ASX: PDZ
ABN 23 008 677 852
Lublin Coal Project Europe's Next Strategic Supply of Thermal Coal
October 2013 For personal use only use personal For Prairie Downs Metals Limited – Lublin Coal Project
Prairie Downs Metals Limited (ASX:PDZ) is an ASX listed company developing the Lublin Coal Project in Poland’s world class Lublin Coal basin
Lublin Coal Project Map Strategic resource of high quality thermal coal - Inferred Coal Resource Estimate of 1.6 billion tonnes
Existing rail and port infrastructure providing access to Polish and European coal markets
Adjacent to the world-class Bogdanka (WSE:LWB) longwall coal mine - one of the lowest unit operating costs in Europe
Commenced confirmatory drilling program with the Scoping Study being completed by Wardell Armstrong International Ltd
Experienced board and management team with strong coal For personal use only use personal For expertise and experience in Poland
2 Coal – Fundamental to Europe’s Energy Matrix
During 2012, Europe1 consumed over 770mt of coal for power generation, of which 265mt was thermal coal. Thermal coal imports amounted to 172mt, accounting for 22% of globally traded thermal coal… European Thermal Coal Imports & Production by Country (2012) 40 33 3 509 mt 52
Finland1 2
Thermal Coal Production (2012)
15 Thermal Coal Imports (2012) 10
9 Germany1 2 1 UK 2 8
Netherlands1 2 3 172 mt 1 12 Poland1 2 Czech1 2 93 mt 2 Republic 2 France1 2 Austria1 2 Romania1 2 20 19 4 19 2 2 Lignite Thermal Thermal
Productiononly use personal For Production Imports Portugal1 2 Bulgaria1 2 3 7 Total Europe Lignite and Turkey1 2 Thermal Coal Consumption Italy1 2 (2012) Spain1 2
Source: Euracoal (2012) 1 Europe is the EU plus Turkey 3 Europe – Declining Domestic Coal Production
Europe’s hard coal production continues to decline as viable coal resources deplete
European Hard Coal1 Production (million tonnes)
400 Rest of EU 365mt (total) Czech Republic 350 Germany 300 295mt United Kingdom Poland 250 227mt 200 189mt 155mt 150 127mt
100
50
0 1991 1995 1999 2003 2007 2011
Source: Eurostat . Traditional coal basins in Germany, UK, Czech Republic and Poland that have been operating for hundreds of years are becoming increasingly technically challenging and costly . Hard coal production from Poland’s primary coal producing basin, the Upper Silesian basin, has declined by over 20mtpa in the last decade
and declined 4.2% over the last twelve months For personal use only use personal For . UK hard coal production fell to a record low of 17mt in 2012, with further curtailment in 2013 due to mine closures (Daw Mill Colliery closed in March 2013 and represents a 1.6mtpa production loss) . Germany is expected to close all hard coal mines by 2018 due to the ending of government subsidies, resulting in 12mtpa of hard coal production to be replaced by imports 1 Hard Coal includes Thermal and Metallurgical Coal 4 Increasing Reliance on Imported Thermal Coal
Imports from Russia, Colombia, the US and others are fundamental for European thermal coal supply…
USA Russia
Export to EU (2012) 35.8mt Export to EU (2012) 60.3mt
% Total of EU Imports 19% % Total of EU Imports 33%
Calorific Value (Kcal/kg) 6,676 Calorific Value (Kcal/kg) 6,177
Cash Cost (2013e) Cash Cost (2013e) US$132/t th US$100/t (85th percentile, FOB) (85 percentile, FOB) Russia
Colombia Indonesia
Export to EU (2012) 58.7mt Export to EU (2012) 9.4mt
% Total of EU Imports 32% % Total of EU Imports 5% USA Calorific Value (Kcal/kg) 5,945 Calorific Value (Kcal/kg) 5,150
Cash Cost (2013e) Cash Cost (2013e) US$60/t US$64/t (85th percentile, FOB) (85th percentile, FOB)
Indonesia
South Africa Australia
Export to EU (2012) 13.8mt Colombia Export to EU (2012) 2.0mt
% Total of EU Imports 8% % Total of EU Imports 1%
For personal use only use personal For Calorific Value (Kcal/kg) 6,141 Australia Calorific Value (Kcal/kg) 6,008
Cash Cost (2013e) South Africa Cash Cost (2013e) US$62/t US$87/t (85th percentile, FOB) (85th percentile, FOB)
…security of supply, coal quality and price are key considerations for power generators
Source: Deutsche Bank May 2013 Report; Euracoal (2012) 5 Coal – Poland’s Primary Energy Source
Poland remains heavily reliant on coal for energy production
. Poland produces some 90% of its electricity from coal Poland Electricity Generation Mix (2011)
2% 6% . Lignite production from Poland amounted to 64mt in 2012 2%
. Polish hard coal production totalled 78mt in 2012, of which 52mt was thermal coal 90%
. Poland imported 12.7mt of thermal coal in 2011, and 7.5mt in 2012
