International Coal (ASX: ICX) has highlighted one of its key advantages over other coal explorers (in Queensland) - access to current rail infrastructure - with the start of discussions with rail owner Aurizon (ASX: AZJ) for its Consuelo project.
We expect International Coal shares to open higher on this news.
Consuelo, which has an Exploration Target of between 800 million and 1,700 million tonnes of high grade coal, is located just 25 kilometres from an existing rail head on the Blackwater rail system.
"Planning and negotiation of infrastructure access often requires extensive lead times. In order to keep on track with our exploration and development schedule, we need to move early to shore up access to infrastructure either through direct means or through secondary contracts," chief executive officer Glenn Simpson said.
"We are not locking anything in yet but we need to start a dialogue so that it is all systems go if our exploration comes up as expected."
Aurizon has confirmed that the Consuelo Project is on its list of future projects and will form part of its demand assessment and expansion process.
The company is targeting Consuelo start-up production in late 2016 to early 2017 with discussions to date indicating that capacity will be available to meet its schedule.
Talks have also begun with key proponents associated with the Wiggins Island Coal Export Terminal.
Drilling at Consuelo is expected to start in the coming months.
It is also just 25 kilometres from the Blackwater rail line that currently services the Barney Point Coal terminal, the RG Tanna Coal terminal and the Wiggins Island Coal terminal (Stage 1 under construction).
The project consists of tenements EPC 2318 and 2332 as well as applications 2327 and 2925 that are located within close proximity of one another.
These have the potential to be a flagship project for the company, targeting a large high-grade coal deposit with potential for producing a washed semi-soft coking coal product from the Bandanna Formation - the same formation that hosts coal produced from Rollerstone.
Consuelo has open-cut and underground potential and the company is working toward the rapid development of the project.
Coal quality based on historical data from the region indicates average raw ash content ranges from 8% - 30% with moisture of 3% - 8%.
Washability studies and clean composite results released by Bandanna Energy in the neighbouring Arcadia Project have provided evidence that the Bandanna seams could make a semi-soft metallurgical coal with a swell of 2.0 - 4.0.
Six significant seams (X,A,B,C, D and E) have been identified in the Bandanna Formation in the local area with average modelled seam thicknesses of 1.02 metres to 2.8 metres and maximum modelled seam thicknesses of up to 6.06 metres for the project area.
An initial exploration program is being finalised with the intention to commence drilling ahead of the coming wet season. Land access and cultural heritage clearance process have already been initiated to facilitate this exploration.
Under its joint venture with Coal Face Resources, ICX has the right to earn up to 71% in EPC 2318 and 2332, which make up the Consuelo Project.
The close proximity of the Consuelo Project to existing rail infrastructure is one of the biggest advantages International Coal possess over coal exploration peers in Queensland.
That there is capacity to meet ICX's current development schedule under-pins the project's path to production.
This gives it access to export markets without the need to construct extensive infrastructure, which will result in lower capital expenditure for any development of Consuelo. It also raises the probability that the project would be developed.
Notably, the same is true for the company's Bundaberg Project with Gina Rhinehart's Hancock Prospecting.
Proactive Investors expects upcoming exploration news flow from Consuelo (and Bundaberg to a lesser extent) to re-ignite interest in ICX, which seeks to mimic the low cost operating structure at the Rolleston and Meteor Downs South mines.
Assuming that it can meet its resource goals, Proactive Investors considers the company is significantly undervalued and provides very significant upside for investors. Interest from Chinese strategic groups should not be under-estimated and provides another catalyst for valuation increase.
Proactive Investors estimates a valuation for International Coal of $0.27 - $0.33 with a 12-18 month time line.
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