government review of the woomera prohibited area · the purpose of the sase project was to open...

SOUTH AUSTRALIAN COAL LIMITED

Government Review of the Woomera Prohibited Area

Submission

July 2010

Background Information

• Board of Directors

o Mr Travers Duncan (Chairman)o Mr Vince O’Rourke (Director)o Mr John Cooper (Director)

• Summary of Company

o South Australian Coal Limited (SA Coal) is an Australian based unlisted public company thatwas demerged from Felix Resources Limited (Felix) in 2009.

o SA Coal was demerged to facilitate continued exploration and commercialisation of existingassets on an independent basis.

o SA Coal holds Exploration Licence EL3386 in the Woomera Prohibited Area (WPA) (Figures 1and 2). The official location and coordinates of the EL are attached in Appendix 1.

o All of EL3386 and the two Retention Leases (RL100 and 104) are within the WPA.

o Since June 2009 SA Coal has not been permitted to enter approximately 70% (Figure 3) ofEL3386 (which includes the two Retention Leases) which is located within the DOD exclusionzone.

o EL3386 has a known coal resource of about 515 million tonnes, a non‐JORC resource of 5.4billion tonnes and several early‐stage mineral exploration projects.

o Head office is located in Adelaide.

Figure 1. EL3386 is located approximately 260 km northwest of the township of Woomera.

Figure 2. Location of EL3386 in the WPA including the approximate position of the current exclusion zone (red polygon) affecting the Exploration Licence since June 2009.

Figure 3. Location of the Lake Phillipson Coal Deposit in EL3386 (green dashed line)and the position of the current exclusion zone covering ~70% of the Licence, which includes the Corner Gate and Ingomar Coal Deposits and Retention Leases .

Brief History of Involvement in the WPA

(refer to item 1 of your “broad themes for consideration in preparing a submission”)

• SA Coal has held the tenement since 1995 and is not a newcomer to the area.

• Previously as a subsidiary of Felix, SA Coal commenced its interest in the area as part of the SouthAustralian Steel and Energy Project (SASE) in a Joint Venture Agreement dated 1994.

• The parties to this agreement were the Minister for Mines and Energy (South Australia), AusmeltLimited, Meekatharra Minerals Limited (previous name of Felix) and an Indonesian governmentcompany PT Krakatau Steel.

• In 1999 the State of South Australia withdrew from the Project. The SASE shareholders entered intoan agreement with the South Australian Government where by, amongst other things, theysupported the Project.

• The purpose of the SASE Project was to open coal and iron ore mines using the Ausmelttechnology; the coal mine was to be located in EL3386, which is now entirely within in the currentexclusion zone.

• In 2001 a trial pit was opened in EL3386 and 18,000 tonnes of coal was extracted at a cost in excessof $4M under the SASE Project. The Department of Defence (DOD) was aware of the SASE Projectand a Deed of Access Agreement was entered into at that time. Commercialisation of SASE Projectdid not proceed.

• Total expenditure by SA Coal to date in EL3386 is over $10.5M. However, expenditure on the SASEProject was in excess of $35M.

Existing Arrangements with the DOD


• SA Coal has entered into a Deed of Access with the CommonwealthGovernment of Australia to access about 30% of the Licence area(Figure 4) due to expire on the 4th July 2011.

• The Deed does not include the trial pit area (RL 100 & 104) and thecoal resources referred to herein,

• Only provides for exploration and excludes mining,• SA Coal is obligated to follow a procedure of making an application to

the DOD in SA to access the Licence area on each occasion eventhough a Deed of Access is in place e.g. field surveys, drillingprogramme, personnel involved and time of duration of each sitevisit, and

• SA Coal has arrangements with Oz Minerals Ltd and Southern IronPty Ltd, whereby they have or will have access roads across EL3386in the exclusion zone. It is presumed that these parties have accessarrangements in place with the DOD.

Figure 4. Location of the Lake Phillipson Coal Deposit in EL3386. About 30% is available for access under a Deed of Agreement. Note Wirrida Siding and haul road are in the exclusion zone being utilised by both OZ Minerals and Western Plains.

Potential Impact on Current and Future Exploration and Mining


• SA Coal understands that DOD use of the WPA on the western sideof the Stuart Highway will be limited in comparison with use on theeastern side of the highway.

• Accordingly, co‐habitation should be more easily arranged especially as it is alsopresumed that DOD planning for use would be long term.

• This would enable parties to work together to provide a suitable regime thatallows co‐habitation.

• SA Coals interest at this time is exploration. Any mining would takesometime in implementation due to various other consents andrequirements that apply e.g. environment impact statements, nativetitle and state government approvals.

• Exploration only defines the resource, it is also necessary to identify the use ofthe commodity and the potential markets, and

• Many matters are considered in this process which include infrastructure,transport and mining method.

Assessment of Operations in the WPA


• At this stage SA Coal will be required to spend significant time in theexploration phase of development in EL3386 with no guarantee thatit will be commercially viable in the short or long term.

