Canadians’ Coal Ambivalence

The sixth trading week of the year saw coal development being handled in two different ways on Canada’s West and East coasts.

• In B.C., the provincial government suddenly withdrew the Flathead Valley in the province’s southeast corner from all mining, oil and gas development, and coal-gas extraction.

For miners, this means an immediate halt to any development of the valley’s metallurgical-coal and gold potential, and a snuffing out of any future jobs and wealth to be derived from it.

The Liberal government announced through the throne speech in the provincial legislature that it intends to team up with the Montana government to halt resource development in the wider, border-straddling Flathead Valley basin, which hosts the scenic Glacier National Park on the U.S. side.

The province’s mining community was taken by surprise by the B.C. government’s move, and has complained there was a lack of consultation. Pierre Gratton, president and CEO of the Mining Association of British Columbia, has described the government’s actions as appearing to be “politically driven rather than based on sound science.”

In the this case, the political action seems to have been catalyzed by the upcoming centennial celebration in May 2010 of Glacier National Park’s founding under President Taft as the country’s tenth national park.

• Canada’s East Coast is about to see the return of underground coal mining to the local economy. Xstrata and junior partner Erdene Resource Development have hammered out a plan to start coal mining from the half-built Donkin coal mine, which stretches under the Atlantic Ocean from the shore near Sydney in Cape Breton.

Xstrata and Erdene had to do some fancy footwork in recent months after last year’s decision by the Nova Scotia government not to buy coal from the mine for use in the province’s coal-fired power stations owing to the coal’s high mercury and sulphur levels. Instead, the partners will now exploit Donkin at a lower production rate and sell the product overseas on the open market as metallurgical coal.

Of course, feelings about underground coal mining are still raw in the Maritimes because of the 1992 Westray mine disaster in Plymouth, Nova Scotia.

In 1997, a provincial public inquiry determined the Westray explosion was caused by a spark from a mining machine that ignited methane that was at dangerous levels owing to poor ventilation. The resulting fire roared through the mine, killing 26 workers. The inquiry concluded that the tragedy could have been prevented if simple measures had been taken to improve ventilation and reduce methane and coal-dust levels.

Charges were laid against several mine managers and mine-owner Curragh Resources, but these were later dropped.

This time should be quite different, however, as Xstrata is a high-quality mine operator, and the mine is being put into production on its own economic merits rather than as a sloppy, government-funded make-work project, as was the case with Westray.

• The NovaGold Resources saga tabled another interesting chapter. The gold junior took the unusual step of swiftly agreeing to settle for $28 million a class-action lawsuit launched by plaintiffs in Canada and the U.S. that had alleged the company and some officers and directors had made misleading statements about the economic viability of the Galore Creek copper-gold project in B.C.

NovaGold says it believes it could have won a drawn-out court battle, but wanted the matter settled quickly. It also says its insurance policy will cover the settlement’s cash payout.

Galore Creek, half-owned by Teck Resources, was put on hold in 2007 after cost estimates to develop a mine shot up to $5 billion from a year-earlier estimate of $2.2 billion.

• Osisko Mining continues to pile on the ounces at its Canadian Malartic gold project in Malartic, Que.

Under newly released figures that upgrade the project’s South Barnat zone to the reserve category, total open-pit reserves are now pegged at 8.97 million oz. gold contained in 246 million tonnes grading 1.13 grams gold per tonne, or a 2.7-million-oz. reserve increase from the company’s previously-published feasibility study.

This boosts the mine life by 25% to 12.2 years based on a daily milling rate of 55,000 tonnes, with average annual output of 630,000 oz. gold plus 800,000 oz. silver, for total production of 7.72 million oz. gold. The estimates used a US$825 per oz. gold price and a lower cut-off grade of 0.34 gram gold. At US$1,000 per oz. gold, another 1 million oz. gold are thrown into the open-pittable resource category.

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