New Quintette Coal pit to boost output, revenue

Quintette Coal dug deeper into the black as it opened its new Shikano pit at a capital cost of $12 million. “This third production area will represent 20% of production output and, more importantly, our sales revenue (for the 1988 calendar year),” President Paul Kostuik told a hillside covered with employees who turned out for the opening ceremonies. Also present at the day’s event were such dignitaries as Premier William Vander Zalm, Ports Canada Chairman and Ridley Terminals Chairman Ron Huntington, federal Minister of State, Science and Technology Frank Eberle, and B.C. South Peace River mla Jack Weisgerber, as well as senior representatives of both CN Rail and B.C. Rail.

The opening of Shikano, named in honor of Tatsuzo Shikano (former vice-president and now standing director of Mitsui Mining Overseas Co.) comes after a massive drive to reverse production difficulties that plagued Quintette when its first pit, the Mesa, opened and achieved greater operating efficiencies.

The heavily-faulted Mesa pit, with higher-than-expected (up to 40%) ash content plus equipment problems were, as Mr Kostuik calls them, “surprises” that impinged the operating ability of the mine. However, Mr. Kostuik says: “By mid-1985 Quintette had developed the details sequencing and schedul ing techniques to overcome the complexities of the geology and had also refurbished its equipment.”

He said Quintette only lagged behind its projected production rate for a 3-month period just after opening — otherwise, it met all expectations despite the problems.

“If you took start-up as the fourth quarter of 1983, it took about 18 months to resolve the equipment problems and find the techniques to cover some of the complex geology problems,” he said.

Work during 1985 also focused on gaining geater operating efficiencies and in 1986, the decision was made to open Shikano.

Mr Kostuik said that in early 1985, Quintette achieved the full production rates and increased efficiencies by splitting the bench heights in the Mesa and Wolverine pits and developed more working areas for equipment. Subsequently it found it could reduce its reliance on the Mesa by augmenting supply from the Shikano area. (Quintette is determined to remove all the metallurgical coal available in the Mesa/Wolverine area — up to 93% — to make the venture economical.)

“We found we could improve recovery (from Mesa) and reduce the out-of-seam dilution,” said Mr Kostuik, adding “and therefore reduce the cost in the washplant.” Five million tons

For the past 2 1/2 years, Quintette has produced four million tonnes per year from Mesa pit and one million from Wolverine. Now, three million tonnes per year will be removed from Mesa, one million each from Wolverine and Shikano.

It will cost about the same to mine coal in the Shikano pits as the others, however, says Mr Kostuik. “We expect that its washing conditions will be better.” As well, Shikano should yield better maintenance and equipment cost returns in the plant since the ash content is lower.

As Quintette starts excavating in the Shikano area, Mr Kostuik is predicting no surprises. “We have too much experience for that now — we know exactly what Shikano looks like.”

The 6-seam Shikano deposit, which totals 19 m in thickness representing reserves of 13 million tonnes of finished product, lies at angles ranging from 30 degrees to 80 degrees .

In-situ ash seam content (youngest to oldest) is as follows: D, 15.51%; E2, 24.30%; F, 18.29%; G, 40.61%; J, 27.40%; and K, 14.46%. Work starts in Shikano North, followed by almost simultaneous development of Shikano South. The U-shaped orebody will be worked at both ends with Shikano Common (approximately a mile-long area) worked to join the two bodies.

Since Shikano is located only 2-3 km from the plant, three 170-ton belly-dump Caterpillar trucks are being used to haul coal to a Bradford Breaker located at the plant and built to handle the Shikano material. The fleet for hauling waste consists of nine 154-ton-capacity Wabco 170 (rear dumps) and six 77-ton-capacity Terex 33-11C (rear dumps).

Says Mr Kostuik: “All the drilling, excavating and the hauling equipment for the waste was transferred from the Mesa/Wolverine area.” Tax credit sales

The needed dollars for developing the Shikano pit and infrastructure (which will see an extension in five years) were generated through tax credit sales arriving on the heels of Quintette’s first year in the financial black. An 8% reduction in production costs of clean coal, together with a 22% decrease in financing costs and a 3% increase in metallurgical coal sales volume produced a dramatic improvement in Quintette’s 1986 results. Net earnings amounted to $1.5 million — a substantial reversal of previous 1985 net losses of $57.7 million.

