Technical Feasibility Study

Overview

The Thar Coalfield is located in the Sindh Province of South East Pakistan some 400km east of Karachi. The Thar Coalfield has been divided into blocks and Oracle Coalfields plc has completed the Technical Feasibility Study of Block VI and has submitted an application for a Mining Lease which is to be issued in the near future.

The FS has confirmed a JORC compliant reserve of 529Mt of lignite suitable for Power Generation and for use in the cement industry and a detailed mine design has been prepared. The design is based upon detailed geological, geotechnical and hydrogeological investigation and analysis and has demonstrated the feasibility of operating a mine with up to 5Mt pa capacity.

Oracle has entered into discussions with an international mining contractor with a view to opening up the mine in a phased development to provide coal for power and the cement industry.

A mine mouth Power Plant will be required to take the bulk of the coal and this will be a staged development with an initial 300 MW unit planned and the initial mine production of some 2.5Mt pa programmed to support this capacity. This could be increased to 1100 MW over time with the mine production rising to 5Mt to support the development.

Summary

The Technical Feasibility Study has been completed by SRK Consulting and consists of 13 Volumes which detail all the technical and economic parameters assessed to confirm the viability of developing and operating the mine which are summarised below.

Project Background

The study sets out the history of the development of the Thar coalfield and that Oracle and its subsidiary were awarded an exploration licence for Block VI to enable the FS to be carried out. In addition it sets out the overall power shortfall current and projected in Pakistan as:

6577MW in 2010
18320MW in 2015
36462MW by 2020

It also sets out the vision of the Government and the Sindh Government of installing 10,000MW of coal fired capacity from the Thar Coalfield by 2020 and that this will be facilitated by providing guaranteed rates of return and favourable incentives for investors and operators to encourage the strategic development of the Coalfield.

Mineral Resource Estimate

The study sets out the results of the drilling programmes that have been carried out and the methodology used to calculate the resource in accordance with the JORC Code. The coal qualities are also stated with the average being 3182kcal/kg with moisture of 46.1% and sulphur at 0.91%.

The Coal Resource Statement shows a JORC reserve comprising 151Mt of Measured Reserves, 308Mt of Indicated Resources, and 70Mt of Inferred Resources giving a total of 529Mt. The Phase 1 Mining Area contains some 113Mt of proven reserves and covers an area of 6 km² of the 66.1 km² of Block VI.

The report also confirms that the coals extend well beyond the Phase 1 area of study and are present throughout the Block VI area. Additional drilling and analysis would be necessary to classify these coals in accordance with the JORC Code.

Mining Report

The study sets out the detailed pit and dump designs based on the geological and geotechnical information and has calculated the optimum pit boundaries that can be developed at a stripping ratio of less than 10. The initial box cut has been positioned in an area where the stripping ratio is lowest and the cuts advance from northeast to southwest initially with the final cuts advancing from the southeast to northwest to the final Phase 1 boundary. The out of pit dump is located to the north and west of the opening cuts.

The mining method will utilise hydraulic excavators and rigid dumptrucks throughout the mine. The material will not require blasting prior to excavating and all excavated materials will be placed in the out of pit dump until sufficient void space is created to allow the waste rock to be placed in the in pit backfill dump.

In the 5Mt pa scenario some 40Mm3 of overburden is to be excavated annually and Oracle envisage this will be reduced to 20Mm3 pa in the first phase of operations where a production of 2.5Mt pa is planned. There will be at least 1.5 years of excavation required before coal is produced.

Hydrogeology

The hydrogeology study examines the effects of surface water and groundwater on the mining site. There are no rivers or significant water courses on the mine site or adjoining lands and there are only significant rains in the monsoon season when surface run off will have to be managed.

There are 3 aquifers within the mine site which will require dewatering to enable the mining to proceed to the base of the pit. There is an intermittent aquifer at the base of the upper dune sands which does not contain significant volumes of water.

A second aquifer is located in the Bara Formation above the Lignite and extends throughout the coalfield. Again it does not contain significant volumes of water but will require dewatering in advance of excavation to maintain the stability of the pit walls.

Below the base of the Lignite and confined by the basal granites at depth there is a major aquifer which again extends throughout the coalfield and requires lowering to below the base of the pit to prevent floor heave and other instabilities at the lower levels of the mine. This deep aquifer contains significant quantities of water and a major system of dewatering wells will be required to reduce the water levels principally in the deep aquifer although the system is designed to dewater all 3 aquifers. Some 95% of all the predicted waters will be from the deep aquifer.

