LONDON (ResourceInvestor.com) -- Asia Energy [AIM: AEN] on Wednesday reported a loss of lb497,171 for the period from 26 September 2003, when it was incorporated, until June 30 2004. This equates to a loss per share of 2.2p. The group is beavering away at the development of a coal project at Phulbari in north-west Bangladesh. The stock has enjoyed a meteoric rise recently to a value of 424p at close of trading today, instigated by a positive independent valuation of the coal venture at lb1.3bn ($2.3bn). The company listed in April at 75p a share, raising lb14m, and has since devoted much of its capital to undertaking a full feasibility study of Phulbari.
To date the results of this study have indicated that at current coal prices an output of 15m tonnes a year is feasible, which is up from the 9m tonnes suggested in a pre feasibility study conducted in 2000. Total reserves at the site are estimated at 430m tonnes, a figure that is expected to increase during the course of the study, completion of which is expected next year. Production is scheduled to begin in 2007, and the internal rate of return on the project is estimated at 50%. A new feasibility study into a mine mouth power station will begin in the first quarter of 2005.
The feasibility studies are being undertaken by consultants MineConsult and GHD, although the mine was originally discovered by BHP back in 1998 before being divested in a restructuring. The RAB Special Situations fund owns a 17% stake in Asia Energy, while Cambrian Mining own 27%. Asia was de-merged from Cambrian before listing on the AIM, and receives a $1 royalty for every tonne produced at Phulbari.
The company envisages the export of the Phulbari coal primarily to India and China, and claims that the coal is distinguished by its low ash and sulphur content, and high volatility making it highly suitable for power generation. The company anticipates the utilisation of an existing nearby railway to transport coal to India and to Bangladeshi ports to facilitate export further afield.
The company claims to enjoy general local approval for the project and in return espouses 'sustainable' development and consideration for the surrounding environment. This is important as there is much to be achieved in the area of the mine, including the relocation of the local populace. The site though is not though at risk from the bane of most of Bangladesh, which is catastrophic flooding during the monsoon season.
Asia estimates a start up capital requirement of $530m to carry it into the mine's second year of production, and anticipates saleable by-products in the form of clay, sand and aggregates, though these have not yet been factored into revenue projections. Barclays Capital has been engaged as advisers on the securing of finance to take the mine into production, which bodes well for the future.
The Phulbari project is well placed to benefit from the currently buoyant price of high grade thermal coal, which is trading at around $70/t, compared with $35/t this time last year. The company expects the market to maintain these levels until 2006 before settling at a long term level of $65/t. The project can expect steady export markets in China and India, but Bangladesh could also emerge as a significant market as it industrialises and its demand for electricity increases. Asia as a whole is reliant on coal for coking and for power generation, thanks to a paucity of alternatives in the region. In Bangladesh the depletion of natural gas reserves means a wholesale switch to coal may have to occur relatively soon.
The Bangladeshi government is keen to support the project for its developmental and balance of payments benefits and to this end has offered the company a nine year tax holiday, low import duties, investment allowances and zero export duties. The government itself controls a much smaller 1m t/y mine to the north of Phulbari, also serviced by a mine mouth power plant, which demonstrates the feasibility of the area for coal production.