Coal Oil Gas Other (incl. Renewables) . Coal imports to Poland are mainly transported by rail from Russia, via
Belarus and Ukraine, with some imports via the Baltic seaports For personal use only use personal For Source: EIA & Euracoal
6 Poland - A Favourable Investment Jurisdiction
Poland is a safe, low risk mining jurisdiction with an excellent fiscal regime
. Poland is a first world country having gone through significant reform since the Belchatow Power Station (4,440MW) in Poland end of communism in 1989
. Over US$120 billion in foreign direct investment into Poland since 2004
. Poland has one of the most attractive fiscal regimes globally for coal mining:
Corporate Tax: 19%
Royalty: 4PLN/t (~US$1.2/t) Coal Terminal at Gdansk, Poland
. Poland is the largest hard coal producer in Europe and is a key supplier of coal to its domestic market and neighbors
. Poland has a highly skilled coal mining workforce, with 110,000 people still
directly employed in the industry For personal use only use personal For . Availability and low cost of skilled labour make Poland an attractive jurisdiction to develop coal projects
Source: Eurostat and Polish Ministry of Treasury 7 Upper Silesian and Lublin Coal Basin – Coal Production
The Lublin Coal Basin represents a low cost alternative to traditional Upper Silesian production
. Polish coal production has historically been supplied from the Upper and Upper Silesian and Lublin Basin Coal Production Lower Silesian Basins ₋ supply from the region is decreasing due to a decline in viable reserves ₋ technically challenging due to geological and mining conditions leading to high operating costs
. The Lublin Coal Basin is relatively new having been explored in the 1960’s- 70’s, with the first mine being commissioned in 1982 ₋ favourable geology allows for low cost mining
Upper Silesia1 Lublin
Years in Production 250 30
No. Active Coal Mines 29 1
Annual Production 82 mt (FY13E) 8.6mt (FY13E), 11.5mt (FY15E)
3 3 Seam Methane Content +20m per tonne 2m per tonne Outburst/Rockburst High to Severe Low hazard
Seamonly use personal For Dip 0-45 deg 2 deg
Coal seam variability High Low Typical Block Longwall 150m wide and 1.2km long 300m wide and up to 5km long Dimensions
Note: 1 – Includes both Polish and Czech mining operations in the Upper Silesian basin Source: Company reports and PDZ analysis 8 The Lublin Coal Basin hosts a World Class Mine
“The Bogdanka mine ranks with the best deep coal mines in the world in terms of the absolute performance of its longwalls and development headings”, SRK Mining Consultants
Bogdanka Coal Mine US$112/t $US110/t
US$43/t
Bogdanka JSW SA New World Resources (WSE: LWB) (WSE: JSW) (LN: NWR)
Q2 2013 Unit Mining Cash Costs (Source: Company Filings, 3.15 PLN/USD, 0.74 EUR/USD)
. Bogdankaonly use personal For is the blueprint for development and operation in the Lublin coal basin - it has been operational since 1982 – Bogdanka is listed on the Warsaw Stock Exchange (WSE: LWB) with FY13E production of 8.6mt (FY15E: 11.5mt), and has an enterprise value of ~US$1.3 Billion (17 Oct 13) and a dividend gross yield of approximately 4.5% (2012) . Bogdanka supplies domestic and international power utilities with major customers including; Elektrownia Kozienice SA - ENEA SA Group, GDF Suez Energia SA, PGNIG Termika and Ostrołęka Power Plant. 9 Next Generation Longwall Plow Technology
World record setting plow technology deployed in the Lublin Coal Basin…
Caterpillar Plow, AFC and Hydraulic Chocks Operating Longwall Plow Face
. Recommended technology for seam heights of 0.6m to 2.3m as compared to a traditional shearer longwall For personal use only use personal For
. The Lublin Coal Basin provides ideal conditions for high productivity longwall plow operations with a world record set by Bogdanka of 27,485 tonnes in one day from a single face and daily average production of 12,680 tonnes (equivalent to 4mtpa ROM production from a single longwall unit)
Source: Caterpillar website (Not Prairie’s equipment) 10 Poland’s Established Coal Infrastructure
Strategic choice for low cost European coal supply with an established rail system and export ports For personal use only use personal For
11 Power Plant Delivered Costs
Coal supply chain comparison demonstrates a competitive advantage for the Lublin Basin
Port- Power Plant FOR Mine Mine-Port S/Pile & FOB CIF ARA Unload & Shipping Power Delivered Cost Rail Port Load US$86/t S/Pile US$78/t Plant Rail Cost
~US$43/t ~US$30/t ~US$5/t ~US$8/t ~US$5/t ~US$10/t ~US$101/t Russian Coal Supply Chain
Source: Based on E.on 2012 “Seaborne steam coal market dynamics and future production costs” and WoodMac