All the waters in the aquifers is slightly saline or brackish and would require treatment for drinking or irrigation and a Reverse Osmosis plant will be constructed to provide the same. Untreated water will be suitable for dust suppression and also for cooling water for the power plant.

Geotechnical

The study sets out the details of the site investigation, laboratory testing and geotechnical analyses that have been undertaken to determine the characteristics of the materials to be excavated and thereby enable the pit slopes, out of pit dump and in pit dump slope angles to be determined and used in the mine design. Overall and individual bench heights and slope angles have been designed to maintain stability throughout the life of the mine.

The levels to which groundwater must be reduced to maintain slope stability and to prevent floor heave at the base of the pit have also been established and a monitoring regime will be put in place to ensure that the groundwater levels are achieved and maintained during the working of the mine.

Infrastructure

The study details the infrastructure design for the mine and the relocated community including the provision of water and power necessary for the operational mine and the community. This includes mine offices and maintenance facilities, worker accommodation, power generation, access roads and water treatment facilities to be installed.

Geochemical

The study details the collection of samples from boreholes to determine the geochemical behaviour of the materials to be excavated in particular the potential for Acid Rock Drainage and Metal Leachate potential of the various strata contained within the pit.

The conclusions of the testing are that the upper dune sands and sands within the lower Bara formation do not exhibit ARDML potential but that the claystones and shales within the Bara formation do. The lignite is classified as low risk for ARDML.

The potential for ARDML in the external waste dump can be minimised by ensuring the rocks with potential ARDML are buried within the dump and not exposed on the surface slopes. Within the pit in the in pit dump again these materials should be buried at depth and the process of tipping will naturally compact them to minimise potential water flows on completion of the mine and post closure.

Long term kinetic testing has been undertaken to establish if there is an increase in ARDML over time after excavation and these results will be available in about 10 weeks. Overall the ARDML potential for the mine is moderate to low and can be managed by selective excavation and tipping.

Other work has also been done to examine the potential radioactivity of the materials to be excavated and this is also not a significant risk.

Environmental and Social Impact Assessment

The Environmental and Social Impact Assessment ESIA is being carried out by Wardell Armstrong International and Haggler Bailly Pvt of Pakistan and the SRK report summarises the current status of the ESIA.

The current findings for the baseline studies have not identified any protected or endangered species or flora that would require specific protection within the Phase 1 mining area.

Further work has been undertaken to assess the impacts the mining activities will have on the environment and communities in terms of water regimes, dust, noise and land use and an Environmental and Social Management System will be prepared as part of the ESIA. The report will also examine the Socio-economic effects of the proposed mine on the local communities. This will be in accordance with the IFC Performance Standards.

In addition to the ESIA a resettlement plan for the relocation of the local community within the Phase 1 area is to be implemented in accordance with the IFC Performance Standards.

Legal Opinion

This study confirms that Oracle and its subsidiary are properly constituted and that an Exploration Licence has been issued and that Oracle has carried out the exploration and reporting in accordance with the terms of the licence and that the application for the Mining Lease has been made.

The next stage is to be granted a Mining Lease for 30 years which can be extended at the end of the period for another 30 years.

Capital and Schedule Estimate

This study sets out the capital expenditure required to bring the mine into production including all excavation costs, the infrastructure costs, the dewatering costs and the resettlement costs. The costs include for all the mining equipment being acquired by Oracle for a 5Mt pa production profile.

The discussions with a mining contractor may well alter the requirements on mine site infrastructure and significantly change the expenditure profile prior to production.

Operating Cost Report

This report sets out the projected Operating Costs for the mine with 5Mt pa production where Oracle own and operate the mining equipment. The estimated production cost is $42.21/t.

Economic Analysis

The Economic Analysis study sets out the sales price required to achieve the government guaranteed IRR of 20.5% in three scenarios:

A base case on a 5Mt production with all sales to a mine mouth power plant
As the base case with no corporate income tax or social levies
As the base case with no corporate income tax or social levies and additionally no royalty payments.

For the three scenarios a coal sales price and an operating cost have been calculated to achieve the IRR of 20.5%.

There is a basic sensitivity analysis of the figures and a statement regarding further opportunities to reduce the overall costs by refining the infrastructure costs, potential engagement of a mining contractor and additional sales to the cement industry.

The Technical and Economic model is also included in this section.