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QUARTERLY ACTIVITIES REPORT
JUNE 2013
HIGHLIGHTS
Drilling underway utilising multiple drill rigs, undertaking a program that is planned to be over 50% larger than Celsius’ 2012 Kargasha drilling program
Exploration program designed to: o Focus on areas most prospective for higher ranking coals; o Expand the existing JORC resource; and o Provide data for environmental and mining studies
First phase Xinjiang coking coal market study completed, indicating an existing large supply and demand ‘gap’ and forecasting that this gap will widen over time
Production studies advanced, with results to be released in September quarter. Work to date confirms potential for a staged development increasing to 5-7Mtpa
Changes made to management team to strengthen technical and financial competencies and position the company to deliver on future milestones
All work programmes fully funded
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Exploration and Development (Uzgen Project)
At the Company’s 80% owned flagship Uzgen Basin Coking Coal Project (‘Uzgen Project’), the Company has a JORC resource of 255Mt (Inferred), which comprises 230Mt at Kargasha and 25Mt at Kokkia. Coal quality tests show the coal has potential to beneficiate to a low ash coking coal at yields of >60%. Results from the washed composites, which also apply to raw low ash coal, returned average ash of 5%, consistent volatiles ~40%, high calorific values of ~7,900 kcal and good FSI ranging between 6 and 8.5. The Uzgen Project is ideally located to supply the expanding steel industry in Xinjiang Province, Western China. Xinjiang Province has been highlighted as a special case for economic development. Kashgar, Xinjiang’s second city, has been designated as a new Special Economic Zone as a trade gateway to Central Asia. During the quarter the Company progressed work for the 2013 exploration season at the Uzgen Basin Coking Coal Project. Subsequent to the end of the quarter the Company commenced its 2013 drilling program with multiple high production diamond core drill rigs commencing drilling in mid-July. Following the success of the 2012 exploration season, which resulted in the estimation of Celsius’ maiden JORC Resource of 255 million tonnes of inferred coal resources, the aim of the 2013 program is to: increase the Company’s total resource inventory; target exploration in areas with limited historical drilling which are most prospective for the highest ranking coking coals; move some inferred resources into the indicated category; collect baseline environmental data; and collect data for mining studies. In addition, bulk samples will be collected and tested and results distributed to prospective customers and off- takers. The Company plans to drill between 4,000 and 5,000 metres of diamond core in the target areas as part of the 2013 program at the Uzgen Project. Based on progressive assessment of the exploration results, capacity is available to expand the program. Celsius has a field team of circa 40 people for the 2013 program, including its own geological staff and third- party contractors. Updates on progress with the exploration program, including drilling results will be reported during the course of the exploration program. The Company anticipates the field program will be completed in October 2013, assuming no expansion to the program, following which the focus will be on lab analysis, resource modeling and mining studies. The 2013 drilling program will be significantly more extensive than Celsius’ maiden drill program in 2012 and will involve more work focused to support a mining license application and subsequent production. A number of larger diameter PQ core holes will be drilled to procure samples that will be used to more accurately determine certain coking coal specifications, particularly coke strength after reaction (CSR). Additionally, more
environmental base line and geotechnical data will be collected for mining studies. For personal use only use personal For Celsius remains fully funded for the 2013 exploration program.
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Figure1: Project area - Planned drill holes for 2013 as well as historical drilling locations
Coal Market Study
During the quarter the Company announced it had completed its first phase Xinjiang coal market study with the assistance of independent consultants Bryanston Resources GmbH (Bryanston). The study analysed in excess of 20 coal customers in the Xinjiang province, which neighbours the Kyrgyz Republic. It also involved direct visits to selected key target customers for discussions on coal usage and logistics.
Executive Chairman, Alexander Molyneux said at the time, “The study confirms our understanding that a significant supply gap for premium coking coals exists in the region, leading to the potential for a far more positive market dynamic in Xinjiang than the current outlook for seaborne coking coals”. For personal use only use personal For With a development stage coal resource in the Kyrgyz Republic, where project studies are progressing with a view to assessing road and rail production scenario’s into the neighbouring Xinjiang market, Celsius is well positioned to capitalise on opportunities in the Xinjiang market.
