Erdene continues Donkin work while Xstrata tries to sell its share

Erdene Resource Development Corp. (TSX: ERD) said May 17 that evaluation work on the Donkin coal mine project in Nova Scotia is continuing while partner Xstrata plc looks at selling its share of the project.

On April 26, Erdene and Xstrata Coal Donkin Ltd. announced that Xstrata is seeking an operating coal company to assume its 75% interest in the Donkin Export Coal Project. Xstrata Coal cited a change in its business strategy since first acquiring the project, with a current focus on larger-volume mining complexes, as the reason for choosing to sell its interest in Donkin.

Within the past year, Xstrata has begun, along with a Japanese partner, planning a major strip mine project in British Columbia that is better positioned geographically than Donkin to access the booming Pacific Rim metallurgical coal market.

It is anticipated that the Donkin sale process will be concluded during 2012, with the selection of an entity with the underground coal mining experience, technical expertise and financial capability to operate this underground mine safely and efficiently, Erdene said. Erdene has a 60-day right of first refusal on the sale by Xstrata Coal of its interest in the project. During this sale process the project timelines will be maintained, including planned completion of the environmental assessment, progression of engineering work and obtaining the necessary approvals for commencement of the underground exploration phase.

The Canadian Environmental Assessment Agency approval process is on track and full environmental approval is anticipated in early 2013, Erdene noted. Donkin is targeted to produce 2.75 million tonnes of washed product per year, primarily aimed at the metallurgical coal market, and will directly employ about 300 people. Commencement of coal production is targeted for mid 2014.

Under their joint venture agreement, Xstrata Coal, is committed to fund the first C$10m of Erdene’s development funding requirement. Xstrata Coal will bring forward up to C$1m of this to cover Erdene’s share of expenditures on the project during the sale process.

In June 2011, the Donkin Joint Venture released a National Instrument 43-101-compliant technical report for the project prepared by consultant Marston & Marston Inc. of St. Louis. The report presents the results of the pre-feasibility study (PFS) on the project. The report confirms the technical and economic viability of the project and supports advancing the project to the next phase. The PFS concludes that the project has a C$1.06bn net present value (8% discount rate) based on project development capital of about C$500m and demonstrates the potential for first quartile operating costs.

The Donkin mine would work from pre-existing entries on land on Cape Breton Island under the seabed of the Atlantic Ocean. This kind of “submarine” mining has been common in the area for decades, the Marston & Marston PFS report showed. The Harbour and Hub coal seams were the major targets for evaluation, with the initial mining target being the Harbour seam.

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.