Port- Power Plant FOR Mine Power . Lublin Coal Basin has a distinct advantage to European coal fired Cost Delivered Plant Rail power plants over internationally imported coal as there is no Cost requirement for seaborne freight, insurance and import discharge ~US$43/t ~US$10/t
costs ~US$53/t For personal use only use personal For
Lublin Coal Supply Chain
12 Targeting First Quartile Cash Costs
New projects in the Lublin Coal Basin have strong potential to be in the lowest quartile of the cost curve for thermal coal delivered into Europe…
Russia
API 2 (Oct 2013)
Lublin Coal Basin1 Colombia For personal use only use personal For 2013 CFR ARA Energy Adjusted Cash Costs Curve (Source: Wood Mackenzie - Total Cash Costs plus Freight to ARA, energy adjusted to 6,322kcal/kg; modified by PDZ to include Bogdanka FOR cash cost (2Q2013) energy adjusted for standard 22MJ product)
. Scope to lower costs even further in the basin through the utilisation of state of the art mine design and equipment
Note: 1 – Based on Bogdanka’s current cash costs 13 Lublin Coal Project - Massive Coal Resource
1.6 Billion tonne inferred strategic resource of high quality thermal coal…
. Maiden Coal Resource defined from over 200 core holes with cut-off seam thickness of 1.0 meters, a 20 meter buffer zone between the
Jurassic and over 20 coal seams modelled For personal use only use personal For
14 Large Scale Production Potential
680 Million tonnes of the current inferred Coal Resource is contained within 3 high quality coal seams…
. Potential to delineate a world scale deposit from only three (3) seams which display excellent thermal coal quality characteristics
391 Seam 379 Seam 382 Seam
327 Million tonnes 190 Million tonnes 163 Million tonnes
8.4% Ash 12.4% Ash 11.6% Ash For personal use only use personal For 6,908 kcal/kg (GAD) 6,493 kcal/kg (GAD) 6,547 kcal/kg (GAD)
15 Low Cost Potential
Favorable geology allows for low cost longwall mining…
391 Seam
327 Million tonnes1 8.4% Ash 1.16% Sulphur
6,908 kcal/kg (GAD) For personal use only use personal For
1 JORC (Inferred), refer to maiden coal resource announcement on 14 February 2013 Note: 391 seam isopachs based on historical core and geophysical logs 16 Drilling Program and Project Studies
Core Drilling Program Drill Rig on Site . A seven hole core drilling campaign is presently underway to: – update the coal quality and washability database to determine potential product pricing and yields – enhance the Project’s geological model and delineate outer boundaries of the various coal seams – validate historical drilling conducted during the 1970’s and 80’s . Two drill rigs currently on site, first two holes have been completed and drilling for the next holes is progressing well
Scoping Study . Scoping Study has commenced to examine the following areas – revised JORC Coal Resource estimate – mine production scenarios and scheduling – mine access – coal handling, processing and surface infrastructure requirements – environmental and social assessment
– operating and capital cost evaluation For personal use only use personal For . Appointed Wardell Armstrong International Limited as consultant for Scoping Study – leading geological and mining consulting firm highly regarded in the international coal sector with extensive experience in deep coal mining, particularly in Eastern and Central Europe – recently completed the Expert Report in support of the IPO of Polish coal producer JSW SA (WSE: JSW)
17 Project Timeline
Potential for market re-rating in the short term…
2013 2014 2015 2016
Project Milestones Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Maiden Resource Estimate
Strengthen Management Team
Drilling Program (7-hole) & Coal Quality
Scoping Study
EIA (EP compliant)
Infill Drilling
Pre-Feasibility Study
Financing Work Stream
Definitive Feasibility Study
Polishonly use personal For Requirements Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Update Geological Documentation Deposit Development Plan (Mining Licence) 18 Board of Directors
Strong board with proven development experience…
. Highly respected, London based, mining engineer and investment banker; holds a NSW mine managers certificate of competency for underground coal mining with significant experience in longwall mining operations Ben Stoikovich Chief Executive Officer . Previously held position as Director of Metals and Mining M&A for Standard Chartered Bank and has completed over $15 billion worth of mergers and acquisitions transactions, and a range of leveraged finance, project finance and corporate debt facilities for international mining companies
