Location and History

The Lochinvar Coking Coal Project is located on the Scottish and English borders.

The project is consists of two adjacent exploration and conditional underground mining licences known as Lochinvar and Lochinvar South.

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Location of the Lochinvar Project

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Historic exploration at Lochinvar was conducted in the 1950’s by the National Coal Board, which sank four boreholes. This work proved the existence of the same sequence of thick coals of the Middle Coal Measures, which had been previously mined at Rowanburn colliery to the east of the licence.

From 1979 the NCB drilled a further nine boreholes and shot 55 kilometres of seismic line, proving the existence of a large concealed coking coalfield (the Canonbie Coalfield).

NAE drilled an initial 4 cored drill holes at Lochinvar in 2013 and a further 6 holes in 2014.

Scoping Study Results

In October 2014, NAE completed the Lochinvar Scoping Study which confirmed the potential for a low cost long life 1.9Mtpa long wall mining project to deliver 1.4Mpta coking coal into UK and European markets.

The Scoping Study was updated in March 2017, and delivered a robust set of economics highlighted by an NPV9% of US$410M with and IRR of 27% and a payback of 4 years.

The project is focused on an underground mine connected by a drift to the surface, where coal will be processed and loaded into rail wagons – for direct delivery to the UK steel mills for shipping into Europe.

Underground coal will be mined using a 200m wide longwall with development roadways constructed by 3 continuous miner/ bolters.

The ROM coal will be processed at a high 71% yield to produce 33.7 Mt of clean coal (saleable product), averaging 1.4 Mtpa clean coal.

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Lochinvar Schematic Mine and Infrastructure Layout

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Lochinvar Scoping Study Production Schedule

Parameter Unit Result
Production LOM ROM Mt 47
LOM Saleable Coal Mt 34
Life of Mine Years 26
Annual Ave. ROM Mt 1.9
Annual Ave. Saleable Coal Mt 1.4
Revenue Benchmark HCC Price US$/t 160
Ave. Realised Price US$/t 150
Average Discount % 6
Operating Costs Unit Operating Cost US$/t 58
Capital Costs Construction Capital US$ M 229
Life of Mine Capital US$ M 513
Cash Annual Cash US$ M pa 95
Operating Margin US$/t 92
Valuation1 NPV (@9%) US$ M 410
IRR % 27
Payback (undiscounted) Years 4

Summary Economic Results – Lochinvar Scoping Study Update (March 2017)

1 Real after tax, unleveraged, 1 Jan 2017 basis

These results demonstrate the potential for Lochinvar to deliver excellent returns on investment with lowest quartile operating costs and a low capital cost structure.

Geology

Geological data collected from the two phases of NAE drilling and a re-interpretation of historic seismic data has improved the understanding of the Lochinvar structure.

Palaris completed a revised structural interpretation in August 2014, which identified an increased density of faulting compared to the previous interpretation.  The Scoping Study Mine plans are based on this revised structural interpretation.

This Resource occurs between 200m and 1,000m depth, with 95 Mt of the total resource, being shallower than 800m depth. All of the Indicated Resource is shallower than 800m depth.

Average seam thickness is 2.2m for the Nine Foot Seam and 1.8m for the Six Foot Seam.

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Lochinvar Structural Interpretation and Nine Foot Seam Depth Contours

Resource

A total resource of 111 Mt comprising 49 Mt Indicated Resource and 62 Mt Inferred Resource has been defined for the Nine Foot and Six Foot Seams at Lochinvar. The Indicated Resource, Inferred Resource and Exploration Target have been reported in accordance with the JORC Code (2012) and have been independently estimated by Palaris Australia Pty Ltd, an internationally recognised mining consultancy specialising in coal exploration and mining.   The resource estimate is based on 9 holes drilled by the National Coal Board (NCB) from 1979 through to 1983 and 10 holes drilled by NAE in 2013 and 2014.

An additional Exploration Target of 31 – 64Mt has also been identified which includes both the Lochinvar and Lochinvar South Leases.

A further Exploration Target for the Lochinvar North licence of 77-142 Mt was estimated by Palaris in April 2019.

The potential quantity and quality of the Exploration Targets is conceptual in nature. Insufficient exploration has been undertaken to estimate a Mineral Resource and it is uncertain that further exploration will result in the estimation of a Mineral Resource.

