Serving local markets in New Zealand could provide near term cash flow for Strategic Minerals' (LON:SML) Tatu coal project and shelter the firm somewhat from current coal price weakness, reckons managing director John Peters.
The coal price, along with commodities generally, has been under pressure, and fallen around 10% this year alone. But there has been a trend of decline in coal for longer than that - since around 2011.
Mineral project developer Strategic has a newly refocused strategy and is working up the Tatu project on North Island.
Talking to Proactive of the "beauty" of a potential mine supplying the local market, Peters noted:
"The price does get somewhat insulated from the world price because you are producing in a local market, you're paying local costs and people are used to paying a particular local price.
"While it doesn't completely insulate you, it helps you in that regard.."
Today, Strategic revealed it had entered contracts to produce a bulk sample from the Tatu site.
Once the sample, expected to cost around NZ$280,000 (around £116,500) has been delivered, it will be tested by consultants and potential clients to ensure its suitability for their processes.
The company said the sample was an "important step in the delivery of an economically commercial coal mine at Tatu" and that the firm was looking forward to delivering samples to potential customers and finalising feasibility studies as soon as possible.
It has yet to finalise financing, but the company wants to secure funding for building the mine through industry contacts and consultants.
It said this may include joint ventures or debt and has now signed a non-binding MOU with China Coal Technology Engineering Group (CCTEG) to provide pricing and funding options associated with both the mine equipment and operations.
Earlier, Peters said: "I believe we are well positioned to progress the Tatu project and are in discussions with potential contractors, looking to undertake the construction and operation of the mine, to potentially finance the development of the project.
"The signing of the non-binding MOU with CCTEG reflects this progress"
The firm wants construction of the Tatu mine to begin in the first quarter of 2016, subject to positive market feedback and funding being secured.
A maiden JORC resource estimate has shown 6.72Mt (million tonnes) of measured and indicated thermal coal at the property, of which 75% was in the high certainty, measured category.
SML shares shed 20% to 0.26p on the day.