• However, some potential commercialisation options currently beinginvestigated include:

– Briquetting and upgrading of coal using White Energy Company patentedtechnology. This processing is considered more environmentally friendly thanconventional mining methods,

– This is a value adding process which means that the deposit would not be simplymined and exported as the quality of the raw coal product is improved; such anundertaking is of greater assistance to the Australian economy in the short andespecially the long term,

– SA Coal anticipates that coal product may be used for power generation, but thisis very dependant on identifying through exploration suitable coal types inEL3386,

– The commercial viability of a Coal to Liquids facility is also expected to beevaluated by SA Coal.

Assessment of Operations in the WPA con’t


• The coal would be mined using open cut methods and cost would bedependant on the size and mining methods selected

• The estimated economic value of the deposit based on a 5.4 Billiontonne resource is about A$80 Billion

• EL3386 is also prospective for other minerals such as copper, gold,iron ore and uranium because of its proximity to well known miningprovinces in the area

– The most prospective areas for other minerals appears to be located in thesouthwest and northwest of EL3386

– These are not currently available for exploration and any exploration would beconsidered of higher economic risk and any development would be a long termproposal



• Any proposed commercial facilities can be reasonably located to a mutually agreedlocation if required.

• It is possible to locate many aspects of the commercial operation some distance fromthe mine especially with the use of modern communication options now available.

• In this regard, SA Coal intends to continue to work with the DOD to ensureexploration and mining activities can coexist within EL3386. Some of these activitiesin support of cohabitation between the DOD and SA Coal could include:

– The location of any stockpiling or infrastructure such as offices, energy plants andmaintenance workshops outside the exclusion zone,

– The commuting of any workforce will be Coober Pedy based and provided by SACoal,

– The use of automated mining methods to minimise personnel and equipmentexposure times in the exclusion zone is also possible.

• If commercialisation was to occur the location of any mining operations would remainfairly static and predicable once an agreeable process and procedure was in placebetween the DOD and SA Coal.



• If commercial development was approved in consultation with theDOD and State Government an expected production facility coulddirectly and indirectly employ up to 300 personnel based in CooberPedy.

• Such a processing facility would also make a wider contribution to thecommunity by developing and improving sustainable water resources.

• The project would also provide ongoing training, educational,community development and job opportunities to locals andtraditional owners and to the benefit of all South Australians fordecades to come.

Foreign Ownership


• Not considered applicable to SA Coal because of its present andexpected shareholder ownership structure.

• Interests associated with six (6) Australian families control amajority of the shares of SA Coal.

• There is no known overseas government owned ownership ofshares.

Requests of the DOD

• SA Coal seeks permission to access the remainder of the area workingclosely with the DOD and State Government in such a manner thatwill allow cohabitation of the area contained in EL3386; particularlygiven the modern methods of development of resources.

• As previously stated SA Coal is not a new comer to the area and hasinvested considerable funds in delineating the resources andbelieved that it did have a right of access subject to compliance withreasonable DOD and State Government requirements.

• SA Coal did not expect a total exclusion given its long term history inthe area and previously good working relations with the DOD andState Government.

• The Deed provided by the DOD prohibits access (for the purposes ofmining/exploration) south of a line between coordinates ‐29o16.612, 134o 13.897 and ‐29o 39.227, 134o 49.162.

Requests of the DOD con’t

• In the short term a slight repositioning of the line would allow SA Coal tofocus on its core business activity of coal exploration in EL3386.

• If it was moved ~5.5km to the southwest at the south end and 1km westat the north end it could really benefit SA Coal and others (Figure 5)

• This would allow access to Retention Leases, the trial pit, Wirrida Rail Sidingand a portion of the Lake Phillipson Coal Deposit essential to the long termviability of the company in SA.

• Repositioning of the line only within EL3386 could be viewed asrepresenting an acknowledgement of our investment and long history inthe area, and

• It could additionally be viewed as a zone of lower risk given its proximityto the margin of the exclusion zone and a real example of co‐existencebetween SA Coal and the DOD in the area.

• However, we maintain that access to all of the Exploration Licence should bepermitted in view of the fact that we have a long standing association in thearea with all relevant parties and cohabitation is possible.

Figure 5. Location of the Lake Phillipson Coal Deposit in EL3386. The location of the blue line (coordinates supplied) would give access to the entire East limb of the Lake Phillipson Coal Deposit.

White Energy Mining Pty Ltd proposed Takeover of South Australian Coal Pty Ltd.

• On 19th April 2010 White Energy announced a takeover offer for all of the shares in SACoal. SA Coal Independent Directors support the takeover offer.

• The Takeover offer was agreed by White Energy Shareholders at an ExtraordinaryGeneral Meeting on Monday 12th July 2010 and should be completed over the nextcouple of months.

• The acquisition of SA Coal by White Energy will provide for a strong well resourcedAustralian company with complimentary assets for future growth and development. SACoal Directors believe there are significant synergies in combining the two companies.

• SA Coal’s sub‐bituminous coal is capable of being upgraded by White Energy’stechnology which can lead to a significant revaluation of the coal reserve.

• White Energy has a strong capital base and balance sheet with proposed capital raisingsproviding for cash reserves in excess of $200M.

Appendix 1

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