Xstrata snaps up First Coal for $147 million

Vancouver – Global coal giant Xstrata (XTA-L) has offered $147 million in cash for privately-held First Coal and its northeastern British Columbia coking coal assets.

Xstrata’s coal division made the bid to access 528 sq. km of licensed property and 412 sq. km of land with licenses pending in B.C.’s Peace River coal fields. First Coal’s shareholders will put the offer to a vote on August 2, with over 50% of the two-thirds majority needed already locked up.

Douglas Smith, president and CEO of First Coal, said by phone that the deal was about 6 months in the works, and came about in part because “as a junior company we’re always out looking for funding.”

First Coal’s most advanced project is the Central South target, while roughly 10 km southeast sits the South Cirque target, next in line for development. Together the two projects host historic, non-complaint resources of 655 million tonnes from work done by Gulf Canada Resources in the early 1980s. Overall First Coal’s properties host 1.6 billion historic tonnes from Gulf Canada’s work.

In terms of complaint resources, First Coal has so far established 15.5 million measured tonnes, 28 million indicated tonnes and 35.4 million inferred tonnes at Central South. The coal seams host significant amounts of medium volatile coking coal and pulverised coal injection coal.

The coal deposits are unusual in that the 1 to 3 metre-wide coal seams dip from between 55 degrees to near vertical, with the seams separated by varying thicknesses of interburden and exposed at surface. First Coal plans to mine the seams using a combination of trenches and a modified ADDCAR any dip highwall mining system that would see no personnel underground but also avoid a full open-pit. The company says is the first time in the world this method would be used.

Smith said the company was still in the process of testing and proving the mining method, but it would be up to Xstrata to decide on a future mining plan.

First Coal planned to put a 1.5-million-tonne-per-year operation into production by 2014 at Central South, with the same size of operation planned to start at South Cirque in 2017, and had started a 50,000-tonne bulk sample last year to further test the mining method.

The company ran into trouble last year, however, when the West Moberly First Nations objected that it had not been properly consulted before the bulk sampling and road work started. The West Moberly also maintain that the work threatened the roughly 11 caribou that form the endangered Burnt Pine herd. Work on the project was subsequently halted by the BC Supreme Court, with BC Court of Appeal uphold the suspension, and the need for more consultations, in May.

First Coal was forced to abandon a $15 million work program planned for this summer as it waited for the province, which is responsible for conducting proper consultations with the First Nations, to complete the process.

Asked if Xstrata was concerned about the suspension, Smith said that “Xstrata has a reputation for working well with aboriginal groups around the world and they expect to do that here as well.”

First Coal was formed in 2004 and has spent about $65 million developing its projects.