India Resources closer to final agreement to develop Biharinath Coal Mine

India-focussed explorer and mine operator, India Resources (ASX: IRL) said it is working toward a final contract with Bankura DRI Mining Manufacturers Company Private Limited (Bankura DRI) for the development of the Biharinath Coal Mine.

Under the proposed deal with Bankura, IRL would be appointed the sole and exclusive contractor to develop and undertake underground coal mining operations from Bankura's Biharinath Block in the Raniganj Coalfield, located in the state of West Bengal, India.

IRL would develop two declines of 2 km each, sink two shafts of 170 and 490 metres in depth and undertake underground coal mining operations.

IRL would, as per the agreement, deliver coal to the pit head as per the approved mine plan. The current mine plan envisages first delivery of coal (30,000 tonnes) in the third year of operation and ramping up to reach a target production of 480,000 tonnes per year in the seventh year of operation.

Bankura is a special purpose vehicle established by six sponge iron manufacturers to mine coal from their Anandapur Sector, Biharinath Block.

The Biharinath Coal Block is part of the Raniganj Coalfield, located in the state of West Bengal, India.

The Block contains 9 workable coal seams of non-coking coal with the majority of coal falling between the useful heat value (UHV) of between 4,200 to 5,600 K.Cal/kg.

Arvind Misra, managing director of IRL said negotiations between Bankura DRI and the relevant Indian Government departments are continuing to obtain final approval for the commencement of excavation activities at the site and establishment of surface infrastructure.

Also, IRL is identifying potential equipment suppliers.

Coal Project (Prism Cement)

The Company has submitted an offer to Prism Cement for the development of an underground coal mine including surface infrastructure.

Negotiations with Prism Cement commenced last week, resulting in a  revised offer being submitted by IRL. Prism Cement is currently evaluating various offers and is likely to award the development contract during the current quarter. Prism Cement is also in discussions with several other parties in relation to the awarding of this contract.

The development contract will require the mining of approximately 300,000 tonnes of coal per annum once two declines and a vertical ventilation shaft have been constructed.

Project Financing

The majority of the funding requirements for current projects can be funded under the IRL’s existing arrangements, including internal cash flows and further project specific debt funding from Indian banks.

Although IRL said, given the significant number of additional mine development opportunities, available to the company over the next few years, it is also in discussions with several international financial institutions in relation to funding programmes.

Surda Operations

Operations at the Surda mine have been impacted by workers stopping work in support of a demand for wage increases. This work stoppage occurred without giving reasonable notice to the Company and has been declared illegal by presiding State authorities.

While the strike currently continues, essential services employees returned to work last week and IRL anticipates the remaining workers will return to work shortly.

Negotiations between the parties are being chaired by the Regional Labour Commissioner, a Government of India department who carry necessary powers in such matters.

The company said in a statement it has communicated a No Work and No Pay decision to the workers.

This has significantly reduced any financial impact of the stoppage to the company. Copper production for the months of April and May have been affected to date by approximately 30%. Assuming that operations re-commence shortly, the majority of lost production is expected to be recovered during the current quarter.

The strike falls under the definition of Force Majeure under the Surda contract, as per the works order with the owners of the mine, Hindustan Copper Limited.

The works order also has provisions for extension of the contract term by an equal number of days lost due to the strike.