UPDATE: Aquila Expects Eagle Downs Coal Mine To Cost A$1.25 Billion

Aquila Resources Ltd. (AQA.AU) Tuesday estimated the cost of developing a new coking coal mine in northeast Australia with Brazilian partner Vale SA (VALE) at A$1.25 billion, but said a feasibility study couldn't be completed because transport links and sales agreements haven't been agreed.

The Perth-based company released the findings of a study it said confirms the technical and financial viability of a mine producing an average 4.5 million metric tons a year of the key steel ingredient, based on the companies securing rail and port capacity at the multi-billion dollar Wiggins Island coal terminal planned for the Queensland coast.

Aquila said its preferred option would mean a development decision would be made when contracts are offered for the second stage of development at the terminal, which is owned by 16 coal mining companies including Aquila and Swiss miner Xstrata PLC (XTA.LN).

The terminal is scheduled to begin operations in 2014, and Aquila has previously said it expects expanded capacity to become available between 2015 and 2016.

How to proceed with the development of the Eagle Downs project in the coal-rich Bowen Basin in central Queensland been a source of friction between Aquila and Vale, which has also taken a disagreement over the value of Aquila's minority 24.5% interest in their Belvedere coking coal project it wants to buy to the state's Supreme Court. Demand for coking coal is expected to remain strong in the coming years as rapidly industrializing Asian countries, particularly China, use more steel.

Aquila in mid-2010 said it disputed the budget for Eagle Downs with Vale, and wanted the project's feasibility study due in June to include port and rail logistics that would be acceptable to financiers, something it said Value disagreed there was a need for. Aquila early last year was in another dispute with Vale, which it said hadn't supported a plan to export some of Eagle Downs' coal through a new rail link to the port of Abbot Point in northern Queensland.

Aquila this month said it had lodged an interest in capacity at the Wiggins Island export terminal and was in the queue for the next expansion at the Dalrymple Bay terminal, where availability is expected in 2017.

Eagle Downs, which is near BHP Billiton Ltd. (BHP) and Mitsubishi Corp.'s (8058.TO) jointly owned Peak Downs mine, has a resource of 959 million tons and a reserve of 254 million tons.

Aquila said a mine at the deposit would have an expected life of about 48 years and would produce coal targeted at countries including China, Japan, India, Europe, Brazil and South Africa. According to a study, construction will last about 28 months and production is expected to begin in October 2016, it said.

Aquila, which is almost 40% owned by company directors and 15% by Chinese steel maker Baosteel Group Corp., in mid-May said a prefeasibility study on its Hardey deposit had confirmed the viability of a 10-million ton a year iron ore project in west Australia which it estimated would cost about A$1.6 billion to develop and would be integrated with the A$5.8 billion first stage of its larger West Pilbara iron ore project.

-By Robb M. Stewart, Dow Jones Newswires; [phone]; [e-mail]