Red Hill Energy Inc.
TSX VENTURE : RH

Red Hill Energy Inc.

November 09, 2006 08:30 ET

Red Hill Energy Inc.: Scoping Study Shows Potential for 20 Year Highly Profitable Coal Mine at Ulaan Ovoo

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 9, 2006) - Red Hill Energy Inc. (TSX VENTURE:RH) (the "Company") is very pleased to announce the results of the scoping study for its Ulaan Ovoo coal project in Mongolia. Behre Dolbear (USA) Ltd. of Denver, CO USA undertook the Scoping Study at the request of Red Hill Energy Ltd. and has determined that a sufficient coal resource exists to warrant continued study leading to economic development of the project from open-pit coal production.

The initial data source (N1 43-101 qualified Technical Report) for this study was the coal resource model that Behre Dolbear prepared for Red Hill Energy in February 2006. This information has been augmented with results from the 2006 exploration program. All figures are estimates and are quoted in US dollars.



Highlights:

Production Per Year at full Capacity 6 million tonnes

Mine Life for the purpose of this study 20 years

Coal Deposit for purpose of this study 111 million tonnes

Economically Recoverable Demonstrated
Coal Resources 208.8 million tonnes

Mine Life with additional resources 34-40 years

Average point stripping ratio of 3.74 bcm/tn (waste to coal ratio)

Run of Mine Heat Value 10,000 BTU per pound (5,550
Kilocalories/kilogram (kcal/kg)


Financial Analysis 111 million tonnes:

Avg. Capital Investment (20 year mine plan) $2.52 per tonne

Direct Operating Costs $7.41 per tonne

Net Present Value at base case
(5% discount rate) $225,500,000

Net Present Value (as above) Per Share $6.93


The current coal resource estimate of 208.8 M tones would provide sufficient coal to allow for a 34-year mine life at the production rates estimated for this study. It is anticipated by Behre Dolbear that the coal resources may be extended to the south sufficiently enough to expand the mine life to 40-years. Adjacent coal basins may well extend the production capacity and tonnage beyond 40 years.

Markets for Ulaan Ovoo Coal:

There are five broad opportunities where significant quantities of Ulaan-Ovoo coal may be sold.

1) Mongolia;

2) Siberia;

3) China;

4) Korea, Japan, coast of China and Philippines, Taiwan; and

5) Mine mouth power plant with transmission to Mongolia, Siberia and/or China

There are three modes of transporting coal from the proposed Ulaan Ovoo mine site to these markets: railroad, truck and on-site power generation & transmission.

For the purpose of the scoping study a mine mouth power plant that would allow for direct electricity sales to both China and Mongolia was elected by Behre Dolbear as the best way to demonstrate potential economic value of the Ulaan Ovoo deposit. The mine mouth power plant option is a relatively low risk scenario that generates solid profits. The coal price received by Red Hill Energy under this scenario would be up to 60% lower than projected sales prices to Japan, Korea, Taiwan, China, Russia and industrial sales within Mongolia but transportation costs would be virtually eliminated. Behre Dolbear anticipated that these other marketing strategies may have substantially greater profit margins and may prove to be superior avenues to pursue. Further in depth marketing and transportation investigations beyond those outlined in the scoping study are being conducted.

Profitability Estimates (mine mouth power plants)

It is estimated that 6 M tonnes of coal per year with a heating value of 10,000 BTU using standard technology will support the generation of 1,200 megawatts of power. It was assumed that an initial 600 mega watt (MW) generating unit would be brought on line in Year 1 of production and a second 600 MW unit would come on line at the beginning of Year 4.

A 20-year plan as mined strip ratio is estimated to be 3.6 bcm/tn of waste per tonne of coal (3:6:1). The maximum depth of the open pit is 290 meters (m) below the surface.

The assumed coal sales price of $17.50 per tonne at the mine site would result in the following:


Per tonne Annual
Net Cash Flow $7.72 $46,320,000 -
--------------------------------------------------
After Tax Per tonne Annual
Positive Net Income(i) $5.82 $34,920,000

(i) The after tax positive net income figures take into account the
recently enacted Mongolian tax law specific to coal including federal
income taxes ($1.86) local taxes ($0.08), and estimated royalties ($0.44)
as well as depreciation ($1.90) totaling $4.27 per tonne.