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NAE Lochinvar Licences, Resource and Exploration Target areas

Coal Seam
(Air Dried Basis)
Indicated Resource
(Mt)
Inferred Resource
(Mt)
Total Resource
(Mt)
Nine Foot Seam 37 49 86
Six Foot Seam 13 13 26
Total 49 62 111

Lochinvar Resource Statement (August 2014)

Lochinvar North Licence Granted (April 2019)

An Exploration Licence, Conditional Mining Licence and Option Agreement were granted to NAE in April 2019 by The Coal Authority over an area of 66.5 km2 adjoining and to the north and east of the existing Lochinvar Licence (“Lochinvar North Licence”).

Localised coal mining occurred within the Lochinvar North Licence from the mid-1800’s to the early 1920’s in the eastern part of the coalfield, where the coal seams are exposed near the surface.

4 historic boreholes drilled by the National Coal Board in the 1950’s within the Lochinvar North Licence intersected the Nine Foot Seam and/or the Six Foot Seam. These boreholes confirm the continuity of the Nine Foot Seam and other coal seams within the Lochinvar North Licence.

Based on these NCB borehole Intersections, the Nine Foot Seam has an average thickness of 4.1m and the Six Foot Seam has an average thickness of 1.8m within the Lochinvar North Licence. These intersections show a thickening of the coal seams, when compared to the adjacent Lochinvar Licence to the west and southwest.

Coal sampling results on the NCB borehole intersections demonstrate coking coal properties consistent with the coking coal quality recorded in drilling by NAE in the adjacent Lochinvar licence.

Scottish Coal drilled a series of holes north of the Lochinvar Licence (“Bogrie holes”) which intersected coal seams of similar thickness to those encountered at the northern part of Lochinvar Licence and suggest shallower underground access to first coal.

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NAE Lochinvar Licence Areas, Borehole Collars and Seismic Lines

Lochinvar North has the potential to extend the Lochinvar resource, reduce the depth to first coal (reducing the length and cost of the decline), increase production rate and increase mine life.

An Exploration Target for the Lochinvar North Licence ranging from 77-142 million tonnes has been estimated by independent technical consultants, Palaris, in the Nine Foot and/or Six Foot Seams to a maximum depth of 1,000m and minimum thickness of 1.2 m.

The potential quantity and quality of the Exploration Targets is conceptual in nature. Insufficient exploration has been undertaken to estimate a Mineral Resource and it is uncertain that further exploration will result in the estimation of a Mineral Resource.

Lochinvar North Exploration Target

Description Tonnage Range (Mt)
Nine Foot Seam Only 77-104 Mt
Nine Foot Seam plus Six Foot Seam 105 -142 Mt
Lochinvar North Licence Exploration Target 77-142 Mt

Coal Quality

Lochinvar Coal is comparable to highly sought after US High Volatile A Hard Coking Coal.

Wood Mackenzie completed an assessment of the expected Lochinvar coal specification compared with commonly traded industry standard benchmark coking coals with key findings as follows:

  • Very Low Ash & Phosphorus
  • Comparable VM, CSN, CSR (Predicted) & Fixed Carbon
  • High Sulphur but within UK / Europe blend limits. Potential to reduce to 1.2% based on coal processing modelling
  • Lochinvar Fluidity has wide range in results which were affected by laboratory media
  • Lochinvar CSR has been predicted by Pearson Coal Petrography. Bulk samples and CSR tests are planned to determine actual CSR

These results confirm the potential for Lochinvar to produce a low ash high volatile coking coal product at a high yield that will be attractive to the UK and European steel industry.

Market and Infrastructure

Lochinvar is ideally located to become a supplier of low cost, high volatile hard coking coal to the European steel industry as a result of:

  • Located 7km from the main West Coast Main Line railway – which links directly to UK steel mills and nearby ports to access European market
  • Lower labour rates when compared to Australian mining costs
  • Excellent UK fiscal regime with low corporate taxes and royalties
  • European Metallurgical Coal imports forecast to grow from around 52Mt (2017) to 61Mt (2035)
  • European High Volatile Hard Coking Coal (HV HCC) imports forecast to increase from 10.4Mt (2017) to 15.9Mt (2035)
  • Lochinvar 1.4Mtpa annual production represents ~12% of UK/Europe High Volatile HCC coking coal imports in 2021
  • Lochinvar coal enjoys a clear distance and freight cost advantage over competing imported coal and the benefit of regular local deliveries reducing customer inventories
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Lochinvar Infrastructure and Potential Markets