majority of the data reviewed to establish seam thickness and elevation has been obtained from historical mining operations on currently abandoned underground and surface mines. For the Mill Creek and Davis Tracts, a total of 110 data points have been analyzed for purposes of estimating seam thickness and seam elevation. In addition to previous mining records, surface outcrop data has been reviewed. Additionally, drilling and core data has been used to augment geological and mining data that is available from previous mining records or surface outcrop information. Information from a total of 38 drill holes was reviewed during the evaluation.

Coal samples were taken and analyzed yielding the following quality data for the Mill Creek and Davis tracts:

  • The dry basis clean coal Ash is less than 6.0 wt%;
  • The Ash Fusion Temperature is high;
  • The Free Swelling Index is consistently 7 or above; and
  • The volatile matter (VM cc DB) ranges from 27 wt% to 31%.

This coal quality data supports the conclusion that the Proven Reserves and the Coal Resources reported in the ESI Technical Report may be classified as metallurgical in nature.

ESI is of the opinion that the spacing of available coal quality data for the Hagy and Splashdam on the Mill Creek Tract are adequate to support the metallurgical quality determination. The Upper Banner and Lower Banner on the Davis Tract also meet the necessary criteria to support the quality as being metallurgical in nature.

Coal Reserves

In accordance with CIM Definitions and the policies of NI 43-101, a "Reserve" is defined as the economically mineable portion of a "Measured" or "Indicated Resource" that has been demonstrated, after a thorough analysis of mining, processing, economic and other relevant factors, to be economically justified for coal extraction at the time of reporting. Coal Reserves are sub-divided in order of increasing confidence into 'Probable' and 'Proven' Reserves, respectively. A "Probable" Coal Reserve is defined as the economically mineable part of an "Indicated' Resource", and in some cases of a "Measured Resource". A "Proven" Coal Reserve is defined as the economically mineable part of a "Measured Resource".

Two of the 6 tracts are of interest for immediate development, being the Mill Creek Tract and the Davis Tract. Each of these 2 tracts contains numerous coal seams that contain substantial coal resources. These seams have well known extent, quality and mining conditions and have been historically proven to be high quality metallurgical coals. Only the coal resources in the Hagy and Splashdam seams on the Mill Creek Tract and the Upper Banner and Lower Banner seams on the Davis Tract have been economically evaluated in the ESI Technical Report. The economic analysis was conducted to a feasibility study level of confidence and supports the classification of these resources as Proven Reserves. The coal shown to exist in the balance of the seams has remained classified as Coal Resources.

The Federal Mine Safety and Health Administration ("MSHA") regulations provide for mining to a 50' barrier against old mine workings as long as the specified mining practice is followed. This is applicable for only the Upper Banner seam on the Davis Tract and a small area in the Splashdam seam on the Mill Creek Tract as old mine workings are known to exist in these seams. It is not applicable in the case of the Hagy seam or in the southern section of the Splashdam and Lower Banner seams on the Mill Creek and Davis Tracts insofar as no other old mine workings are known to exist within those seams on those Tracts. According to the ESI Technical Report, Proven Reserves quantities have been calculated based on compliance with these regulations regarding setback. The following table summarizes the Proven Reserves contained in the Hagy and Splashdam seams on the Mill Creek and on the Upper and Lower Banner seams on the Davis Tracts. According to the ESI Technical Report, Proven Reserves are estimated to total 15,874,000 tons allocated as follows:

CLEAN COAL RESERVES SUMMARY

Tract In-Place Underground Clean Coal Reserves (Tons)
ASTM Group Proven Probable TOTAL
Mill Creek Bituminous 6,894,000 - 6,894,000
Davis 8,980,000 - 8,980,000
Total 15,874,000 - 15,874,000

The coal seams on the Mill Creek Tract and the Davis Tract are flat lying to very gently dipping and are generally unfaulted. These characteristics indicate that these seams should be classified as "Low Type A" Geology Type to reflect the minimal geological complexity in accordance with GSC Paper 88-21. These Tracts contain underground mineable deposits. The remaining seams (other than the Hagy and Splashdam seams on the Mill Creek Tract and the Upper Banner and Lower Banner seams on the Davis Tract) were not economically evaluated in the ESI Technical Report; however, according to the ESI Technical Report, they contain significant quantities of Coal Resources that have been estimated by the methodology of GSC Paper 88-21 as discussed below.

