(Sharecast News) - North American coal miner Bens Creek announced on Thursday that its BC Operations subsidiary has entered into a coal sublease agreement with Star Ridge Land.
The AIM-traded firm said Star Ridge is the successor to G1 Mining as lessee under their lease with Pocahontas Land Corporation on two parcels of land covering 2,640 acres in Mingo County, West Virginia.
It said the property was contiguous with the existing Bens Creek property and metallurgical coal mine.
The subleas gave certain mining rights to BC Operations on the property, with a royalty arrangement entered into with Star Ridge.
Bens Creek said the agreement would enable BC Operations to undertake metallurgical coal production from reserves on the property, on which there were currently no mining operations.
The lease would run for three years, with an automatic extension for additional three year periods.
BC Operations would be required to secure all the necessary mining permits before starting mining.
Looking at the royalty agreement, Bens Creek said it would pay Pocahontas a minimum royalty per quarter starting 30 months from the agreement's date.
Starting 42 months from the effective date, Bens Creek would pay Star Ridge an increased minimum royalty per quarter in advance for the remaining term or extended term of the agreement, unless there was insufficient tonnage remaining on the property to recoup the minimum royalty, which would see the minimum royalty obligation cease.
The board said the royalty rates payable by Bens Creek were "broadly in line" with the royalty rates applicable to other royalty arrangements the company had in place with other third parties.
"As announced on 15 December, part of the group's existing strategy is to evaluate prospective lease and royalty arrangements on neighbouring properties and to invest the recently raised capital into an expanded reserve base," said chief executive officer Adam Wilson.
"The board is pleased to enter into a sublease agreement on a neighbouring property, especially with an affiliate of Integrity - one of the leading met coal brokers in the US and the offtake partner at the group's Bens Creek site.
"The board believes that this asset will bring potential additional production within three years and will significantly add to the reserve base of the group."
In order to accurately define the increased aggregate reserve base across Bens Creek Operations and the properties covered by the new lease agreements entered into with both Star Ridge and MGC, Wilson said the firm had engaged Marshall Miller, with the objective of providing an up-to-date evaluation of its resource base.
"We are pleased to announce the completion of the work on the railroad which is now fully repaired and is expected to put us in a position to deliver our product faster and in greater quantities."
At 1443 BST, shares in Bens Creek Group were down 4.81% at 99p.
Bens Creek (BEN)