Canadian coal juniors gearing up in the U.S.

In the last two months five Canadian coal juniors have acquired coal properties in the United States or are ramping up development work there.

North American Gem (NAG-V), Corsa Capital (CSO-V), Cobalt Coal (CBT-V), Cline Mining (CMK-T), and Novadx Ventures (NDX-V) are all assembling land packages, permitting, developing mine sites or re-opening mines from Colorado to Alabama and across the Appalachian region including West Virginia, Virginia, Kentucky, Ohio, Pennsylvania, the Carolinas and Tennessee.

In late March, North American Gem signed an agreement to buy an operational coal mine in Knox County, Kentucky. Once the permit is transferred, the Vancouver-based junior will produce coal from the Blue Gem coal seam and the Jellico coal seam simultaneously.

The Gem #2 mine will resume production at a rate of 8,000-10,000 tons per month once the transfer is completed, and the coal will be treated at the nearby North American Tipple Facility. The facility can crush, screen and wash coal and gives the company the option of providing custom coal products.

The mine will enable the company to start building relationships with Blue Gem coal buyers before its larger Blue Gem leases come on line and production begins, the company says.

Cobalt Coal, meanwhile, is focusing on developing a base of assets in the Appalachia area where coal assets “can be acquired and brought into production relatively quickly.” The company targets known, high-grade metallurgical coal reserves to produce near-term cash flow.

Cobalt Coal acquired the Westchester mine in February 2008and started commercial production in December 2008. But the mine was put on care and maintenance in April 2009 when Cobalt lost its coal sales contract becuase of the recession. Metallurgical coal markets have rebounded since then and Cobalt believes it can sell its Westchester coal at economically acceptable prices in the near future.

Earlier this month the Calgary-based company completed preparations for the resumption of production at the Westchester metallurgical coal mine in McDowell County, in the southernmost part of West Virginia. It is now moving major pieces of underground equipment to the site and expects to start coal production in mid-May.

Cobalt owns a net 60% after-payout interest in the Westchester mine and the company was set up in August 2007 to “capitalize on the growth opportunities that exist in the modern metallurgical coal mining industry.”

The Westchester mine and lease area covers coal-bearing strata of the Sewell Seam near the town of Welch, West Virginia; the property is west of Roderfield across the Tug Fork River.

The Sewell Seam coal, such as that from the Westchester mining operation, is ranked as low to medium volatile bituminous and is utilized as a metallurgical coal in the steel industry.

The Sewell Seam in this area has been mined by underground methods in the past in two large underground mines and in several small scale operations (the two large mines are no longer active). The two large mines were the Hampton Roads Collieries, to the east, and the Tug Huff Coal Corporation Sewell No. I Mine, to the west.

Mining and development of the coal seams in the New River Formation, including the Sewell Seam, started shortly after the Civil War, around 1885. (The Sewell Seam is also known in the industry as the Blue River Smokeless Coal.)

In nearby Pennsylvania, Corsa Capital has nailed down an option agreement to acquire certain mining rights to the 105-acre Miller-Walker property, a metallurgical coal lease in Somerset County. The company says the property hosts three distinct coal seams containing low-volatile bituminous coal and is acquiring the option from Sherpa Mining Contractors.

In southern Colorado, Cline Mining has been given the go-ahead from the U.S. Mine Safety and Health Administration to start underground rehabilitation work at its New Elk Coal mine in Las Animas County, which it expects will start producing coal in the fourth quarter of this year. In 2011 the mine is forecast to have a capacity of 1.3 million tons, with its metallurgical steel-making coal slated for world export markets.

Underground coal miners started working at the New Elk mine on April 22 to secure 500 metres of the mine portal slope access leading directly to the underground roadways and coal seams.

At the same time, Cline is moving ahead with the installation, reactivation and upgrading of the existing surface coal plant, mine ventilation system and other infrastructure. First coal production is expected in the fourth quarter of this year.

The New Elk coal mine has a history of producing high-quality metallurgical coal and based on a technical report completed in 2008 by Behre Dolbear, contains a measured and indicated resource of 315 million tons of coal.