Aviva

 

QUARTERLY REPORT 30 SEPTEMBER 2008  

 

HIGHLIGHTS ELS 21 2009
 

During the September quarter, Aviva Corporation Ltd (ASX: AVA; BSE: AVIVA) achieved a number of significant milestones in the development of its integrated energy projects in Australia and Botswana.  

 

Key achievements include:

· Coolimba Power Project

o Executed a Joint Development Agreement with global power company The AES Corporation (NYSE: AES).

o Completed mine dewatering studies, which identified sufficient water to shift from air-cooled to water-cooled power generation. This will increase energy efficiency and decrease carbon output by around 10%. Capital and operating costs will also reduce by around 10%.

· Mmamantswe Integrated Coal and Power Project

o Completed 13,000m of the 16,000m reserve drilling program. 

o Extremely positive results from the first stage of water exploration. 

o Aviva-GDF Suez consortium was unconditionally qualified to submit a 1,000MW proposal into Eskom’s 4,500MW IPP procurement program. 

· In October, Aviva announced it had agreed to merge with Canadian-listed coking coal producer NEMI Northern Energy and Mining. 

 

OUTLOOK  

· Commence discussions with GDF-Suez on terms of engagement for Mmamantswe.

· Submit PER for Coolimba.

· Despatch scheme booklet to shareholders detailing the terms of the NEMI Merger.

 

COOLIMBA POWER - INTERGRATED ENERGY PROJECT  

 

The Coolimba Power project comprises a 400MW power development based on the Central West Coal deposit located 20km south of Eneabba in the Mid West region of Western Australia. 

 

Partner

During the quarter, Aviva entered into a Joint Development Agreement (JDA) with global power company The AES Corporation Limited, for the development of the Coolimba Power project. Essential terms of the JDA applicable to Aviva include:

 

· a 50% share of the developer’s fee payable by the project to Aviva and AES;

· reimbursement of past expenses by AES to Aviva capped at $7m; and 

· staged payments for the initial assets totalling $26m.

 

Under the JDA, Aviva and AES will work together to develop the Coolimba Power project and coal mine. The first phase of the JDA will focus on the finalisation of the:

 

· environmental approvals; 

· mining tenure; 

· network connection; 

· mining services agreement; and 

· off take agreements with potential customers.  

 

Upon successful completion of this phase, Aviva and AES will enter into a Joint Venture Agreement (JVA) covering the coal mine and power station. Under the JDA AES will be assuming responsibility for finance and EPC contracting, while Aviva will continue to progress approvals, coal mining and infrastructure development. Up to and including the completion of financing, control of the project will be shared equally.  

 

A Joint Development Committee comprising two members from each of AES and Aviva has been established and Mr Richard Harris of Aviva has been appointed project manager during the first phase. 

 

Environmental Approval

The Scoping Document for the project has been lodged with the EPA and comments have been returned. Aviva’s environmental consultants URS are preparing the PER document, aiming to provide EPA with a draft by the end of November 2008. Baseline studies for inclusion in the PER are expected to be finalised in the next two weeks.  

 

Carbon Capture and Sequestration (CCS) 

Coolimba will be built as a CCS-ready plant. Aviva and ARC Energy have entered a partnership to engage the national collaborative research organisation CO2CRC to investigate sequestration locations in the North Perth Basin. Worley Parsons / Schlumberger have been engaged to prepare a scoping study on the capture and sequestration of carbon in the North Perth Basin. 

 

The WA Government has now included the Coolimba Project in its scope of projects referred to the Federal Government’s “Low Emissions Council” – which has been set up to oversee funding of up to $500M for low emission coal projects.

 

Licensing 

Coolimba has registered as a market generator with the Independent Market Operator (IMO). The next step in the IMO process is to apply for conditional certification which will put the generation capacity in a timeline for the market. 

 

Networks

Owners’ engineer PB Power has lodged two applications with Western Power to access the planned 330kv transmission line between Perth and Geraldton. The first application is for a 2x200MW coal fired generator and the second application is for a 2x165MW gas-fired plant. 

 

Markets

Aviva is advancing off-take discussions with several parties including state and private retailers and resource projects in the Midwest. The total potential off-take from these parties is approximately 600MW which is in line with the statement of opportunities released by the IMO in July. The company is working towards finalising MOU’s on power off-take in the first quarter of next year. 

 

Mining Studies

Minserve in conjunction with a large mining contractor is working on a mining DFS looking at base case truck and shovel operations for the establishment of the mine, and conveyor concepts for waste mining once the mine has been established. 

