Curragh uses new coal mine as security for $55 million

The Westray coal mine in New Glasgow, N.S., was officially opened recently by Clifford Frame, chairman of affiliated Curragh Resources (TSE), the lead-zinc producer which also announced a debenture offering worth $55 million.

The underground mine and 1-million-tonne-per-year heavy media wash plant cost $126 million and took about two years to construct.

The mine is scheduled to ship 170,000 tonnes of low-sulphur thermal coal, containing 0.7% sulphur, this year to the Trenton electric generating plant 9 km away.

Unlike most coal mines, the Westray mine will produce two coal products, one containing 13.5% ash and one containing 20% ash. (Ash consists of inorganic, incombustible minerals in the coal.)

The company has a long-term contract with Nova Scotia Power to supply 700,000 tonnes per annum to two electric generators at the Trenton site. The remaining 300,000 tonnes of annual production capacity could be marketed to local Maritime markets or European coal dealers

The mine was brought into production for about $14 million below the expected capital cost, according to Adrian White, Curragh’s chief financial officer. As a result, Curragh has only drawn on about $80 million of the $100-million project financing provided by the Bank of Nova Scotia, White said. The company intends to repay a $12-million loan from the Nova Scotia government and pump more money into its lead-zinc mine at Faro, Y.T., by offering the $55 million worth of debentures which are secured by the Westray project.

The offering, by way of a private placement to institutions, consists of limited recourse convertible subordinated secured debentures. Curragh is planning to spend $40 million of the placement proceeds to develop the Grum and Vangorda deposits at Faro, where a summer strike is expected to cut mine production to 500,000 tonnes of lead-zinc ore from 540,000 tonnes last year.

Curragh has retained Nesbitt Thomson Inc. as its agent in obtaining subscriptions for the debentures. As they have not been registered under the U.S. Securities Act, the debentures can’t be offered or sold in the U.S. (or to a U.S. citizen).

Pressured by the Faro strike this year and low metal prices, Curragh shares traded recently at $6.25 in a 52-week range of $8.75 and $5.63. White said cash flow from Westray will eventually reduce the effect of fluctuating metal prices on Curragh.