Positive PEA for Colonial Coal’s Huguenot

VANCOUVER — The Huguenot project in northeastern B.C. could become a metallurgical coal operation, according to a preliminary economic assessment (PEA) from project owner Colonial Coal International (TSXV: CAD).

The study concludes that an open-pit and underground operation at the site could produce 122 million tonnes of coal over 31 years. The coal at Huguegot is classified as “hard-coking coal,” which is used in steel production.

The first coal at Huguenot would come from open pits tapping into steeply dipping, near-surface parts of the North, Middle and South deposits. In year three underground mining would also get underway, tapping into deeper parts of the North deposit using longwall stoping.

The open pits would run for 14 years. The underground mine would go for longer, operating from year three until mine closure in year 31.

The PEA also updates Huguenot’s resource estimate, increasing the measured and indicated count by 47%. The new estimate totals 277.7 million measured and indicated tonnes, split between open-pit and underground resources, and 119.2 million inferred tonnes, almost all of which are underground tonnes.

The study concludes that it would cost US$387 million to develop Huguenot into a mine. However, Colonial notes that initial capital costs would drop if major surface-mining equipment was leased, as leasing expenses appear as part of operating costs.

The anticipated operating costs come in at US$77.84 per tonne at mine loadout, and rise to US$134.19 per tonne with off-site costs and contingencies.

The study assumes that Huguenot would be connected by rail to a line south of Tumbler Ridge. Such a line would pass through several coal projects. The PEA expects some of these projects would come on stream at the same time, with Huguenot and other project operators  sharing the costs of the rail line. As such, the PEA only charges half of the rail line cost to the Huguenot project, and includes it on an annualized basis.

Using a coal price of US$192.50 per tonne at a 7.5% discount rate, Huguenot carries a US$1.1-billion after-tax net present value. The mine would be able to repay its capital costs in eight years, though that would require metallurgical coal prices to rise from their current US$150 per tonne.

Colonial Coal shares fell 4¢ on news of the PEA and closed at 45¢. The fall may have been a correction, though, as shares had more than doubled in the six weeks leading up to the news, rebounding from a 52-week low of 25¢. At the beginning of the year, shares were worth 80¢.

Colonial Coal has 65 million shares outstanding for a $29-million market capitalization.