Erdene, Xstrata aim for next steps in Donkin coal mine project

Canadian minerals developer Erdene Resource Development (TSX:ERD) said in a March 29 update on its various projects that it and partner Xstrata plc are moving forward with the development of the big Donkin underground mine project on Cape Breton Island, Nova Scotia.

“Underground,” by the way, is only a partially accurate description, since much of the mining would be literally under the seabed of the Altantic Ocean through mine entries located on land.

In June 2011, Erdene received a National Instrument 43-101-compliant technical report for the Donkin project prepared from consultant Marston & Marston. That report presents the results of the pre-feasibility study on the project prepared by Xstrata. The report assesses the viability of a multiple continuous miner (CM) underground operation, producing about 3.5 million tonnes per year of raw run-of-mine coal that would be washed to provide 2.75 million tonnes per year of product coal suitable for the international export coking and the export and domestic thermal coal markets.

The report confirms the technical and economic viability of the Donkin project and supports advancing the project to the next phase. The pre-feasibility study concludes that Donkin has a C$1.06bn net present value at an 8% discount rate based on project development capital of approximately C$500m. This equates to a net present value of C$265m for Erdene’s 25% interest in the project.

The initial step in the environmental assessment process was filed with federal and provincial regulators in June 2011. This past November, the Canadian Environmental Assessment Agency announced a decision that the project is to undergo a comprehensive-study-type environmental assessment. The agency prepared draft environmental impact statement (EIS) guidelines and invited public comment. In early February, the agency issued final EIS guidelines for the project to Xstrata, as project manager. The EIS guidelines provide minimum information requirements for the preparation of the environmental assessment documents. The environmental assessment process is expected to be complete in the second quarter of 2013, with the project then expected to advance to the feasibility stage.

The feasibility stage will include the initial phase of mining, referred to as the exploration phase. The exploration phase will deploy one CM in the Harbour coal seam resulting in initial production of up to 500,000 tonnes of run-of-mine coal. This program will provide the opportunity to collect information necessary to finalize the mine plan, including an evaluation of the viability of using longwall mining equipment. This first phase of underground development, along with the completion of the bankable feasibility study, is estimated to cost C$94.2m. Full development plans will be based on the outcome of the feasibility study and receipt of all government and company approvals.

Notable is that Nova Scotia Power, the local utility with several coal-fired units, said a while back that it would take a pass on the Donkin coal due to its high sulfur content and the utility’s efforts to reduce coal-fired air emissions. That prompted a re-working of the mine plans to emphasize coking coal production.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.