Coalspur expands Vista project; prepares TSX listing

Gene Wusaty — one of the key forces behind the success story of SouthGobi Energy‘ s (SGQ-V, SGQRF-O) Ovoot Tolgoi coal mine in southern Mongolia — thinks he’s got another winner on his hands, this time in his own backyard.

The Calgary-based mining executive who joined Coalspur (CPL-A) as president and chief executive a year ago, says the junior’s Vista coal project near Hinton, Alberta has all the ingredients of a perfect coal story.

Not only does Vista have a 905 million tonne resource (90% of which is measured and indicated) of low-sulphur, high-volatile, bituminous and export-quality coal with a strike length stretching 20 km, but it also sits right next door to the Canadian National Railroad, which can transport Coalspur’s coal to underutilized ports on the Pacific such as Prince Rupert, from where it will be shipped to China and other power-hungry countries in Asia.

“I can see the railway from our property — where we’re looking at putting our plant — and right now CN Rail has about 8 million tonnes of spare capacity,” Wusaty said in a telephone interview hours before leaving on a trip to Asia to drill up more support for the company.

A prefeasibility study launched this month will be ready in October — the same time Coalspur plans to list on the Toronto Stock Exchange. Wusaty forecasts the Greenfield project will take four years to move into production and the metrics seem to be working in its favor.

“The big thing is that thermal coal prices were depressed in 2008 when the world came apart but now thermal coal prices are around US$100 per tonne and the forecast is outstanding,” he explains. “It’s booming and the reason is because of all the growth in Asia, in China and India.”

Demand for seaborne thermal coal is projected to grow by more than 67% in the next ten years, according to Coalspur. Since 1990, it has grown at a rate of 6.9% a year while coking coal has increased by 2.6%. The result: Capacity constraints in nearly all major exporters of seaborne coal, which has lead to a steep change in pricing, the company maintains.

China, where electricity consumption has been advancing by about 3% annually since 1990, currently accounts for about 17% of total global electricity consumption, according to figures from the International Energy Agency’s World Energy Outlook 2010. And India has seen growth of an average rate of 6%. Future demand will only grow, Wusaty asserts. By 2015 IEA reports that China is expected to overtake the U.S. as having the largest power generation capacity in the world with an increase of more than 508 gigawatts. And by 2030 China and India are expected to have added 1.5 times the total generation capacity in 2007 in of the U.S.

The Vista coal project, in the foothills of the Rocky Mountains, consists of seven-degree dipping seams, sub-cropping close to or at surface, allowing for a low-strip ratio. The deposit is also potentially amenable to low-cost dragline and truck/shovel combination mining; the type of operation seen at many of the larger mines in Australia, the U.S. and Canada.

Coal mining has been going on in the Hinton area of Alberta for about a hundred years and a number of producing coal mines are close to the Vista property.

“There are four coal mines in the area and two of them, one to the north of us and one to the south of us [Sherritt International‘s (S-T) Obed Mountain and Coal Valley mines], have been selling thermal coal for export for approximately thirty years into Asia, so it’s not like we’re introducing a new product,” Wusaty says. “The other are metallurgical mines, Grande Cache Coal‘s Grande Cache mine and Teck‘s (TCK.B-T, TCK-N) Cardinal River mine.”

The Coal Valley mine borders the Vista property to the south and the Obed mine is right across the highway from it.

Along with the prefeasibility study, Coalspur is kicking off a drill program and is also undertaking some washability and coal-quality testing. “We’re doing a capacity study and trying to basically come out with a technical evaluation of what this project will support on a clean coal basis in terms of how many saleable tonnes per year for twenty years,” Wusaty says.

 “We have a huge resource that we believe will sustain a mine for somewhere in the order of 7-8 million tonnes for twenty years…The onus is on us to get it into production.”

In Australia, Coalspur has a market capitalization of about A$362.5 million (US$323.8 million) and its shares are trading at about A$0.80 apiece. Cash reserves stand at about A$20 million and directors and associates hold about 35.9% of the company.