Fortune delivered Mount Klappan feasibility study

Vancouver – A bankable feasibility study on the Lost Fox deposit area of Fortune Minerals’ (FT-T, FTMDF-O) Mount Klappan anthracite coal project, in northwestern B.C., shows compelling economics for an initial open pit operation.

The study conducted by engineering consultants Marston Canada only reviews initial development of Lost Fox, which is just one of four deposits at Mount Klappan, and evaluates production scenarios of 1.5 and 3 million tonnes per year of pulverized coal injection (PCI) material. Project economics show good resilience towards coal price sensitivity.

Lost Fox hosts proven and probable reserves of 60.8 million tonnes of clean coal, supporting a projected 20-year mine life at the modeled 3-million-tonne-per-year operating rate. All four deposits at Mount Klappan project (comprised of Lost Fox, Hobbit-Broatch, Summit and Nass) collectively host measured and indicated resources of 108 million tonnes and 123 million tonnes respectively. A large inferred and speculative resource of over 2.5 billion tonnes has also been reviewed.

The Marston study models a conventional truck and shovel open pit operation for Lost Fox. Stripping ratios are mining rate dependent. With a 1.5-million-tonne-per-year rate, it comes in at 7.6 bank cubic meters (bcm) per product tonne for the first 5 years, averaging 9.7 bcm per product tonne over the life of the mine. At 3-million-tonnes-per-year, the strip ratio averages out at 11.7 bcm per product tonne over the life of the mine.

Infrastructure would consist of a wash plant, heavy media separation circuit, cyclones and froth flotation to produce PCI yields of 57-60%. Production possibility of later-stage, premium anthracite products would also be factored into plant design.

As in any large earth moving operation, power and transportation are paramount. On that front, the study looks at a variety of truck and rail options to the ports of Prince Rupert and Stewart; however the latter terminus would incur significant additional costs due to required construction of a 60,000-tonne coal storage dome and reclaimer system, plus a 2,000 tonne per hour ship loader. Additionally, a 100 km road would need to be built from the community of Bell II to the mine site, plus a fleet of trucks and support equipment would be required.

The rail option to Price Rupert requires completion and improvements to the existing Dease Lake line from Prince George. A significant benefit of the rail line plan is that it opens up a number of transportation and delivery options for Fortune’s coal products.

The feasibility study is based on building a diesel generator onsite for the expected requirement of 4 to 6.2 Megawatts. Should the British Columbia government proceed with extension of Highway 37 power grid into the project area, the planned mine could consider using electric cable shovels, which would lower operating costs.

Economic analysis reviews three main operating scenarios: one at a rate of 1.5-million-tonnes-per-year and trucking to Stewart; and the other two at the rate of 3-million-tonnes-per-year with transport by truck to Stewart, or by rail to Prince Rupert. Using a US$100 per tonne price for PCI product (below current market prices), a 10% discount rate and a $0.80 US-Canadian long-tern exchange rate, the projects show pretax internal rates of return (IRR) of 33%, 35% and 31% respectively. Mount Klappan coal, with its high carbon content, energy value and very low volatile content, is likely to be priced in the upper end of the world price scale for PCI product.

Capital cost estimates, using the higher production rate scenario, range from $414 million for the rail to Prince Rupert option to $433 million for the Stewart trucking option. The hauling by train scenario assumes Fortune will bear half of the $217 million cost in rail line construction and upgrades.

Buying Ridley Terminals?

Fortune, through its shareholding in private company Northwest Bulk Terminals, recently emerged as the controversial lead potential buyer of Crown corporation Ridley Terminals. Northwest Bulk submitted its tendered proposal to Transport Canada to purchase the assets of Ridley Terminals. Other regional coal developers have expressed trepidation at the port being controlled by a private owner due to pricing concerns.

Prince Rupert, an ice-free deepwater harbour, is the closest North American port to Asia in terms of sailing time. The existent 16-million tonne per year coal facility was constructed by the federal government in the 1980s for output from Teck Cominco’s (TEK.SV.B-T, TCKBF-O) Bullmoose and Quintette coal mines near Tumbler Ridge, B.C.

Fortune Minerals is in the midst of its environmental assessment process on Mount Klappan, which is expected to be completed in 2006. The company reports being approached by a number of large companies interested in playing a role in the development of the project.