Galway has entered into an option agreement with Rio Tinto Mining and Exploration Corporation (Rio Tinto) to acquire 100% interest in nine coal concessions totaling 7,500 hectares, roughly 50% of the previously drilled San Luis Coal basin located in Santander, Colombia. Plans are in place to carry out a 7 hole drilling program that will begin in mid November 2008 and will concentrate on the southern flank of the coal basin.
Good Infrastructure and getting better
There is already coal production in the area and management believes the infrastructure, which is already quite good, will be further improved with the new Carare railway, which will have a loading station at San Luis. The Carare Railway is slated to come on line in 3 to 4 years with an annual freight capacity of 12 million tons. Carboluis is also strategically located close to the Caribbean Highway, the Atlantic Railway and the Barrancabermeja River Port. Management is enthusiastic about the prospects for this project.
This is the first project resulting from Galway's strategy of targeting Colombian coal properties that have the potential for quick resource development and production potential for a medium sized mine. Of the 29 existing drill holes in the overall San Luis Basin, the best holes were on the property Galway optioned, which enabled the development of a seven hole program targeting an open-pittable resource of 20 to 30 million tons of high grade coal that will be executed right away.
Galway's upcoming drilling campaign will begin to better define the potential for economic, low cost open-pittable coal reserves in the southern flank of the basin. A historic hole within the southern concession boundary (PC-307) encountered 18 meters of coal from 26 meters to a depth of 158 meters. The San Luis Area currently has one coal producer, Centromin which currently produces in excess of 300,000 tons per year, which is expected to be increased to 600,000 per year. This property is located directly adjacent to Galway's northern concessions in the San Luis Coal Basin.
San Luis Coal Basin
The San Luis Coal Basin (approximately 15,000 hectares) is believed to contain as much as 300 million tons (INGEOMINAS 2004) of coal resources in all categories. The region is known to contain 36 coal seams with coal widths ranging from 0.5 meters to over 3.0 meters. The coal basin is host to high quality coal, with historical drilling in the area showing high BTU content, an average in excess of 15,000 BTU's.
Colombian Coal Overview
After doubling the production and exports of coal in recent years Colombia is the largest exporter of coal to the United States, and is by far the largest coal producer in Latin America. More specifically, the total annual coal production is about 70 million tons and that figure is expected to double by 2015 as levels of foreign direct investments continue to increase with high energy prices. Colombia is recognized for its vast, high grade coal resources along with its highly motivated and skilled labor force.
Carboluis Deal Terms
Galway retains the right to drop the project at any time, pursuant to exploration results and prevailing market conditions. Currently, management believes that there is sufficient working capital to undertake this commitment, while leaving additional resources for general corporate purposes. The terms of the option agreement call for payments in the first year of $172,000 ($50,000 on signing), second year $575,000, and third year payments totaling $3.4 million, for total payments of $4.2 million. Additionally, the Company agrees to pay Rio Tinto Mining and Exploration (Rio Tinto) $1.25 per ton of economic coal determined by completion of a feasibility study. The first payment of 20% will occur 3 months after the release of the feasibility study, and the balance or 80% will occur during the first four years of commercial production. Galway has also agreed as part of this agreement to drill a minimum of 3,000 meters each year for the first three years.
Carboluis Coal Project Presentation