Pine Valley hits more oxidized coal than expected

The market continued to pull down Pine Valley Mining (PVM-T) shares, as the Vancouver-based coal producer announced a large amount of poor quality coal at its Willow Creek project in Northeastern B.C.

In Toronto on Oct. 11 the company’s shares were off roughly 18.5%, or 8 to 35 on roughly 680,000 shares traded. That’s a far cry from the $5.00 mark that the shares were approaching just over a year ago.

On Oct. 10 the company announced that its coking coal pit at Willow Creek contains three-times more oxidized coal than expected, meaning that a large amount of its raw coal production is un-sellable or sellable at a lower price.

Pine Valley now says the production plan for the three months to December 31 will mine roughly 113,000 tonnes of raw oxidized coal out of total anticipated raw coal production of 482,000 tonnes.

Oxidized coal is less desirable and often ends up as waste rock because it has lower yields and is difficult to wash.

Pine Valley’s president and chief executive Robert Bell says while the company will look to sell the oxidized coal as thermal coal, the company has not yet ventured into the thermal coal market.

To date it has been selling coking coal and pulverizied coal for injection (PCI). For the three month period ending June 30th, the project put out roughly 187,000 tonnes of coal — of which 147,319 tonnes were PCI and 49,489 tonnes were coking coal.

While Bell says market fundamentals for thermal coal remain strong, the lower selling price of the coal (if contracts could be secured) would have to be weighed against transportation and handling costs.

Before any such contracts can be secured, however, further metallurgic testing must be done to determine the ash content of the oxidized coal.

In its press release the company says the oxidized coal “will be treated, in the main part, as waste material” a fact that will put more pressure on costs.

For the three month period ending on June 30, Pine Valley had been producing coal at an average cash cost of $82.13 per tonne. Its average realized coal price for the same period was $104. 95.

In its press-release, the company says it is looking at mining other areas at the Willow Creek Mine in order to reduce the impact of the oxidized coal.

Cash inflows for the company have been coming from sales of its PCI product, but it still relies on debt and equity financing to fund exploration and development programs and its working capital requirements.

With cash flows already being lower than expected before the discovery of the large amount of oxidized coal, Pine Valley will continue to rely on equity issuances and debt to fund operations and the attainment of those funds has not yet been secured.

The company has a payment due on a principle of US$8.85 million to the Rockside Foundation on Oct. 31. The payment due date was extended for a second time in late September.

Pine Valley announced on Sept. 28 that it had signed a term sheet with a lender for $37.5 million, but Bell says the deal has not yet been closed.