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Key findings of Bryanston study The Bryanston study has concluded that the Xinjiang coking coal market is poised for strong growth in demand resulting from: Rapid growth in blast furnace steel making capacity – Bryanston’s latest projection is for 22.5 million tonnes of crude steel production in place in 2015, which is an 87.5% increase on production of last year (2012); Xinjiang’s own coal resources cannot provide adequate coking coal – Only 2% of Xinjiang’s overall coal resources are known to have coking properties and then only 5% of its coking coal is considered equivalent to a premium hard coking coal. Furthermore, the distribution of coking coal resources within the large province means the Kashgar area has extremely limited supply. Kashgar is the area in South Western Xinjiang close to Kyrgyz Republic with three new blast furnaces either recently commissioned or under construction; A demand and supply ‘gap’ has already emerged – Due to resource constraints, Xinjiang’s total coking coal production has remained stagnant at approximately four million tonnes per year for the last five years (ie, 2008 to 2012) despite a 144% increase in coking coal consumption from 7.8 million tonnes to 19.0 million tonnes. For premium hard coking coal, current consumption (2012) is 7.0 million tonnes versus local production of only 0.2 million tonnes per year; and Coking coal prices have been rising steadily and are now at a premium to seaborne coking coal prices – As the local demand and supply ‘gap’ has increased, coking coal prices in Xinjiang have steadily risen. The price of washed premium hard coking coal has increased in each of the last five years and is now above RMB900 (US$145) per tonne, which represents a premium to pricing of equivalent quality coal for seaborne producers. Bryanston forecasts prices to continue to rise irrespective of conditions in seaborne markets, with an estimate for approximately RMB1,470 (US$235) per tonne in 2017. Following the successful outcome of the Bryanston study, Celsius has commenced the process of building direct customer relationships with the goal of establishing an off-take agreement. The Company will be providing coal quality information to various customers and also inviting potential customers to review its Uzgen Basin Coking Coal Project in more detail, including site visits and logistics studies. Commenting on the future milestones for the company, Executive Chairman, Alexander Molyneux said, “The road ahead of us includes the move through feasibility, project financing and development. With Alistair, Matthew and Nazariy, we have a balance of the right skills and experience to successfully deliver on these milestones.”
Corporate
In May the Company announced changes to its Board and management team.
For personal use only use personal For Grant Thomas, the Company’s Managing Director, informed Celsius of his resignation as an Executive Director of Celsius to pursue other interests, but has agreed to remain a consultant to the Company. Alistair Muir, previously Celsius’ Country Manager in Kyrgyz Republic has been promoted to the position of Technical and Operations Director. In that capacity he will join the Company’s Board and will be responsible for managing the Company’s technical development.
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After joining Celsius in mid-2012 Mr. Muir worked closely with Mr. Thomas in managing the Company’s technical program. Mr. Muir has a Bachelor of Applied Science in Geology and a Graduate Diploma in Management with an MBA in progress. He is a member of AusIMM and is appropriately experienced and credentialed to be recognized as being a competent person for JORC purposes.
The Company also appointed Matthew O’Kane as Chief Financial Officer. Before joining Celsius, Mr. O’Kane was Chief Financial Officer of SouthGobi Resources Ltd. (TSX: SGQ, HKEX: 1878), a coal development and production company that was a leading supplier of coking coal to China. He holds a Bachelor of Business in Economics and Finance and a Masters of Business Administration, both from Royal Melbourne Institute of Technology, and is a qualified Certified Practicing Accountant. Executive Director of Celsius’ Kyrgyz subsidiary, Asia Pacific Resources LLC, Nazariy Terlyga was promoted to the broader role of General Manager, Kyrgyz Operations for the Company. At the end of the quarter, Celsius had cash of $2.3 million, and access to a further $5.0 million pursuant to a convertible note with its major shareholder. Importantly, the convertible note can be converted to equity at Celsius’ election 12 months after draw-down with a floor price of 2.5 cents (see ASX announcement 7 Feb 2013 - Celsius Secures A$10m in Strategic Funding from Blumont).
