New mines with Asian business partners Jastrzębska Spółka...

New mines with Asian business partners Jastrzębska Spółka Węglowa is planning an acquisition of Prairie Mining’s majority shareholding. Prairie is the company owning coal deposits in Dębieńsko and Lublin Coal Basin. JSW hopes that the rest of the shares will be owned by partners from Asia (i.e. Indonesia, China). JSW is also holding talks with Chinese banks with regards to construction financing. New mines together with Asian business partners Construction of Dębieńsko and Jan Karski mines could increase JSW’s annual production volume by half by Jacek Madeja Jastrzębska Spółka Węglowa is planning to take over Prairie Mining’s majority shareholding. Prairie is the company owning coal deposits in Dębieńsko and Lublin Coal Basin. JSW hopes that the rest of the shares will be owned by partners from Asia (i.e. Indonesia, China). JSW is also holding talks with Chinese banks with regards to construction financing. JSW has been talking with Prairie for over a few months already. Two projects which JSW is interested in are owned by this Australian company, Two projects, one goal ‘The first [goal] is to build a coal mine in Dębieńsko. This project is also a part of “Program for Silesia”. The second project belonging to Prairie is Jan Karski mine in Lublin Coal Deposit. We have already conducted technical audits of both projects. Preliminary audits confirmed that both concession areas contain coking coal. In Lublin Coal Deposit it’s semi-soft coking coal, whereas in Dębieńsko it’s hard coking coal. We have a good knowledge of Dębieńsko’s coal as this deposit is neighboring with our concessions in Szczygłowice and Budryk,’ Daniel Ozon, JSW’s CEO, emphasized. Thanks to close location it will be possible to reach Dębieńsko’s deposit much faster. Prairie Mining wanted to drill shafts to mine the coal. JSW could, at least in the first stage, do it much faster by using Szczygłowice mine’s underground infrastructure. ‘This way we could theoretically start the production in Dębieńsko in the next year. We could reach the wall and cut it and start the production using Sczygłowice’s infrastructure. These are the changes we would have to implement to concession documentation and deposit development plan. In the end, there will be an independent shaft in Dębieńsko, and as a result, a new mine,’ JSW’s CEO argues. That is why the next element of this jigsaw is Przedsiębiorstwo Budowy Szybów1 (“PBSz”) whose acquisition is currently being finalized by JSW. Thanks to this [acquisition] not only JSW can facilitate roadway works, but also concentrate on building new shafts, and as a result new Dębieńsko and Jan Karski mines. JSW does not intend to have PBSz conduct the construction on its own but in cooperation with other companies. Cooperation would not limit to technical support only, but also include participation in financing the whole undertaking. Chinese market as a financing source ‘We have sent our team to China again, along with PBSz representatives. We will have meeting with local big companies, such as China Coal. We approach the whole undertaking in a complex way. PBSz has the necessary competences, but we perceive Chinese market as a source of financing.

The cost of building one mine is roughly 2,5-3 bn PLN. At the same time, we are aware of the significant limits we are facing when it comes to financing the investment. Nowadays, mining industry is dealing with huge problems in obtaining long-term financing. European banks are refraining from financing coking coal sector. That is why I look at this as a cooperation between Polish company PBSz, who would be a member of our group, and a Chinese giant company, who has built a few hundred of shafts and mines in China within the last decade. This would enable us to secure long term financing. This would be something like a turn key investment, conducted by syndicate consisting of PBSz and a Chinese company. I have already had a few meetings regarding this issue with Chinese banks in Beijing, Luxemburg and Warsaw, and with Sinosure, which is the equivalent of Polish KUKE2 (Korporacja Ubezpieczeń Kredytów Eksportoych). Talks are promising, and Chinese banks are very open when it comes to this type of financing, provided a Chinese company will be actively participating as a contractor or a member of syndicate. This type of financing would be realized in case of both projects: Dębieńsko and Jan Karski,’ says Ozon. Prairie Mining being a company listed on three stock exchanges (in Australia, London and Warsaw) makes it easier to obtain the financing. JSW is planning to acquire at least 51% of company’s shareholding and will look for minority shareholders among other companies in coking coal production field. ‘Prairie Mining being a public company listed on three stock exchanges gives us the opportunity to raise capital from these markets. Our model is for JSW to become a majority shareholder and co-finance it with minority shareholders. We look for them during out trips abroad and people are interested. For example, while we were in Indonesia, we have been meeting with a company which produces 25 Mtpa of coking coal and is searching for location for foreign expansion. We have been meeting with several entities and sectoral funds on Chinese market to discuss this matter. If we could realise both of those investments, it would mean a completely new production volume,’ Ozon emphasized. Significant increase in production If the plan succeeds, then JSW could increase annual production by around 50% within the next few years. Jan Karski mine could potentially provide 5 Mnt of coal net and Dębieńsko approx. 2,5-3 Mnt. As we can see, it is around 8 Mnt of coal. That makes it an attractive deal considering coking coal is listed among 26 critical raw materials and EU countries import 40 Mnt of this raw material. In this context Ozon emphasized that commencing coal production in Lublin Coal Basin would be a significant step made by the Upper Silesian company. Not only would their deposit source be enlarged by 200 Mnt, but economic aspect is also important. Production cost in Silesia region is around 90 USD/t, whereas as a result of simpler geological conditions, lower number of updips and underground dangers in Lublin region the cost is half less. How far have the talks about the acquisition gone with Prairie Mining? ‘We are entering the stage of cost evaluation and business talks, which could lead to determining company’s value and legal matters. We are working with financial advisors, investment banks, one of the “Big Four” and three law firms, one of which is Australian, because Australia is the main public market, on which the company is listed. Audit has shown that all problems can be solved, so we’re going forward. I hope that the whole negotiation process will be significantly further by the end of this year,’ Ozon said.