Rey Resources moves closer to "initial mining" milestone at Duchess Paradise on maiden coal reserve

Rey Resources (ASX: REY) has taken another step towards an initial mining operation at the potential Duchess Paradise thermal coal project after achieving a maiden reserve estimate in the upper (P1) seam of 26.3 million tonnes (Mt).

Importantly, the Definitive Feasbilty Study (DFS) is on track for completion in June 2011 and the mine plan currently allows 10 year life and sales at about 2Mt per annum.

Marshall Miller & Associates, Inc. (MM&A) completed the coal resource estimate for the project in the northwest of Western Australia in March 2011, and were also engaged to prepare a statement of coal reserves based on the resource, consistent with JORC guidelines.

The reserve statement is based upon part of the Measured and Indicated resources of the upper (P1) seam and follows the resource up-date of the P1 seam at Duchess Paradise in April 2011 and further mine planning as part of the DFS.

The company is planning to start drilling in June with the objectives of expanding shallow reserves by converting Inferred resources to reserves, defining potential underground reserves and exploring new outcrop areas.

Kevin Wilson, Rey Resources’ managing director, said “the calculation of a thermal coal reserve is considered a major step in bringing us closer to an initial mining operation at Duchess Paradise, subject to the DFS outcomes and regulatory and other approvals.”

The Coal Reserve estimate is based on part of a JORC resource estimate totalling 60.2 million tonnes of Measured and 78.5 million tonnes of Indicated Coal Resources in the P1 seam at Duchess Paradise.

This resource will be used to support a mine plan for slot mining with highwall miners operation along the shallowest part of the Duchess Paradise resource.

Significantly, most key transportation infrastructure for the proposed initial operation is now in place. The value inherent in Rey's massive potential resource is that it is closer to Indian and Chinese markets than east coast coal suppliers.

Saleable coal will be transported approximately 175 kilometres by road to the Port of Derby, where Rey Resources holds a lease over port facilities and owns loading equipment, for shipping to nearby growing markets in China and India.

The company is planning further investigations will occur in 2011 to examine the underground mining potential of deeper coals in the P1 seam. The P1 seam totals 305.8 million tonnes in all resource categories.

The coal quality analyses have been used to generate washability and product specifications as part of the DFS.

These calculations are based on an indicative bituminous product of about CV 5,500 kcal/kg gar, with sulphur less than 1 per cent, at a wet plant yield of 67 percent (including dilution).

The mine plan is projected to produce approximately 30.3 million run-of-mine (ROM) tonnes (inclusive of out-of-seam dilution) over its approximate 10 year life.

This comprises 26.3 million tonnes from Reserves and an additional 4.0 million tonnes mined from Inferred Resources.

The projected coal seam recovery is 95% in slot excavation areas, and an average of approximately 51% in highwall mine areas (variable from one location to another, depending upon geologic and design conditions).

An overall processing yield of approximately 67% is projected, with a total mine production of 20.5 million marketable tonnes of which 17.8 million tonnes is from existing reserves and 2.7Mt is derived from the Inferred Resource.

Of this 17.8 million tonnes of reserves, 13.8 million tonnes (77.4%) is classified as Proven with the remainder classified as Probable.

At full production, an annual production rate of 2.0 to 2.5 million tonnes of marketable coal is projected.

Large coal resources were identified in the P1 Coal Resource statement, defining potential for underground mining beyond the scope of the slot mining planned in the shallower part of the Resource.

Currently planning and heritage clearance work with the traditional owners is underway for the 2011 drilling season.

This is expected to convert more of the shallow Inferred Resource into reserves, expand and further upgrade more of the deeper Inferred Resource to Indicated level to support a potential underground reserve estimate, and investigate prospective coal outcrop elsewhere in the region.

Rey is well positioned to tap increased Asian demand for coal with its initial mining operation planned for 2013.

The completion of the DFS is likely drive valuation growth for Rey investors and could be expected to increase further at this point.