Mining – Sary Mogol (Alai Range Project) During the quarter, open pit mining continued at the Sary Mogol mining lease targeting the excavation of high grade thermal coal for sale to the domestic market to comply with the conditions of the Company’s Development / Mining License. The Company is presently reviewing operations at Sary Mogul.
Infrastructure Celsius continues to monitor the progress of the Trans-Asia Railway, which is currently anticipated to be completed by the end of 2016. The current mapped route comes within 10 kilometers of Celsius’ Uzgen Basin Coking Coal Project (Figure 2) and will connect to the existing Chinese railway network at Kashgar (Kashi) in Xinjiang. Celsius plans to undertake a more detailed study of the existing transport options to facilitate coal export prior to completion of the Trans-Asia Railway. For the Uzgen Basin coking coal projects, the Company has identified a route for export to China via Osh and then the Irkeshtam border crossing between the Kyrgyz Republic and China which uses generally paved and rehabilitated roads (Figure 2). This route is approximately 385km in length and the Company has estimated a transport cost of approximately $10 per tonne to the Kyrgyz Republic-China border utilizing this route. A more detailed transport study will provide more exact costings and identify potential bottlenecks on the route.
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Figure 2 – Location of Celsius’ projects and export routes including the proposed Trans-Asia Railway
Carnilya Hill Joint Venture
Celsius (through View Nickel Pty Ltd) owns a 30% joint venture interest in the Carnilya Hill Joint Venture in Western Australia with Mincor Resources NL (Joint Venture). Mincor Resources NL (Mincor, ASX:MCR) is the operator of the Carnilya Hill JV. The tenements covered by the Camilya Hill Joint Venture (JV) include Mining Licences M26/47, M26/48, M26/49 and M26/453. The Carnilya Hill site is currently on care and maintenance. The Joint Venture will incur nominal running costs to ensure the site is kept secure, safe and well maintained. Exploration continues on the tenements comprising the Joint Venture, and is managed by Mincor as the Operator of the Joint Venture. Results from exploration programmes will be released as they become available. West Australian Regional Nickel Exploration
The Company continues to compile all data relevant to E39/1641 and E39/1684 in the Eastern Goldfields region of Western Australia. The tenements are located near to Minara Resources’ Murrin Murrin mine and the NiWest operation currently under development by GME Resources Ltd and are believed to have potential for both nickel laterite and nickel sulphide mineralisation. In due course, the Company may consider divesting its nickel interests, either through a partial or outright sale, or by spinning out the assets into a new public vehicle. Competent Person’s Statement The information in this announcement that relates to resource estimates initially reported to the ASX on 15th
For personal use only use personal For March 2013 (Celsius Establishes Maiden JORC Resource at Uzgen Basin) and is based on information compiled by Dr Gavin Springbett, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Dr Springbett is acting as a consultant to Celsius Coal Limited and is an employee of G&S Resources. Dr Springbett has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources
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and Ore Reserves. Dr Springbett consents to the inclusion in this announcement of the matters based on his information in the form and context in which it appears.
Further the company confirms it is not aware of any new information, or data which materially affects the original announcement and that all material assumptions and technical parameters underpinning the resource estimates are unchanged. In addition the company confirms that the form and context in which the CP’s findings are presented have not been materially modified.
ABOUT CELSIUS COAL Celsius Coal Ltd is focused on developing coking and thermal coal deposits in the Kyrgyz Republic. Celsius owns 80% of its Uzgen Basin Coking Coal Project (comprising: Kargasha; Kokkia; and Min Teke), which cover an established Soviet-era coking coal resource. It also owns 90% of its Alai Range Projects (comprising: Sary Mogol and Bel Alma). For more information, please visit www.celsiuscoal.com.au or contact Mr Ranko Matic, Company Secretary on +61 (08) 9226 4500.
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