. Highly respected resource executive with extensive finance, commercial and capital markets experience Ian Middlemas Chairman . Current Chairman of Papillion Resources Limited, Equatorial Resources Limited, Berkeley Resources Limited & former Chairman of Coalspur Mines Limited and Mantra Resources Limited
Anastasios Arima . Founder & former Executive Director of Coalspur Mines Limited having been instrumental in developing Coalspur from Executive Director a A$3 million market capitalisation to a A$1.2 billion market capitalisation company upon his departure
John Welborn . Current Managing Director of Equatorial Resources Limited (ASX: EQX) and previously a senior executive at Investec
Director For personal use only use personal For
Mark Pearce . Current director of a number of ASX listed companies including Equatorial Resources Limited and Aviva Corporation Director and was formerly a Director and CFO of Coalspur Mines Limited and a founding director of Mantra Resources Limited
19 High Calibre Executives - Poland
Key appointments to Prairie’s local team1 in Poland…
. Geologist with over 30 years experience and a proven ability in the identification, exploration and appraisal of Janusz Jakimowicz international resource projects; Dual Polish and Australian citizenship President & Chairman . Instrumental in identifying, negotiating and applying for the concessions and progressing the development of the of PD Co Lublin Coal Project
. Deputy Minister in the Republic of Poland’s Ministry of the Environment (“MoE”) from 2007 to 2011; During his tenure he served as Under Secretary of State, where he supervised both the President of the State Mining Authority and President of the Polish Geological Institute, Chief National Geologist, Deputy Director of the Office of the Polish Dr Jacek Jezierski2 Oil and Gas Company Inc (“PGNiG SA”); and expert advisor to the World Bank
Supervisory Board . Previously Director on the Supervisory Board of Kompania Weglowa SA (“KW”), Poland’s largest coal mining of PD Co company
. Holds a PhD in Geology and completed his Master’s degree in Geology at the University of Warsaw, where he focused his thesis on the Lublin coal basin
. His career started in 1998 at Poland’s Ministry of Privatization (MSP), where he was in charge of corporate oversight of National Investment Funds and sale of state-owned portfolio companies 2 Artur K. Kluczny . Served in the Prime Minister’s Office as the secretary to two successive prime ministers and was senior government
Supervisoryonly use personal For Board representative on the Council for Development of the Financial Market (RRRF) in Poland
of PD Co . Up until 2009, he served as Deputy Chairman of the Board of the Polish Financial Supervision Authority (KNF) responsible for capital markets supervisions (Warsaw Stock Exchange) and was a member of the Committee of European Securities Regulators in Paris (replaced by ESMA in 2011)
1 PD Co sp z o.o is a company incorporated in Poland and is a 100% owned subsidiary of within the Group 2 Joined the Supervisory Board in October 2013 20
Project Team
An experienced and Polish based project team…
. Exploration and resource geologist with over 30 years experience; Polish and Canadian dual citizen with experience 1 across Polish, JORC and NI 43-101 reporting standards Lech Lewczuk
Exploration Manager . Previously Overseas Project Manager for KGHM, the Polish based copper producer and also has considerable expertise in coal exploration in Poland
. Over 20 years experience preparing Environmental Impact Assessments in Poland for local, regional and national authorities; previously Chair of the Lublin Regional EIA Commission and member of the Polish National Commission 1 Dr Witold Woloszyn for EIA’s. Environmental Manager . Holds an MSc in EIA Assessment from the UK, and a Doctorate from the University of Marie Curie Sklodowska; recent involvement with the shale gas sector in Poland
. Mining geologist with over 30 years experience in the hard coal prospecting, exploration and mining industry in Wladyslaw Kowalik Poland Mining Consultant
. Specialist in preparation of coal concession applications, resource calculations and feasibility studies For personal use only use personal For . Geoscientist with over 15 years experience in the area of economic and environmental studies in relation to Dr Jan Wierchowiec prospecting and exploration for mineral deposits Geological Consultant . Assisted with the exploration process for the Lublin Coal Basin
