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Annual Report and Accounts 2011 / Business Review / Development projects 

Development projects

Highlights

Dębieńsko project ground breaking 3Dec11

  • Dębieńsko project progressing to plan with ground breaking in December 2011
  • Karviná Mine expansion projects progress to access adjacent coal reserves
  • Shaft deepening projects underway to access reserves further underground
  • Announced intention to explore Frenštát
  • Continued exploration works at Morcinek
 Development projects  Development projects
 Development projects  Development projects
 Development projects  
1 Source: International Energy Agency
2 Source: 2000-2011 World Steel Association, 2012-2013 AME
3 Source: International Energy Agency

Ján Fabián
Chief Operating Officer of NWR, Vice Chairman of the Board of Directors of OKD
and Chief Executive Officer and Chairman of the Board of Directors of NWR KARBONIA

 Ján Fabián
 Ján Fabián  Ján Fabián  Ján Fabián
Our growth strategy aims to capitalise on the strong supply and demand dynamic of the region by developing our current mining  perations whilst also seizing new opportunities. In 2011, we broke ground with our Dębieńsko project in Poland, the first new ine to have been built in the Upper Silesian Coal Basin for twenty years. For the longer term we are also exploring new esources in the region at Morcinek and Frenštát.

Our decision to proceed with various projects reflects our confidence in the quality of our reserves and the long-term strength of demand across both coking and thermal coal markets in the area.

Our approach to development projects

Development projects are a key part of our strategy as they serve to underpin the long-term future of our operations. Our decision to proceed with various projects reflects our confidence in the quality of our reserves and the long-term strength of demand across coking coal markets in the area. Our development projects are located in the Upper Silesian Coal Basin, both in the Czech Republic and Poland, giving us the added advantage of using our regional mining expertise.

Our approach is to address regional issues that affect our license to operate. We adhere to strict EU legislation governing mining and environmental practices and look to action the concerns of local communities. We therefore approach development projects with the view that they must be viable from both the business and the social responsibility perspective. Our adherence to best practice social responsibility is described in detail in our Sustainability Report 2011.

We divide our development projects into three major groups – strategic, near-term and long-term – reflecting the respective stages of the projects, their timelines and the level of investment.

Strategic projects:
Dębieńsko – our largest growth project

NWR’s Board of Directors gave its final approval for the Dębieńsko project in June 2011 following the completion of a Detailed Feasibility Study. Dębieńsko, located in southern Poland, will be the first new mine to have been built in the Upper Silesian Coal Basin for twenty years.

Project overview

NWR holds a 50-year mining license, granted in 2008, to extract coal from Dębieńsko. We started preparing the site and putting together a team of both international and regional experts during 2011 and reached a key milestone in the process with the ground-breaking in early December 2011.

In 2010 we applied for an amendment to this licence to enable us to mine additional coal reserves in Dębieńsko and we expect to secure the amended licence during 2012, following completion of the environmental review.

Total coal reserves at Dębieńsko amount to 190 million tonnes, of which seven eighths is expected to be coking coal and the remainder thermal coal. Two thirds of the coking coal is expected to be hard coking coal and one third semi-soft coking coal. Initial coal production is scheduled for 2017 and full production of roughly 2 million tonnes per annum will be achieved shortly after.

We are investing a total of EUR 544 million in the project of which EUR 411 million is development CAPEX and EUR 133 million will cover pre-production operating costs. These operating costs include maintenance of the existing shafts and mine workings, and the operation and maintenance of the electrical and water-pumping infrastructure, as well as the ventilation system. Once operational the mine will employ around 2,000 people, including contractors. We plan to finance the project using a combination of our own cash and debt.

Progress during 2011

We made good progress at Dębieńsko during 2011. We began work on the portal opening (technically referred to as a ‘box cut’) for one of the two planned slopes. We also signed the contracts necessary to start work on the excavation of Slope 1 scheduled to start in June 2012.

A number of the senior operational management positions were filled during 2011 and we have employed a strong team of international consultants to work alongside us on this landmark project. Furthermore, we commenced detailed technological planning for the consecutive elements of the entire underground access project, and are undertaking on going engineering studies using both global and local experts.

Outlook for 2012

We will complete the technological planning for the underground elements of the construction by June 2012 and begin work on the mine construction, which will include the excavation of Slope 1 and the surface infrastructure of the mine. We expect work on Slope 2 to begin by the end of 2012.

Additionally, we will start work on the existing shaft modernisation, which we plan to complete by the end of 2013. This shaft will supply fresh air into the mine, as well as being used to transport employees and materials.

Importantly, we expect to receive further environmental permits and an amended licence, which will allow us to mine additional seams.

