Corsa advances Pennsylvania coal operations despite weather delays

Vancouver – Despite being nearly two months behind schedule, shareholders of Corsa Capital (cso-v) reacted positively to news that the company’s Wilson Creek metallurgical coal processing plant in Pennsylvania will be commissioned and fully functioning by the end of May. Extreme snow storms and a three-week delay by local authorities to provide power to the site have made it “impossible” for the company to complete either a temporary or permanent rail load-out facility on time, forcing the company to push back the plant’s commissioning, reported Corsa’s president, Don Charter, in a recent news release.

Corsa expects to complete the permanent load-out facility next month (the plant is on a CSX railway line) and will continue to stockpile raw coal in the meantime, adding to its current stockpile of 55,000 tonnes.

Initial production feed for the plant will be from the company’s three operating surface mines in the surrounding area and will be supplemented by additional coal purchases from other regional operations. Corsa also expects to bring the Casselman underground coal mine into production this July, assuming it can complete the US$15-million deal to acquire it by late-April.

With both production and the processing plant coming on-line in the near term, Corsa has decided to enter into a sale agreement for 500,000 tonnes of low-volatile metallurgical coal from April 2011 to March 2012 at prices between US$155 and US$170 per tonne.

“This is another important step in the development of Corsa and demonstrates that our low-vol met coal is a desirable product,” Charter explains. “This pricing exceeds that used for our internal forecasting, and is reflective of the very strong demand and pricing environment in which we find ourselves.”

Corsa estimates its sales can grow to approximately 916,000 tonnes of clean metallurgical coal and 99,000 tonnes of thermal coal in 2012. It forecasts average cash costs per clean tonne of metallurgical coal between US$65 and US$70.

Besides its three producing surface mines, Quarry, Acosta and Cramer, Corsa has six other surface coal projects in Pennsylvania in various stages of development. It also has four underground projects (besides Casselman), including Garrett, Acosta Deep, Winner and Pittsburgh-Kovalchik.

The company has acquired all of its projects and producing mines over the past year. Its corporate strategy, to acquire producing or advanced coal assets in Pennsylvania with a high-quality reserve base and then rapidly ramp up production, was designed by chairman Colin Benner, owner of 2.06 million Corsa shares.

Benner has been involved in a series of successful companies over the past four years, most notably as the chairman of PBS Coals, which Russian steel giant OAO Severstal acquired for approximately US$1 billion at the height of the 2008 financial crisis. PBS operated six underground and six surface mines in Pennsylvania at the time, producing about three million tonnes of coal a year.

Benner made a deal with Severstal to sell the company before it even listed on the Toronto Stock Exchange, during the middle of a reverse takeover with a Vancouver-based shell. As the financial crisis unfolded and the prices of coal and steel plunged, the early principal shareholders of PBS, including company management, Vancouver stock promoter Lukas Lundin and resource fund Sprott Resource (scp-t), agreed to sell their shares at prices lower than the $8.30 per share received by retail shareholders in order to keep the deal going ahead.

(They still did well by the revised terms, however. Sprott disclosed a tidy $186-million profit on the deal after investing $55 million early on for a 31% interest in the company, while two companies controlled by Lundin sold shares worth a total of $285 million.)

These days Lundin is a major shareholder of Corsa, having acquired 39.7 million shares in a September 2010 private placement at 45¢. In March 2011, he also agreed to loan the company US$25 million for one year in exchange for three million shares and three million warrants exercisable at $1.15, so that it can buy the Casselman mine.

Prior to the sale of PBS, Benner served as chairman and CEO of nickel explorer Skye Resources, though only for a brief four-month stint. Benner nevertheless helped arrange a deal to sell Skye for $460 million in June 2008 to HudBay Minerals (hbm-t). The Globe and Mail reported at the time Benner stood to receive at least $4.7 million for his four months of work, about half in the form of a “transaction incentive” clause in his contract entitling him to 0.5% of the net value of a potential takeover or merger, and the rest in performance-related options.

Before Skye, Benner was the vice-chairman and CEO of EuroZinc Mining from late 2004 to late 2006, at which time Lundin Mining (lun-t) took over the company in an all-stock deal worth $1.8 billion. During his two years at EuroZinc, the stock climbed from 68¢ to around $3.75.

Like many promoters, however, Benner has been around long enough to have seen much darker days. In May 1992, just two months after being appointed president of Westray Coal, a subsidiary of Curragh Inc., the Westray coal mine in Nova Scotia exploded, killing 26 men in one of Canada’s worst coal mining accidents. Benner spent the next several years extricating himself from the resulting legal mess and public inquiries surrounding the tragedy.

Corsa closed up 4¢ to $1.07 on Friday, April 1, and is up from 85¢ in mid-March. The company has 233 million shares outstanding.