 

A separate web site for Coolimba Power which hosts important background information for the project can be accessed at www.coolimbapower.com.au.

 

 

MMAMANTSWE INTEGRATED COAL AND POWER PROJECT BOTSWANA

 

Aviva is earning a 90% interest in the Mmamantswe Project in Botswana where it has outlined a 1.3 billion tonne indicated resource. Development plans for the project are based on, firstly, a 1,000MW power station using four million tonnes per annum of coal and, secondly, the potential export of 6-12Mtpa of coal to South Africa to fuel new power developments. A detailed project update was released on 16 October 2008.

 

Reserve Drilling

The reserve drilling program commenced in April this year. The 16,600 metre program was designed to upgrade half of the 1.3 billion tonne resource to the measured category. To the middle of October 90 holes of a likely 130 hole program had been completed. The program will comprise 95 RC holes, 26 slim core holes and four large diameter core holes. The majority of the holes outstanding are the RC drilling.

 

The cored holes are located on a 700m grid which is in-filled to 350m spacing by the RC drilling. All of the holes are geophysically and geologically logged, sampled and logged for water strike.

The large diameter core holes will be used for drop shatter, wet tumble test results. Drilling has commenced on the first hole, and it has been decided to twin these holes with slim core holes for the best correlation of results.  

 

Drilling to date has affirmed the geological model constructed from the initial resource drilling, with carbonaceous intercepts of around 50-60m thick in the centre of the basin with some intercepts up to 80m thick.  

 

Coal Quality and Preparation 

AB Mylec from Queensland has been retained to design and supervise the coal quality and coal preparation test work for the current drill program. All of the slim cores will be analysed at Witlab in South Africa and the large diameter cores will be shipped to the ACIRL laboratories in Ipswich Australia for coal quality and subsequent coal combustion test work.  

 

Coal Combustion Test work

A test work slot has been booked with ACIRL laboratories in Ipswich in the first quarter of 2009 for a full suite of combustion tests on a washed coal sample from Mmamantswe. The sample will comprise approximately 2,000kg of washed coal derived from the four large diameter core samples. The test work will be designed to inform engineering design parameters for 500MW supercritical, air cooled, pulverised fuel boilers.

 

Mine Pre-Feasibility Study

SRK Consulting in South Africa has been engaged to undertake a Pre-Feasibility Study (PFS) for the Mmamantswe Mine. Principal Mining Engineer, Mr Andy Birtles, will assume responsibility for the PFS. He has significant experience in open cut coal mining and recent specific experience on coal mining studies in Botswana.  

 

Water Exploration

Aviva has engaged PB Power in Johannesburg to conduct various engineering investigations for the project. Sub consultants Gibb Botswana (Pty) Ltd and KLM Consulting Services Botswana have been engaged to conduct a ground water exploration programme targeting six gigalitres per annum (Glpa) which would be sufficient for a coal mine and 2,000MW of power generation. Following extensive initial investigation, Pula Groundwater Developers Proprietary Limited has been engaged to drill 25 exploration holes at two locations. 

 

Initially, five wells have been drilled in the vicinity of the coal deposit targeting production water supplies from fracture aquifers. These wells are currently being tested by Motswedi Wells Test Pumping Contractors (Pty) Ltd and four of the wells are expected to become production holes yielding a combined 1.5 Glpa. 

 

A further 20 wells are currently being drilled at Artesia, a known water producing area about 70km from the coal deposit. These cased holes are being drilled to a maximum depth of 300m. This activity has commenced, and initial exploration results from the first six holes are very satisfactory with water being intercepted at shallower depths than budgeted. Aviva expects the water exploration phase to be completed in November 2008 and to comfortably achieve the targeted water resource. 

 

Coal Transport Study

In early 2008, PB Power and Arcus Gibb conducted an initial screening study into coal transport from Botswana to South Africa. This study considered road, conveyor and rail transport options. Initial results showed that rail transport was the least cost option at the proposed coal sales rates. Subsequently, Arcus Gibb has provided a proposal to investigate in detail two rail options for the transport of coal from Mmamantswe to the existing railway system in South Africa, for subsequent delivery to various generating stations. Aviva has finalised the scope of the detailed study, but is awaiting commissioning of the study pending a positive indication from Eskom on the prospect of supplying it with coal under a long term sales agreement.  

