Xstrata ready to bow out of Donkin coal project in Canada

Xstrata Coal Donkin Management Ltd. and Erdene Resource Development Corp. (TSX: ERD) said April 26 that they are seeking an operating coal company to assume the Xstrata Coal interest in the Donkin Coal project in Nova Scotia, Canada.

Xstrata Coal holds a 75% interest and Erdene holds a 25% interest in the Donkin joint venture, a proposed multi-continuous miner underground operation on Cape Breton Island. The mine would start with entries on land, with much of the mining under the seabed of the Atlantic Ocean.

“Over the past decade, Xstrata Coal has evolved, as has our business strategy, and core to that is a focus on larger volume mining complexes,” said Peter Freyberg, Chief Executive, Xstrata Coal. “We believe the Donkin Coal project is a valuable asset to a qualified partner and remain positive about its viability. We will continue to work closely with Erdene and the Province of Nova Scotia to secure an operating partner to advance the project to production.”

Xstrata Coal is part of Xstrata plc, a multi-national company that mines various commodities. Xstrata has lately invested heavily in the western Canadian coal industry, including a buy last year of prospective miner First Coal, apparently leading at least in part to its lesser interest in Donkin.

Erdene President and CEO Peter Akerley said: “We would like to thank Xstrata for their contribution to the project and look forward to working with a new operating partner that will continue to advance the project towards production. The Donkin Coal project has unique attributes including its location on tidewater, its production readiness and its ability to deliver both a very high energy thermal coal and metallurgical grade coal with a proven track record of use in global steel manufacturing.”

It is anticipated that the sale process will be concluded during 2012, with the selection of an entity with the mining experience, technical expertise and financial capability to operate this underground mine safely and efficiently. Erdene has a 60-day right of first refusal on the sale by Xstrata Coal of its interest in the Donkin project.

During this process the project timelines will be maintained with the planned completion of the environmental assessment, progression of engineering and obtaining the necessary approvals for commencement of the underground exploration phase. The Canadian Environmental Assessment Agency approval process, which is required for project permission, is on track and full environmental approval is anticipated in early 2013. The Donkin mine would produce 2.75 million washed product tonnes per year and will directly employ about 300 people, with a coal production start targeted by mid-2014.

The Donkin project is based on a multiple continuous miner underground operation with potential to advance to a longwall operation. Mine infrastructure includes twin 3.6 kilometer tunnels to the coal face with plans for a coal processing plant and marine or rail transportation options that allow for loading of Cape Size vessels proximal to the project site. The targeted Harbour coal seam has previously been marketed to domestic power utilities and steel manufacturers as well as steel plants in Europe, Brazil and Asia.

Founded in 2002 and headquartered in Switzerland, Xstrata plc operates in over 20 countries and employ over 70,000 people at more than 100 operations and projects around the world. Xstrata Coal is the world’s largest seaborne exporter of high energy thermal coal used to generate electricity and a significant producer of coal used to make steel. Headquartered in Sydney, Australia, it has interests in over 30 operating coal mines in Australia, South Africa and Colombia, as well as development projects in western Canada.

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.