Oracle Coalfields making all the right moves as it prepares for a key phase in its development

Oracle Coalfieds’ (LON:ORCP) last public announcement hints at the progress being made quietly behind the scenes since the company’s listing on AIM.

It trumpeted the appointment of Thomas Hawkins, who has been brought in as coordinator, with emphasis on power, for the 1.4 billion tonne Thar Project in Pakistan’s Sindh Province as it moves towards targeted first production in 2013.

It is one of a series of senior appointments planned following April’s AIM listing, which will bring aboard the mining expertise and City experience required of a firm in such an important phase of its development. 

It also addresses the requests made by investors who backed Oracle to the tune of £3 million as it stepped up to AIM.

Chief executive Shahrukh Khan and senior non-executive director Roderick Stead are currently in the process of indentifying a non-executive chairman and a finance director, a role currently occupied by Stead.

“During the investor roadshow (ahead of the AIM float) we were asked what we were going to do top beef up the board when we get to the fundraise stage,” Khan told Proactive Investors. “The appointments address this.”

The AIM float was a huge success. As well as bringing in additional funds it added some new institutions to the shareholder register.

“We’ve brought on board good quality institutions,” the Oracle chief says.

The next major event in the life of Oracle will be the definitive feasibility study of the company’s portion of the Thar Coalfield – Block VI - which is due to be completed by independent consultants SRK by the end of this month, or early next.

Thar is 380 kilometres east of Karachi and contains lignite coal, which is brown in colour and has lower calorific value than the thermal coal that goes for export from places such as Indonesia. 

It’s the sort of stuff that is found in abundance in Victoria, Australia and Germany. 

Oracle has a JORC resource of 1.4 billion tonnes and proven reserves of 371 million tonnes.

The plan is to mine around 1 million tonnes a year initially which will be sold to Lucky Cement, which will use it to heat its kilns.

Output will then ramp up to 2.5-3 million tonnes annually as its deal with the Karachi Electric Supply Company, or KESC for short kicks in.

The power company, majority owned by the Dubai-based private equity group Abraaj Capital, will use coal taken from the Thar Coalfield in new plants set to come online from around 2015.

However, Oracle’s plans currently are only the starting point for a resource that could be mined for the next century.

“The feasibility study is not the end game,” Khan adds. “It is just the beginning to show the scalability of what we are getting into.”

Analysts estimate the cost of the project to be around $350 million in total, with around $100 million of that to be found through equity funding, or a strategic partnership.

There will also be an element of local financing involved, and the company could even qualify for assistance from the World Bank’s International Finance Corporation.

As you’d expect Khan is keeping all his funding options open at this point. 

“We have a feel for where we can go for this...but we want to start the conversations after the feasibility study,” the Oracle boss says.

The one imponderable is the investment community’s attitude towards Pakistan. 

“We shall see what the appetite is when we publish the feasibility study and when we start talking with people. There will also be an element of local and international financing involved ,” Khan says.

Once the feasibility study is completed and published, the next step then will be to apply for a 30-year mining lease for the Thar project.

Khan is hoping the process will be fast-tracked, which means the lease could be rubber stamped within a month of application. However he is taking nothing for granted.

It is important then to get the dewatering underway as soon as possible along with work to remove the overburden.

In Pakistan there is a will to get the project up and running as soon as possible, the Oracle chief executive reveals.

“We have a very good relationship with local and national government,” Khan says.

“We represent a major British investment in Pakistan. 

“There is a willingness at all levels to make this doable. If there is a problem with government it is that they want the project to be done bigger and faster than is practical.”