 

Transmission Study 

Botswana currently imports the majority of its electricity requirement from South Africa. A 1,000MW generating station at Mmamantswe will require integration into the regional transmission system in order to reliably export electricity to South Africa. Aviva has engaged PB Power to coordinate or conduct the various studies necessary to develop an acceptable connection arrangement for the power station. Studies have commenced with Eskom and Botswana Power Corporation to design and cost the necessary transmission infrastructure. These studies are scheduled to be completed in December 2008.

 

Environmental Approval 

The development of a power station and coal mine in Botswana is subject to a three stage environmental approval process. The first phase was completed with the submission of an Environmental Impact Assessment Report in February 2008. Subsequently, an Environmental Scoping Report and draft Terms of Reference were submitted to the Department of Environmental Affairs in Botswana in August 2008. Aviva and its consultants attended a Terms of Reference meeting coordinated by the Department of Environmental Affairs in the first week of October and will be submitting the final Terms of Reference in November which will define the scope of work for the Environmental Impact Assessment (EIA). Aviva is targeting completion of the EIA process by mid 2009.

 

Markets

During the quarter, Aviva in conjunction with GDF-Suez, made a pre-qualification submission into Eksom’s power procurement program. The submission was for a 1,000MW power station utilising Mmamantswe coal based in either South Africa or Botswana. 

 

Subsequent to quarter end, Eskom has advised that a South African location has been unconditionally qualified to submit a proposal. Aviva considers that a Botswana location for the power project has many advantages and will continue to evaluate both options.

 

In the March quarter, Aviva responded to an initial request for information from Eskom for potential coal supply of 390-780 million tonnes over 40 years. Aviva submitted a proposal for the supply of 6-12Mtpa of coal from Mmamantswe to new Eskom power developments in the Waterberg region of South Africa. Notification of short listed parties was expected in the September quarter.  

 

CORPORATE

In October, Aviva and NEMI Northern Energy & Mining Inc. (“NEMI”) (TSX: NNE.a) announced that they have entered into a merger agreement (“Agreement”) to create a new growth-oriented international coal and energy group (the “Merger”).  

 

The combined entity will provide investors with exposure to operating and development stage assets across attractive metallurgical and thermal coal projects in North America, Australia and Africa.  

 

The Merger will create a diversified coal and energy producer and developer, with significant growth potential, that will benefit from:

 

· A complementary development pipeline providing for superior growth potential with significant coal projects including: 

o Peace River Coal (in which NEMI has an interest) having recently entered commercial production and its inherent expansion opportunities; 

 

o Coolimba Power (which is being developed by Aviva ) moving through engineering and regulatory approvals; and 

 

o Mmamantswe (in which Aviva is earning a 90% interest) providing for longer term power and coal production potential;

 

· Cash flow potential and a strong balance sheet with the ongoing ramp-up of the Peace River Coal operations and a current combined cash balance of approximately C$25 million; 

 

· Enhanced market positions with a diversity across geographies (Canada, Australia and Botswana), coal products (metallurgical and thermal) and capital markets (TSX and ASX listings); 

 

· An expanded and experienced board and management team with a mix of operational, technical, corporate and financial skill sets from both the resource and power sectors; and

 

· A continued strategic focus on organic growth, pursuit of attractive opportunities, and beneficial partnering strategies, all as part of an over-riding drive to create shareholder value.

 

The Merger is expected to be completed by way of an Aviva scheme of arrangement in Australia, with Aviva shareholders to receive 0.59 NEMI shares (in the form of “CHESS Depository Interests” or “CDIs”) for each Aviva share they hold at completion. It is intended that upon the completion of the Merger, NEMI will change its name to reflect the expanded scope of its business. The merged group will maintain its primary listing on the Toronto Stock Exchange and will apply for a listing on the Australian Securities Exchange and the Botswana Stock Exchange.  



Existing shareholders of NEMI and the former shareholders of Aviva will each hold approximately 50% of the expanded share capital of the merged group at closing on a diluted basis taking into account NEMI’s outstanding convertible debentures. The key terms of the Agreement (including conditions to completion) are summarised in the Annexure to this announcement.

 

For further details please refer to the ASX ; BSE announcement on 22 October 2008, or visit the “Merger Information” page on Aviva’s website at www.avivacorp.com.au

 

FINANCIAL

Cash reserves at the end of the quarter stood at approximately $16.1 million. Most of the substantive work programs required to take both Coolimba and Mmmantswe to the Financial Investment Decision stage are complete or nearing completion. By the end of November it is expected that cash outflow will be restricted to environmental approval activities and the desktop studies required to advance the projects.