The rapidly-expanding Brule strip mine in British Columbia of Walter Energy (NYSE:WLT) has plenty of remaining coal reserves for the future, said an updated report on the property that Walter filed Feb. 28 with Canadian regulators.
In April 2011, U.S.-based Walter Energy acquired Canada-based Western Coal. Brule was one of the assets that came to Walter in that buy. Walter has lately been filing financial reports in Canada due to its dual-listing status in the U.S. and on the Toronto Stock Exchange. U.S. securities rules don’t require the filing of detailed property reports like the one on Brule, so this report is a fairly rare detailed look into a major coal mining operation.
The Brule project lies within the Burnt River Property in the eastern Rocky Mountain Foothills of northeastern British Columbia, Canada. The property consists of two coal leases and six contiguous coal licenses. It has a number of sizeable low-volatile (LV) bituminous coal deposits, including the Brule deposit, Blind deposit and Dillon deposit. The project consists of two areas: the Brule deposit which was the subject of a 2005 feasibility study and is currently in production; and the Blind deposit, which had a lower strip ratio area of the deposit mined in the 2007/2008 period.
Based on the geological structure across the property, including seam faulting, the Brule deposit has been classified as being of moderate geology type and the Blind deposit is of a complex geology type.
In April 2007 Western Coal entered into an agreement to purchase the Willow Creek mine, which is located nearby. The Willow Creek property includes coal handling, processing and rail facilities which would eliminate the need to construct a new preparation plant and loadout facility for the Brule operation. Run of mine (ROM) raw coal from Brule would be trucked about 63 kilometers along the Fallen Creek Connector road to the Willow Creek facility for processing and loadout.
Through 2010 and 2011, Brule coal was washed at the Wolverine plant and old Willow Creek plant. The higher ash portions of the upper and lower seam (10% of the ROM tonnage) and seam 60 were washed at both facilities. This resulted in an average yield of 50% for the higher ash portions of upper and lower seam and 70% yield for seam 60. These yields have been used as the basis for the reserve estimates. All this coal is assumed to be processed through the upgraded Willow Creek plant. At the time of this report, there was no experience with running Brule coal through the upgraded Willow Creek plant.
To accommodate 2.2 million raw tonnes per year of Brule pulverized coal injection (PCI) coal with 2.2 million tonnes per year of Pine Valley coal – consisting of 1.25 million tonnes per year of PCI coal and 0.95 million tonnes per year of hard coking coal – the plant capacity is being upgraded to 660 tonnes per hour. The fines circuit and the coarse circuit have both have had a 50% increase in capacity to process the hard coking coal at 660 tonnes per hour. In June 2011, the construction of an expansion project at the Willow Creek processing facility was started. This upgrade consisted of three areas being upgraded or expanded.
“The facility at the Willow Creek plant will now be able to handle all the Brule and Willow Creek coal, regardless of the quality,” the report noted. “If the coal quality is acceptable for directly ship when it comes from the mine, it can be crushed at the Willow Creek plant and conveyed directly to the clean coal stockpile. If the coal needs to be beneficiated it can be crushed and beneficiated in the upgraded facility. The upgraded facility will be in full operation from March 2012.”
The estimated production costs for Brule, at the pit, drop from C$73.40/tonne in 2012 to C$29.67/tonne in 2023, the last year of the forecast period. Total costs, which include pit costs and other factors, including transportation to export ports, are estimated at C$150.76/tonne in 2012, falling over time to C$114.14/tonne in 2023.
Walter Energy outlines Canadian expansion plans
Walter Energy said in its Feb. 29 annual Form 10-K filing with the SEC that the Wolverine surface mine is located near the town of Tumbler Ridge and produces a high grade hard coking coal. “We expect mining at the Wolverine mine to continue until approximately 2019,” the company added. “Future projects at Wolverine include the EB and Hermann surface mines which are currently expected to each have lives of 10 years. The Brule surface mine is located near the town of Chetwynd and produces a premium grade low-volatile PCI coal. We expect mining at the Brule mine to continue until approximately 2022. The Willow Creek surface mine, also located near the town of Chetwynd, produces metallurgical coal with production plans of one third hard coking coal and two thirds low-volatile PCI coal over the mine’s life which is currently expected to be through 2027.”
The Falling Creek connector road project was substantially commissioned near the end of the 2011 third quarter and truck hauling volumes on the road have continued to increase into the 2012 first quarter, the Form 10-K added. The road connects the Brule mine to the Willow Creek mine where Brule’s coal is processed and loaded at the rail loadout facility. The new road reduces the hauling distance as compared to the previous route from just over 62 miles down to 37 miles.
“The metallurgical coal produced by our Canadian operations is sold to international customers located in Asia to meet the demand for steel produced in the region,” said the Form 10-K. “Our Wolverine mine’s metallurgical coal is a hard coking coal and forms a key coke oven blend component with many of the leading steel mills in Asia. The Brule and Willow Creek mine’s low-volatile PCI coal is ranked as a premium PCI coal and can replace up to 30% of the coke feed in a blast furnace. Willow Creek also has hard coking coal reserves that we will begin to produce in 2012. These high quality metallurgical coals in conjunction with the infrastructure present in Northeast British Columbia continue to provide us with an opportunity to grow and diversify our customer base.”