Two upstarts challenge the coal giants

Last year’s deals between Fording Coal, Sherritt International (s-t), the Ontario Teachers’ Pension Plan, and Teck Cominco (tek-t) neatly divided the world of Canadian coal production; thermal coal assets to Luscar Energy, owned by Sherritt and the Teachers, and metallurgical coal assets to Teck and Fording.

But one of the outgrowths of consolidation is that it doesn’t take long for others to smell opportunity. In the coal business, a couple of small players have taken on big projects in the hope of getting into the game.

Vancouver-based Western Canadian Coal (wtn-v) is advancing the Woverine coal project in northeastern British Columbia, about 175 km northeast of Prince George. The property consists of 24 coal licences about 23 km from the coal-mining town of Tumbler Ridge, and one of the licence areas straddles the B.C. Railway line.

Geologically, the properties lie on the strike of the seams exploited by Teck’s Bullmoose coal mine, which is scheduled to close this year, and the Quintette coal mine, which shut down in late 2000.

All the properties have seen work by previous owners. The most advanced, Perry Creek, has a resource of 33 million tonnes of metallurgical-quality bituminous coal, with a 12-million-tonne zone that has been blocked out in a preliminary mine plan. A “starter” pit of 1.6 million tonnes is part of the plan; the rest of the resource is underground.

Early economic studies — not yet at the bankable-feasibility level — envisioned annual production of 1.3 million tonnes and proposed a plant design that could handle 1.7 million tonnes annually. Subsequent drilling results have encouraged the company to consider annual production of 1.6 million tonnes.

Western Canadian Coal completed a bulk-sampling program in the early part of the year, which returned an ash content of 9-14% and an estimated plant yield (coal recovery from tonnage mined) of 80-83%.

Washing tests of material from the property’s main 7-metre-thick coal bed, the J seam, indicated recovery of 77% and lower ash content than preliminary results.

Three thin seams, E, F and G, which lie stratigraphically above the J seam, could also potentially contribute tonnage. While they are only 1 to 2.5 metres thick, their combined thickness is about 4 metres and they have favourable coking chemistry.

The company also put down 19 new drill holes east and west of the known resources. Results released in February suggested the near-surface resource could be expanded. A preliminary estimate by the company — not independently audited — put the near-surface resource at 16.5 million tonnes with a stripping ratio of 7.4:1.

A second near-surface resource, EB, about 8 km west of Perry Creek, is also under evaluation.

Western has been in discussions with contractors over the provision of capital for mine development and the coal washing plant, in exchange for a life-of-mine production contract. If everything goes according to plan, Wolverine could be ready to produce coal by the end of 2004.

The company has four other coal properties in the general Tumbler Ridge-Chetwynd area, three around Brazion Creek and Burnt River, southwest of Chetwynd, and one about 85 km south of Tumbler Ridge. A fifth property, also near Brazion Creek, has been applied for.

Mount Klappan

Meanwhile, a company better known for its metallic-mineral exploration interests, London-based Fortune Minerals (ft-t), holds the Mount Klappan project in British Columbia, which it acquired last July from the Canadian subsidiary of Conoco (coc-n).

Mt. Klappan has a measured and indicated resource of 237 million tonnes of anthracite coal in two deposits: Lost-Fox (which has the lion’s share, 223 million tonnes) and Hobbit-Broach. A feasibility study done for Gulf Canada in 1991 estimated Lost-Fox’s minable reserve at 51.4 million tonnes. The coal itself is a high-rank anthracite with low sulphur concentrations, suited to metallurgical use.

Inferred resources at Lost-Fox, Hobbit-Broach, and a third deposit, Summit, total 392 million tonnes, and the coal seams potentially extend farther. As a bonus, the host rocks are carbonate-rich, which should mitigate any acidic drainage from the coal mine.

The property saw some test mining in the 1980s, and the 1991 feasibility study envisioned annual production of 1.7 million tonnes.

The property is in the Skeena district, about 150 km northeast of Stewart, B.C. There is access to the property by a gravel road from the Stewart-Cassiar highway, though currently it is a 410-km drive to Stewart (which has a deep-water harbour). A route has been proposed that would cut the drive to 260 km.

Conoco, which had inherited the lease when it acquired Gulf Canada Resources in 2001, sold it to Fortune for $3.1 million plus the replacement of a $210,000 reclamation bond covering the roads that had been built on the site. Conoco retains a $1-per-tonne royalty on coal produced from the property.

So far, Fortune has only announced plans to create a new block model of the Lost-Fox resource and update the feasibility study.