1 Joined the company in October 2013 21 Capital Structure
Tightly held capital structure and a strong liquidity position…
Capital Structure
Shares on Issue 118.8 million
Share Price (17 October 2013) A$0.26
Market Capitalisation ~A$31 million
Unlisted Options1 21.3 million
Cash Plus Listed Securities (30 September ~A$15 million 2013) Enterprise Value ~A$16 million
Broker Coverage Substantial Shareholders
Hartleys (Mike Millikan) Spec Buy Directors & Associates 15%
RFC Ambrian (Duncan Hughes) Spec Buy Top 20 Shareholders 44% For personal use only use personal For
1 Unlisted options with exercise price ranging from $0.15 to $0.60 with expiry dates ranging from 30 June 2015 to 2017
22 Investment Highlights
Lublin Coal Project - Europe's Next Strategic Supply of Thermal Coal
• 1.6Bt JORC Inferred In-Situ Coal Resource in the Lublin Coal Basin in Poland HIGH QUALITY LARGE-SCALE • Potentially a premium quality coal - 6,705kcal/kg GAD, 10.3% Ash raw1
PROJECT • Existing rail and port infrastructure provides access to Polish and European domestic markets
• Adjacent to the Bogdanka coal mine – one of the lowest unit operating cost mines in Europe with an exceptional operating margin of 39% (Q2 2013) HIGHLY PRODUCTIVE (FY13E production: 8.6mt; FY15E: 11.5mt) COAL BASIN • Provides reliable benchmarks for both operating and capital costs when completing project studies
• Positioned to be one of the largest, low delivered cost suppliers of thermal coal into the European market
For personal use only use personal For STRATEGIC SUPPLY • Substantial delivered cost advantage when compared with international thermal POSITION coal suppliers into Europe - Russia, Colombia, South Africa, USA
• Excellent fiscal regime and low sovereign risk
1 heating value and ash figures are representative of coal seams 391, 379 and 382 23 Disclaimer
Important Information
This presentation has been prepared as a summary only, and does not contain all information about Prairie Downs Metals Limited’s (“Prairie”) assets and liabilities, financial position and performance, profits and losses, prospects, and the rights and liabilities attaching to Prairie’s securities. The securities issued by Prairie are considered speculative and there is no guarantee that they will make a return on the capital invested, that dividends will be paid on the shares or that there will be an increase in the value of the shares in the future.
Prairie does not purport to give financial or investment advice. No account has been taken of the objectives, financial situation or needs of any recipient of this report. Recipients of this report should carefully consider whether the securities issued by Prairie are an appropriate investment for them in light of their personal circumstances, including their financial and taxation position.
Forward Looking Statements
Some of the statements contained in this report are forward looking statements. Forward looking statements include but are not limited to, statements concerning estimates of coal tonnages, expected costs, statements relating to the continued advancement of Prairie’s projects and other statements which are not historical facts. When used in this report, and on other published information of Prairie, the words such as “aim”, “could”, “estimate”, “expect”, “intend”, “may”, “potential”, “should” and similar expressions are forward-looking statements.
Although Prairie believes that its expectations reflected in the forward-looking statements are reasonable, such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors could cause actual results to differ from these forward looking statements include the potential that Prairie’s projects may experience technical, geological, metallurgical and mechanical problems, changes in product prices and other risks not anticipated by Prairie.
Competent Persons Statement
Information in this announcement that relates to Exploration Results and Mineral Resources is based on information compiled by Dr Richard Lowman (an employeeonly use personal For of independent consultant Wardell Armstrong LLP which owns Wardell Armstrong International) who is a Fellow of the Geological Society of London. Dr Lowman has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person under the 2004 Edition of the Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves (‘The JORC Code’). Dr Lowman consents to the inclusion of the data in the form and context in which it appears.
Appendices: Global Coal Producer Comparables For personal use only use personal For
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