International mining giant Xstrata plc said March 13 that its Xstrata Coal unit and JX Nippon Oil & Energy Corp. have formed a joint venture covering recently-acquired Xstrata coal assets in the Peace River Coalfields in western Canada.
JX Nippon Oil & Energy (Australia) Pty Ltd., a subsidiary of JX, has paid US$435m in cash to acquire a 25% interest in Xstrata Coal British Columbia (XCBC). XCBC has a 100% interest in the following metallurgical coal assets: the First Coal Corp. tenements acquired by Xstrata Coal in August 2011; the neighboring Lossan coal deposit acquired by Xstrata Coal in October 2011; and the Sukunka coal deposit, the acquisition of which was announced on March 8 and was completed on March 13.
This is just the latest of several moves over the last couple of years by mining companies, including U.S.-based Walter Energy (NYSE:WLT), to secure Canadian met coal properties in anticipation of continued strong demand for that coal in rapidly-growing Pacific Rim markets.
Xstrata Coal has retained a 75% interest in XCBC and will develop, operate and manage the assets on behalf of the joint venture. Together with its 25% interest in XCBC through JX Australia, JX will be the exclusive marketing agent for First Coal and Sukunka coal sold into Japan.
Technical studies indicate that the two most advanced XCBC projects, Sukunka and Suska, have the potential to produce up to about 9.5 million tonnes per year, Xstrata noted. The majority of this production is expected to be hard coking coal, with the balance expected to be pulverized coal injection product.
Xstrata Coal has combined the project formerly known as Lossan with neighboring First Coal tenements to create an expanded open-cut coal project, now known as the Suska Coal Project. First Coal has been working on developing a surface job using a specially-made highwall miner procured from U.S. coal producer International Coal Group.
Sukunka has a National Instrument 43-101-compliant coal resource of 236 million tonnes in the measured and indicated categories. Consultant Norwest Corp. has completed a pre-feasibility study for a longwall mine producing hard coking coal. Xstrata Coal’s technical studies indicate the potential to realize further value from the resource.
Both historical exploration reports and recent studies highlight the prospects of the First Coal tenements for significant deposits of export-quality met coals. An exploration program is due to commence in 2012 following receipt of approvals.
Yasushi Kimura, President of JX Nippon Oil & Energy, commented: “JX and Xstrata Coal have built a strong relationship over the years via our Oakbridge joint venture. This opportunity has great significance for JX as it marks our entry into the hard coking coal market. Our existing coal business focuses on the supply of thermal coal to utility companies, and this joint venture enables a full-scale expansion of our business into hard coking coal, which is essential for steel manufacturing.”
Peter Freyberg, Xstrata Coal Chief Executive, said: “Our consolidation of the First Coal, Lossan and Sukunka assets since August 2011 will enable Xstrata Coal to increase our exposure to metallurgical coal further. There are meaningful synergies between these assets, creating the opportunity to develop a substantial and efficient complex of mining assets, unlocking significant value for our shareholders and other stakeholders in our operations.”
J.P. Morgan acted as financial adviser to JX, while JT Boyd acted as technical adviser and Norton Rose acted as legal adviser. Bennett Jones and King & Wood Mallesons acted as legal advisers to Xstrata Coal.