Despite a currently slack metallurgical coal market, Cline Mining (TSX: CMK) is continuing with detailed engineering for the introduction of a longwall at its New Elk room-and-pillar mine in southeast Colorado.
“The Company anticipates publishing the engineering report during 2012,” said a May 14 financial filing by Cline in Canada. “The longwall system would supplement the present room and pillar mining system to produce incremental and additional saleable coal. The longwall system could be brought into operation in 2015, subject to timely approvals in the normal course. The objective is to increase New Elk mine production to approximately 7.0 million tons of saleable coal per annum, through the addition of the longwall system in the mine and reduce operating cost by about [C]$20 per ton through more efficient longwall operation.”
Cline noted that this year, based on equipment and personnel, the mine could produce up to 1.2 million tons. But, due to a poor market right now, the company has decided to operate one and a half super-sections over the short term. This alternative would generate production of 470,000 clean coal tons in 2012 and matches closely the company’s anticipated forecast of sales for 2012. The mine could produce as much as 3 million tons per year in the room-and-pillar configuration.
The BNSF Railway provides unit train service to U.S. continental coal customers as well as to the export coal terminal in Corpus Christi, Texas, where the company signed a lease agreement for a coal storage area in February 2011. The Corpus Christi bulk coal terminal is able to receive, unload, store and deliver coal onto Cape size vessels (70,000 tonnes) competitively.
The initial coal production tonnage and sales will be delivered in trucks to the company’s new loadout at the BNSF railhead. A new steel rail line over the right of way to the BNSF line at Trinidad is scheduled to be installed by the company in 2013, which would cut out the truck haul. The first two 10,000-ton BNSF trains were loaded and shipped by the company in April.
The New Elk coal is a high quality, high volatile, high FSU, low sulfur and high fluidity coking coal for use in steelmaking. Evaluation work in 2010 identified five mineable coal seams in the deposit. Four of these coal seams, in descending order, the Blue, Maxwell, Apache and Allen seams, contain 388.5 million National Instrument 43-101-compliant measured and indicated coal resources. One additional coal seam has been identified, the Red seam. All five seams are metallurgical coking coal grades and exhibit similar coal qualities.
“Since the beginning of the year metallurgical coal has moved from a seller’s to a buyer’s market in the seaborne trade; where our primary target markets are China, Japan, India, Brazil and Europe,” the company reported. “However, the outlook is showing signs of improvement based on recent increases in steel production by all of the major Asian steel producers. Additionally, in March 2012, the Chinese mills produced 57 million tons of crude steel, a 7% increase over the previous month and Japan showed a 9% increase. This trend is projected to continue amid reports that the major Australian coal producers are seeking increased prices going forward. The spot market, which is currently small and highly discounted, should also begin to firm. Increased demand and the absence of dumped tonnage should put the market into a solid recovery in both price and tonnage.”
At one point, Cline Mining had ambitious plans to mine met coal off of strip-minable reserves in British Columbia, Canada. It noted in the May 14 report that the Lodgepole, Sage Creek and Cabin Creek reserves in southeast British Columbia were placed off-limits to mining due to environmental restrictions. These properties have been written off due to the revocation by the provincial government of the company’s coal mining licenses.
“At the request of the British Columbia government, the Company has filed a claim for compensation from government for the fair value of the coal properties,” the report added. “The compensation requested from government is [C]$274 million with respect to the Lodgepole coal mine property plus [C]$235 million for the Sage Creek coal mine property. The amounts claimed represent the net present value assessment and calculation made by independent Canadian engineering companies compliant with and pursuant to NI 43-101. The Company has met government and has formally initiated its claim.”