Near-term projects:
development of current mines

We use the phase ‘near-term projects’ projects’ to describe growth options opportunities, which relate to our existing mines. These deposits are included in our current JORC reserve base and help to sustain production volumes and quality, as well as improving overall returns by extending the life of our mines. We are currently working on the expansion of the Karviná Mine to access adjacent coal reserves, a project that we aim to complete by 2016. This venture will allow us to access hard coking coal deposits through horizontal development of the Karviná Mine, and consists of two principal projects: Project Karviná and Project Orlová-Výhoda. During the year, OKD representatives met with all relevant parties who would be affected by this activity to explain the rationale behind the plans, and to come to a common agreement. We are currently in the process of submitting the necessary paperwork for the projects to the Czech Ministry of Environment in line with the Environmental Impacts Assessment (‘EIA’) law.

Project Karviná

In autumn 2011, we entered into negotiations with the City of Karviná regarding an extension to our mining activities in the area. We aim to extract more than 20 million tonnes of coking coal from the area via the existing Karviná Mine.

Project Orlová-Výhoda

In 2011, we announced our intention to extract hard coal from the Orlová-Výhoda district, a town in the Karviná region. We are currently waiting on the conclusion of the submitted EIA as well as other regulatory approvals, which will allow us to extract approximately 10 million tonnes of coking coal from the site.

Shaft deepening projects

In December 2011 we began work on the deepening of one of the shafts at the ČSA section of the Karviná Mine. Estimated to be completed by 2015, a further 312 metres will be excavated to bring the total depth of the shaft to approximately 1,270 metres below the surface.

Additionally, preparations and tenders for the deepening of two shafts at the Lazy section of the Karviná Mine are underway. We expect to reach a further 475 metres underground, bringing the total depth to approximately 1,346 metres. The shaft deepening project is expected to take five years to complete from the start of the excavations.

Long-term projects: exploring new resources – Morcinek and Frenštát

Our long-term projects are at the preparation stage or are undergoing geological surveys. This means that resources in those locations are not included in our JORC classification, and by surveying the resources we will be able to prepare more detailed information on future activity.

Morcinek

Morcinek, another development project in southern Poland, is a mothballed mine, which was last mined in the late 1990s and is a longer-term project for NWR. We were granted a 12-year exploration licence in 2003 for Morcinek 1, the mine, which has since been closed and an additional six- -year licence for a second area, Morcinek 2, in 2008 in order to document the reserves. We drilled one borehole in 2011 and are now drilling the second of four exploration boreholes designed to delineate the area.

Following completion of the drilling and geological work we will apply to have the reserves included in Poland’s official list of reserve bases. If this application is successful we will look to undertake an environmental impact assessment with a view to applying for a mining licence in the area.

Frenštát

In September 2011 we announced our intention to further explore the hard coal deposit at the Frenštát Mine site. This resource is not part of our current JORC reserve base and is estimated to be approximately 1.6 billion tonnes of coal. The exploration process is expected to take four years to complete, after which we will have a clear understanding of the mine and will decide on the feasibility of developing the resource.

The Frenštát Mine site is located in the northeast of the Czech Republic. The two shafts at Frenštát were built in the 1980s but were never brought into operation. Under the Czech Mining Act, NWR is obliged to maintain and look after the mine in order to prevent degradation, in particular of the technical conditions, dewatering and safety.

Ján Fabián

Chief Operating Officer

Case study

Access to the Dębieńsko Mine

Coal extraction from Dębieńsko 1 will be supported by the existing infrastructure of the former Dębieńsko Mine, currently owned by CZOK (‘Centralny Zakład Odwadniania Kopalń’).

The coal seams at Dębieńsko 1 will be accessible from the surface via Slopes nos. 1 and 2, which will reach depths of approximately 780 metres underground, and will be used to transport coal to the preparation plant, as well as for the transportation of workers, materials and machinery. A connection between the extraction level and the process unit has been designed to sit at this level, and will include vertical headings and large diameter holes through which fresh air will be circulated.

Further slopes will provide access to the working levels, which will reach depths of approximately 1,050 and 1,250 metres underground.

Through NWR’s ‘access project’, we will install power grids as well as anti-fire and drainage systems. The project is tailored to the conditions of this particular coal deposit, including tectonic activity, and takes into account the old workings in the former Dębieńsko Mine.

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 Development projects
 Development projects  Development projects
 Development projects
 Development projects  Development projects
Symbolically, on the feast day of miners’ patron St. Barbara, ceremony launching construction works took place in the renovated Hall of Traditions of Dębieńsko mine in municipality Czerwionka-Leszczyny. Construction began by symbolic first dig of the Slope 1 box-cut, which is one of two planned slopes of the mine. Construction of Debiensko Mine is the largest development project of NWR and coal production is planned to start in 2017.