Coal Resources

In addition to the Coal Reserves described above, the ESI Technical Report identifies the existence of Metallurgical Coal Resources on the Mill Creek, Davis, Tarpon, Fleming and Stanley Tracts. These tracts contain numerous seams with well-known extent, quality and mining conditions which have been historically proven to be high quality metallurgical coals. Volumes were estimated in accordance with the methodology of GSC Paper 88-21.

The following table summarizes the in-place Coal Resources present in the various seams on the Mill Creek, Davis, Tarpon, Fleming and Stanley Tracts and includes the volumes on the Mill Creek and Davis Tracts that were classified as Proven Reserves. It should be noted that they were included insofar as the practices of GSC 88-21 specify that resources be reported inclusive of the reserves, based on the premise that such reserves are simply a special class of resources. Therefore the summary of Coal Resources presented below includes the quantities of Coal Reserves that were presented above separately in this report:

COAL RESOURCES SUMMARY (TONS)

Tract ASTM Group Measured Indicated Total Measured & Indicated Additional Inferred
Mill Creek 9,335,000 14,775,000 24,110,000 2,507,000
ACIN 3,389,000 - 3,389,000 -
Davis Bituminous 37,460,000 48,083,000 85,543,000 67,401,000
Tarpon 1,227,000 - 1,227,000 37,025,000
Fleming - 4,921,000 4,921,000 18,354,000
Stanley - 518,000 518,000 2,293,000
Total 51,411,000 68,297,000 119,708,000 127,580,000

Economic Analysis

For purposes of evaluating the economic viability of the project, the ESI Technical Report used the standards of CIM and the policies of NI 43-101.They provide that a Coal Reserve is the economically mineable portion of a Measured or Indicated Coal Resource that has been demonstrated, after a thorough analysis of mining, processing, economic and other relevant factors, to be economically justified for coal extraction at the time of reporting.

Under the ESI Technical Report prepared in accordance with CIM and NI 43-101 policies, of initial startup capital requirements and ongoing operating cost were estimated for the total mine life. Estimated capital costs are broken down in the report into "Initial Mine Setup Costs" ($1,100,000) and "Equipment Costs" ($11,000,000) which, in each case, are the cost of "facing up" and "acquiring the equipment needed", respectively, to place each seam into production.

For the purposes of the ESI Technical Report:

  1. Operating costs were segregated into "support costs" and "labor costs" and "supply costs" which are dependent on coal seam thickness with a blended average of $71.76 per ton;
  2. The coal sales price was held constant at $125.00 per ton of clean coal delivered to the wash plant which is based on Goldman Sachs 2012 metallurgical coal price forecast;
  3. The mine life was established by preparing a detailed mine plan for all of the seams evaluated;
  4. The optimum mine plan yielded overall recoveries of 60% of the in-place metallurgical Coal Reserves over the life of the mine;
  5. The optimum mine plan involves a "room and pillar" scheme;
  6. Retreat mining that would recover the balance of the metallurgical Coal Reserves was NOT evaluated for purposes of this report;
  7. All estimates were completed on a "before corporate income tax basis" although all applicable royalties, wheelage charges and state levies were included in the economic evaluation.

The table below summarizes the Discounted Net Present Value of Future Cash Flow, including capital requirements that resulted from the evaluation described above:

Discount Rate 0 % 8 % 10 % 12 % 15 % 18 %
NPV $ 386,252,220 $ 230,072,456 $ 205,050,919 $ 183,652,766 $ 156,990,438 $ 135,437,385

Proposed Commencement and Mining Schedule

The ESI Technical Report projected mining to commence in the Hagy Seam (Mill Creek Tract) during September 2012 with one continuous miner. Subject to the availability of financing, the ESI Technical Report assumed that a second continuous miner will be added in January of 2013 and production volumes in the ESI Technical Report were estimated to begin at 5,500 clean tons for the first month of production increasing to 9,400 clean tons for the second month and increasing to 16,934 clean tons for the remaining months and annualized production was estimated at 203,212 clean tons per year per section from this first seam.