Quintette’s early difficulties — although individuals like Mr Kostuik point out that Mesa’s faulted seams officially added 25 million tons to reserve figures — have caused the company to be technologically smarter to survive and knife down costs. The result: Quintette is working harder, running leaner and able to trundle out new technology that makes it one of the most advanced in the industry. Diversity the key

“The key to mining a property like this is diversity,” agrees mine production manager Barry Morash.

For example, the sloping configuration of Shikano prompted Quinte tte to retool an Ingersoll Rand dmh drill and use it for angle drilling to remove overburden. This angle drilling has proved highly successful.

As well, says Mr Morash, the company is experimenting with drilling through the seam, packing the holes in that portion below the coal seam and blasting the overburden above. Once the coal has been removed, the airbags are taken from the holes below the seam and more explosives can be used. This blasting technique has only, as yet, met limited success.

In addition, says chief mining engineer Jim Hendry, the company is using cil Heavy Anfo for blasting — a new material that packs a higher bulk strength.

Other technology used in Quintette’s pits includes a highly sophisticated dispatch system. The computerized haul-truck system receives information on seam areas being worked and the composition of the material excavated. The mine then determines the blend ratio it wants to achieve and the dispatch system will dispatch trucks to the breaker in a sequence that will meet its target.

“At the end of the day, you also get a summary of what happened and you can see how near you came to your objective,” says Mr. Hendry.

While Quintette has been laboring to achieve greater operating efficiencies (during the past two years the cost of producing a clean ton has been slashed by 33%), the mine still faces some knotty financial problems. For the past year, it has attempted to reach a refinancing agreement with the 56 international banks which funded the operation.

Quizzed at the new pit site, Denison Mines Chairman Stephen B. Roman was queried on the delay in reaching accord over the past year. He told reporters that an announcement concerning the refinancing could be expected in a few weeks, adding: “everything is getting closer.”

He would not elaborate on details or content of the announcement but said of the banks: “They are more understanding than they were a year ago.”

Mr Kostuik, who would not comment on the announcement, said refinancing hinged upon reaching an agreement with more than the banking institutions. But bank negotiations would take into consideration long-term price fluctuations on coal prices and essentially provide for a sliding funding formula (over the life of the debt) that would provide flexibility for Quintette should world prices fall, and benefits for the banks if prices rose. Obligations met in full

As Denison says in a recently- issued information form: “Interest and debt repayment obligations have been met in full by Quintette. However, at Quintette’s request, its lenders have waived certain requirements of the credit agreement but have reserved the right to revoke such waivers. If such waive
rs had not been obtained, Quintette would have been in default under the terms of the credit agreement, in which case the lender would become entitled to enforce their security which consists of all Quintette’s assets.” The type of deal Quintette is seeking is outlined in the information form which says: “A restructuring which, in the opinion of Denison, can accommodate the current market down cycle and provide for reasonable participation by all parties during future periods of stronger markets, has been presented to Quintette’s lenders.” Getting $95 per ton

At the same time, Quintette is bargaining for the best rate possible from Japanese coal buyers — a factor that will impact on debt repayment. Currently, it receives $95 per ton (compared to world prices of $60 per ton) for metallurgical coal. Slump in world demand

The final problem Quintette has to resolve — and one it has little control over — is world demand, which has slumped. In late 1986, Japanese buyers exercised their option to reduce take by 5%, meaning Quintette will only produce 4.75 million tons, or 75% of its projected 6.3-million-ton capacity.

Another blow to Quintette’s coffers has been lacklustre price of thermal or oxydized coal which plunged to $40 a ton. “At that price, we can only afford to mine it as a byproduct,” says Mr Kostuik.

This has caused two Japanese buyers with a 15-year contract to take 1.3 million tons per annum to try to drop their commitments “by reason of what they term repudiation of the agreement,” said Denison’s information form. Quintette has advised the buyers (two of the company’s 10 major metallurgical coal customers) that it does not agree the agreement has been repudiated.

The loss of those deliveries under the contracts has resulted in a decrease of $40 to $50 million in planned cash flow. “We are unable to do anything to get those dollars back,” says Mr Kostuik, “except be more efficient.”

Individuals like Mr Roman, though, are convinced that Quintette’s problems will be resolved and the project does have a role to play in B.C.s north. “The northeast coal project will survive definitely — yes.” He added that he believed world prices for commodities like coal would stabilize and if oil prices began to rise, “you will see increased prices for coal.”003 Ms Sorensen is a Vancouver freelance business writer.