US$205 Million Sales Contract with LG&E
In October 2015, Paringa signed a coal sales agreement with LG&E and KU to deliver coal from the Cypress Mine. In February 2016, the Company decided to develop the low capex Poplar Grove Mine first following exceptional results from the Scoping Study. As a result, the amended cornerstone coal sales agreement with LG&E and KU now reflects delivery of coal from the Poplar Grove Mine.
Under the amended coal sales agreement, Paringa is contracted to deliver a total of 4.75 million tons of its 11,200 btu/lb product over a 5-year period, starting in 2018. The amended contracted fixed coal sales prices for Paringa's 11,200 btu/lb coal specification begins at US$40.50 per ton for the first 750,000 tons of coal delivered to LG&E and KU, escalating to US$45.75 per ton for the final 1,000,000 tons sold.
The Poplar Grove and Cypress Mines' access to the Green and Ohio River systems provides a significant transportation advantage over other Illinois Basin coal producers. The LG&E and KU coal sales agreement calls for fixed sales prices based on a FOB basis delivered at the Buck Creek barge load-out facility on the Green River.
LG&E and KU are subsidiaries of the PPL Corporation (NYSE: PPL) family of companies and are regulated utilities that serve a total of 1.2 million customers. LG&E and KU own three power plants within Paringa's initial target Ohio River Market (Trimble County, Ghent and Mill Creek) that are almost exclusively supplied by the Illinois Basin. PPL Corporation has a Moody's/S&P investment grade credit rating and a market capitalization of US$25.6 billion.
LG&E and KU's Trimble County Power Plant on the Ohio River
Additional Sales Contract with AEP
In October 2018, the Company signed a further sales contract with Ohio Valley Electric Corporation and its subsidiary Indiana-Kentucky Electric Corporation (OVEC-IKEC) for coal sales from the Poplar Grove mine totaling 650,000 of coal from 2019 to 2020. OVEC-IKEC own two generating stations located in Ohio and Indiana, with a combined electric production capability of approximately 2,256 megawatts. OVEC-IKEC is owned by several investor-owned utilities or utility holding companies, with the largest shareholder being American Electric Power.
American Electric Power (“AEP”) (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to nearly 5.4 million customers in 11 states. AEP also is one of the nation’s largest electricity producers with approximately 33,000 megawatts of generating capacity in the United States. AEP also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Paringa's Initial Target Market - Ohio River Market
The Buck Creek Complex is in an enviable position in having low cost barge access to the Green and Ohio rivers, providing a significant transportation cost advantage over other Illinois Basin and US coal producers. Paringa's initial target market is 17 of the large base-load coal fired power plants located on the Ohio River. These plants consume approximately 50 million tons of coal per year, primarily from the Illinois Basin, and have all installed environmental controls.
Secondary Target Market - South East Market
Paringa has also identified a secondary target market, the South East Market, which has traditionally been supplied by the Central Appalachian region. The increase in scrubber installations in the US has provided an opportunity for low cost Illinois Basin coal to increasingly penetrate a large proportion of the Eastern US power market. In 2015, approximately 20 coal fired power plants relied on Illinois Basin coal for 76% of their supply (26 million tons), predominately from mines based in Western Kentucky and Illinois.