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Churchill Mining to up East Kutai coal production rate by 10 mln tonnes/yr

Indonesia operating coal miner Churchill Mining (AIM: CHL) announced it plans to raise the coal production rate at its 75% owned East Kutai coal project (EKCP) in Indonesia by up to 10 Mtpa (million tonnes per annum) to 35 Mtpa, as well as achieve a 50% increase in coal sales and incorporate the additional production in the feasibility study and economics.

Project optimization studies have shown that the overland conveyor, which will transport coal from the Northern Pit, has an enhanced capacity of 25-30 Mtpa, an increase of 5-10 Mtpa. Production from the Southern Pit would remain at 5 Mtpa. Churchill's feasibility and development work has identified that planned mine facilities at the Northern Pit have the capacity to support a mining production rate of 40-45mtpa.

The feasibility study is now expected to be released in Q3 this year and not in Q2 as was previously planned.

Broker Astaire Securities commented that the increase in potential production “further demonstrated the financial viability of this potentially World class thermal coal asset.”

In addition to the Northern Pit production, and to the MOU (memorandum of understanding) signed with Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN), Churchill continues to work on plans for the purchase of 5 Mtpa of coal from the Southern Pit, which would fulfill its Indonesian domestic market obligation.

PLN is now reviewing the potential to utilize its coal drying and enhancement technology on the project's coal, which, in testing, upgraded the coal from sub-bituminous to bituminous to increase its value.

Churchill is currently reviewing development options for the project together with its strategic advisor Credit Suisse. The optimized feasibility study will form the platform for Credit Suisse's work as it evaluates Churchill's options for the project.

“We are delighted with the results of the optimization work performed thus far on this world-class thermal coal project. We believe that the significant increase in the production profile will generate considerable additional economic value and further increase the attractiveness of the project for power project developers in Asia,” said chief executive of Churchill Paul Mazak.

Earlier this month, Churchill took a direct equity interest in the Ridlatama Tambang license area of EKCP after a new mining law was passed, enabling foreign companies to directly own equity in Indonesian mining concessions. Previously, Churchill held a 75% beneficial interest in the Ridlatama Tambang license area via contractual arrangements, similar to those typically used by other foreign companies operating in Indonesia.

The Ridlatama Tambang license area is the larger of the two licenses that make up the East Kutai Coal Project. With a 2.545 Bt (billion tonne) resource, Ridlatama Tambang represents 93.2% of East Kutai, which has a total JORC Resource of 2.73 Bt.

Last month, Churchill raised US$23.2 million, or £16.1 million before expenses, through the placing of 16,087,700 new ordinary shares at 100p per share with institutional investors. The proceeds were earmarked to advance East Kutai as it moves to development and production and for general working capital.