The $17.50 per tonne coal price at mine site is a Base Case Estimate, The following table shows how changes in the actual sale price would impact the mine's economics:



--------------------------------------------------------------------
Table 19.4
--------------------------------------------------------------------
Base Case Economics and Sensitivities
--------------------------------------------------------------------
NPV @ NPV @ Net
5% 10% Income
Discount Discount After
ROR Rate Rate Tax
Sensitivities (%$) ($M) ($M) ($/tonne)
--------------------------------------------------------------------
Price ($)
--------------------------------------------------------------------
25% $ 21.88 23.9% $ 449.6 $ 218.3 $ 9.02
--------------------------------------------------------------------
15% $ 20.13 21.4% $ 372.1 $ 172.1 $ 7.74
--------------------------------------------------------------------
10% $ 19.25 20.1% $ 333.3 $ 148.8 $ 7.10
--------------------------------------------------------------------
Base Case $ 17.50 17.4% $ 255.5 $ 102.3 $ 5.82
--------------------------------------------------------------------

--------------------------------------------------------------------
Operating
Cost
($/tonne)
--------------------------------------------------------------------
25% $ 9.26 14.1% $ 172.7 $ 52.9 $ 4.43
--------------------------------------------------------------------
15% $ 8.52 15.4% $ 205.7 $ 72.6 $ 4.98
--------------------------------------------------------------------
10% $ 8.15 16.1% $ 222.3 $ 82.5 $ 5.26
--------------------------------------------------------------------
Base Case $ 7.41 17.4% $ 255.5 $ 102.3 $ 5.82
--------------------------------------------------------------------

--------------------------------------------------------------------
Capital Cost
($M)
--------------------------------------------------------------------
25% $ 344.8 14.0% $ 211.3 $ 63.7 $ 5.45
--------------------------------------------------------------------
15% $ 318.8 15.2% $ 228.9 $ 79.1 $ 5.59
--------------------------------------------------------------------
10% $ 305.8 15.9% $ 237.7 $ 86.8 $ 5.67
--------------------------------------------------------------------
Base Case $ 279.8 17.4% $ 255.5 $ 102.3 $ 5.82
--------------------------------------------------------------------

--------------------------------------------------------------------
Fuel Cost
($/liter)
--------------------------------------------------------------------
100% $ 1.20 12.8% $ 138.6 $ 34.3 $ 3.81
--------------------------------------------------------------------
50% $ 0.90 15.2% $ 197.0 $ 68.2 $ 4.31
--------------------------------------------------------------------
25% $ 0.75 16.3% $ 226.1 $ 85.2 $ 4.81
--------------------------------------------------------------------
Base Case $ 0.60 17.4% $ 255.5 $ 102.3 $ 5.82
--------------------------------------------------------------------


Prior to commissioning a Bankable Feasibility Study, Behre Dolbear recommends taking the following three steps:

1) Further define the most suitable market(s)

2) Expand resources by initiating exploratory drilling in the adjacent coal basins

3) Update the mine plan and mine schedule after evaluating new drill results

The independent Qualified Person responsible for preparing the technical material presented in this release is Mr. Gardar G. Dahl, Jr., P.Geo, a senior associate of Behre Dolbear.

ABOUT RED HILL ENERGY INC.

Red Hill Energy Inc. is a junior resource company trading on the TSX-Venture Exchange under the trading symbol "RH". In addition to developing the 208.8 million tonne Ulaan Ovoo Coal Project in northern Mongolia Red Hill is also developing the Chandgana Tal Coal Project in Eastern Mongolia and has 14 uranium properties and several gold and copper exploration projects located throughout Mongolia. Red Hill has a strategic alliance with Mega Uranium Ltd. to jointly develop its uranium assets and has a full time office in Mongolia's capital, Ulaanbaatar

RED HILL ENERGY INC.

G. Arnold Armstrong, Chairman and CEO

Ranjeet Sundher, President

Forward-Looking Statements: Statements in this release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed under the heading "Risk Factors" and elsewhere in the Corporation's periodic filings with Canadian Securities Regulators. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. The companies do not assume the obligation to update any forward-looking statement.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Red Hill Energy Inc.
    Paul McKenzie
    Director
    (604) 642-COAL (2625)
    Email: info@redhillenergy.com
    Website: www.redhillenergy.com
    or
    Fuller Fletcher & Associates Ltd. of London, UK
    Nick Fuller
    European Investor Inquiries
    +44 (0) 20 7256 5204
    or
    Fuller Fletcher & Associates Ltd. of London, UK
    Samantha Fletcher
    European Investor Inquiries
    +44 (0) 20 7256 5204