Mining of the Splashdam seam (Mill Creek Tract) is forecast to begin in January 2013 with the same ramp up schedule utilized as for the Hagy seam. Two continuous miners are included on each of the Hagy and Splashdam seams per mine producing coal with the Splashdam seam production at 163,868 clean tons per year per section.

Production from the Lower Banner seam (Davis Tract) is forecast to begin in 2014 with a second continuous miner added in 2015. The production in the Lower Banner seam is estimated at 214,594 clean tons per year per section.

Production from the Upper Banner seam (Davis Tract) is forecast to begin during January 2014 and continue for 14 years. Production is estimated at 96,000 clean tons per year with one conventional section of equipment.

Forecast production rates for each of the first 7 years (in tons per year) from the Proven Reserves in the Hagy, Splashdam, Lower Banner and Upper Banner seams on the Mill Creek Tract and the Davis Tract is therefore as follows:

Year 2012 2013 2014 2015 2016 2017 2018
Gross Production (tons) 48,766 636,424 1,014,990 1,259,348 1,239,086 852,924 852,924

It should be noted that there can be no assurance that the production volumes or operating cost projections contained in the ESI Technical Report will be met by Cobalt as many factors, many of which are beyond the control of cobalt, will affect Cobalt's ability to achieve them including, but not limited to, the availability of financing to acquire the necessary equipment and the markets generally with respect to prices received for metallurgical coal.

Recommendations of the ESI Technical Report

The ESI Technical Report makes the following recommendations:

  1. That Cobalt undertakes a program of exploration and confirmation drilling on each of the tracts combined with surface outcrop sampling and measuring. The collection of this additional data will support improved resources mapping confidence and will in turn yield additional quantities of Measured and Indicated Coal Resources by transitioning the large quantity of Inferred Resources to one of those more confident Measured or Indicated categories;
  2. That Cobalt expands the scope of the report to economically evaluate many of the other seams on the tracts to be acquired. Many of the seams situated on the tracts have been economically mined in the past on lands in the immediate vicinity of, and surrounding, the tracts to be acquired. In the opinion of the author of the ESI Technical Report, significant additional volumes of Proven and Probable Coal Reserves would be confirmed by identifying a preferred mining method for, and performing an economic analysis on, many of those seams; and
  3. That Cobalt investigates the construction of, or acquisition of, a suitable wash plant insofar as prices realized for production can be significantly increased thereby.

About Cobalt

Cobalt is a publicly traded coal exploration and production company headquartered in Calgary, Alberta, Canada with a regional office in Welch, West Virginia USA. Cobalt was created to capitalize on the growth opportunities that exist in the metallurgical coal mining industry.

READER ADVISORY

Statements in this News Release may constitute "forward-looking" statements and "forward-looking" information (collectively, "forward-looking statements") as defined in applicable securities laws, which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements may include, but are not limited to, statements regarding:

  • future extraction and exploitation of mineral deposits;
  • the quality of mineral deposits;
  • capital expenditure requirements;
  • expectations regarding prices and costs;
  • development of mineral resources and mineral extraction processes;
  • the Corporation spending the funds available to it as stated in this News Release;
  • expectations regarding the Corporation's ability to subsequently raise capital;
  • expenditures to be made by the Corporation to meet certain work commitments;
  • work plans to be conducted by the Corporation; and
  • reclamation and rehabilitation obligations and liabilities.

In certain cases, forward-looking statements can be identified by the use of such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", "should", "provide" and other similar terminology. These statements reflect the Corporation's current expectations regarding future events and operating performance and speak only as of the date of this News Release. Forward-looking statements are not a guarantee of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.

Such forward-looking statements are based on a number of material factors and assumptions, including, that:

  • the Corporation executes its project development plans in a manner consistent with its budgets and planning;
  • studies to support the Corporation's current development plans; and
  • the Corporation obtains additional financing in the future.

Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. Although the forward-looking statements contained in this News Release are based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this News Release and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Corporation assumes no obligation to update or revise them to reflect new events or circumstances.

Neither TSX Venture Exchange nor its Regulation ServicesProvider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information