Buyer emerges for Coalspur Mines

When The Northern Miner visited Coalspur Mines’ (TSX: CPT; ASX: CPL) Vista coal project on the eastern edge of the Rocky Mountains in late 2010, seaborne thermal coal prices were trading at US$120 per tonne.

Now the benchmark price is US$63 per tonne, making life exceptionally difficult for single-asset thermal coal developers like Coalspur.

The company’s board of directors has approved Coalspur’s sale to KC Euroholdings S.a.r.l., the parent company of Kameron Collieries ULC, which owns the Donkin coal mine in Nova Scotia.

KCE is also an affiliate of the Cline Group LLC, a major coal producer in the U.S. Cline’s subsidiaries and affiliates control over 4 billion tons of reserves in the Illinois coal basin and Canada.

If Coalspur’s shareholders vote in favour of the deal — valued at A$15 million (US$11.7 million) — they will receive a cash payment of A2.3¢ for each Coalspur share they hold, representing a 44% premium over its Feb. 24 closing price on the Australian Stock Exchange, and a 53% premium to its 60-day, volume-weighted average trading price.

Coalspur said in a press release announcing the transaction on Feb. 24 that Borrowdale Park — which controls 19.9% of the company’s outstanding shares, and is its largest shareholder — will vote in favour of the scheme.

All shareholders are expected to vote on the transaction in mid-April. If all the conditions are met, Coalspur expects the acquisition will close in early May.

The transaction brings to an end a strategic review process the company began in June 2014. Over the last seven months, Coalspur canvassed strategic and financial parties to either raise money for the Vista project, sell some or all of its assets, or merge with a third party.

In order for the transaction to close, KCE must buy Coalspur debt from EIG Global Energy Partners and Borrowdale Park. (In 2013, Coalspur secured  US$350-million senior debt commitments from EIG, a leading institutional investor in the global energy sector.)

KCE has agreed to terms in principle with both parties. The terms for EIG and Borrowdale Park will be different, as they negotiated separately, and are different types of debt. (EIG is senior and Borrowdale Park is subordinated, among other things). So far, however, KCE has not bought either debt.

No cash will be paid upfront for the purchase. Instead, the consideration KCE is paying for the debt purchase is by way of a royalty, which is contingent on project development (which is not currently viable, given Vista’s freight on board costs, compared with spot and forecast coal prices), and long-term, realized thermal coal prices (the hurdle for which is substantially above current prices).

The details about KCE buying EIG’s debt will likely remain private, unless they choose disclosure. Since Borrowdale is a Coalspur shareholder, however, it will have to publicize the terms it negotiated with KCE in the scheme booklet.

Coalspur describes Vista as a “world-class” thermal coal project that consists of surface-mineable and high-quality thermal coal. It could start production at 6.5 million tonnes a year, before climbing to a run-rate of 12 million tonnes per year for the rest of its 30-year mine life. 

By some estimates Vista could become one of the largest export thermal coal mines in North America.

The project is within 2 km of the Canadian National Railway (CN), and Vista’s coal would be moved 1,000 km from the mine site near Hinton, Alta., to the Ridley Island Coal Terminal, a deepwater, ice-free port in Prince Rupert, B.C. From Ridley, it’s an 11-day sail to coal customers in Asia.

According to a technical report in July 2014, the Vista project has a 1.1-billion-tonne measured and indicated resource and a 461-million-tonne inferred resource. At Vista South, measured and indicated resources are 471 million tonnes, with 605 million tonnes of inferred.

Paul Vining, KCE’s CEO, said in prepared remarks that the acquisition of the Vista project “will combine well with our recent purchase of the Donkin mine in Nova Scotia, and advances our strategy to service growing international markets through a low-cost coal production platform.”

David Charles and Patrick Racicot of Dundee Capital Markets are recommending that shareholders tender their shares. Coalspur “reached milestones, but thermal coal prices never recovered,” they commented in a research note. “We believe no superior proposal will come forward, and thermal coal prices are showing no signs of recovery.”