2 Business Overview
EastCoal Inc. is quoted on the TSX Venture Exchange ("TSX-V" or the "Exchange") and quoted on AIM under the symbol "ECX". The Company has one major asset, the Verticalnaya Mining Complex ("Verticalnaya") in South Eastern Ukraine. Verticalnaya comprises two operations; the existing H8 Deep Mine ("Verticalnaya Mine") and the Verticalnaya North Project ("VNP"), a newly developed incline mine just north of the Verticalnaya Mine. In October 2010, following a period of planning, permitting, and detailed improvements, the Company commenced construction of the VNP as a source of early coal production. To date, 2.5 kilometers of drift development has been completed at VNP. These drifts access the shallower H11 and H11B coal seams.
First production from VNP is expected by Q3, 2013. Target production from the both the Verticalnaya Mine and the VNP is circa 2.5 million tonnes per annum ("Mtpa") in aggregate of high quality anthracite for domestic and export markets.
In 2011, the Company, after commencing to de-water the lower levels of the Verticalnaya Mine, began rehabilitating previously flooded roadways. The roadways are generally in good condition, requiring only minor repair in some sections. As the water level is lowered, the Company will re-establish a ventilation circuit and repair the current conveyor route that will eventually transport coal by high-speed conveyor from the deep H8 seam to surface.
From the outset, the Company has required the introduction and maintenance of safety procedures in line with best global industry practice. International safety consultants have visited the Ukraine operations and their recommendations have been and are being implemented. Safety standards are being received favorably by the workforce. Verticalnaya Mine and VNP are categorized as non-gassy, with low explosive risk.
In September 2011, the Company entered into an option agreement to acquire a 100% interest in Inter-Invest from Aponet Enterprises ("Aponet"). In December 2011, the option was exercised and on April 11, 2012 the Company signed a Share Purchase Agreement (the "Share Purchase Agreement") with Aponet for the sale and purchase of 100% of the charter capital of Inter-Invest. By acquiring Inter-Invest, the Company indirectly acquired 100% interest in the Menzhinsky Coal Mine in Ukraine ("Menzhinsky Mine"). The transaction closed on May 31, 2012 after receiving approval of the Anti-Monopoly Committee of Ukraine and final approval of the transaction from the TSX-V.
In October 2012 the construction of the new wash plant at the Menzhinsky Mine was completed. In mid-December 2012 the plant was temporarily shut down for two to three weeks during the winter due to bad weather. In early January, management decided to keep the wash plant closed for a further six to eight week period due to continued bad weather. The shutdown was used to address certain challenges identified during the start up period that resulted in disappointing levels of throughput.
During the first quarter of 2013 production at the Menzhinsky Mine was not at the level or quality anticipated due to the deterioration at the end of the current long wall. As a consequence some production had to be rewashed before delivery to the Company's main customer.
The geological challenges experienced at the Menzhinsky underground mine continued into March and, as a result, the Board ordered the immediate discontinuation of the current longwall, two months earlier than originally planned. The above situation created serious working capital challenges as Menzhinsky mine continued to incur significant losses and the wash plant had not only failed to perform even close to design capacity, but it was also taking up significant cash and management resources. In order to address this situation, the Board resolved to refocus its efforts and resources on Verticalnaya. The key contributing factors to this decision were:
-- Verticalnaya comprises the majority of the Group's assets;-- The Verticalnaya North Mine has the potential for significant ramp up if mechanised long walls are deployed, unlocking material value for the Group; and-- It is management's opinion that the coal would be of export quality.