Novadx, Sandstorm work out deal on Novadx coal mining

Novadx Ventures Corp. (TSX VENTURE: NDX) said May 16 that it has initiated a strategic plan, with the support of Sandstorm Metals & Energy Ltd., that is focused on certain key initiatives, including preservation of the value of the Rex No. 1 deep mine in Campbell County, Tenn.

The plan covers the financing and posting of the post-mining reclamation bond that is required to receive the final permits for the coal washing facility at Rex. No. 1. The plan also covers the temporary idling of the Rosa strip coal mine in Blount County, Ala., until capital can be raised to increase production through the purchase of an additional auger and adding an ultra fines circuit on the mine’s coal washing facility to further increase coal recovery. The deal also covers maintenance of a positive working capital balance and augmentation of Novadx’s executive team to move forward with future growth.

Sandstorm had previously agreed to provide Novadx with project financing and in turn would buy Novadx coal production for re-sale.

The strategic plan is expected to take several months to implement and in the meantime the company will pursue a plan to raise up to C$20m in additional capital. Once the plan has been fully implemented, Novadx said it will be on solid financial footing and in a better position to build shareholder value. “Novadx and Sandstorm remain confident that the Company’s metallurgical and specialty coal projects will create material returns for Novadx shareholders,” the company added. “Such optimism is highlighted by the recently filed positive economic assessment of the Rex No. 1 coal mine which contains a 23 year mine life and a life of mine net present value (after-tax, 15% discount rate) of US$71.9 million.”

Novadx President and CEO Neil MacDonald said: “The goal of these strategic initiatives is to see both Rosa and Rex in production and generating significant cash flow for the Company and its shareholders. We need to improve our financial position and with the support of Sandstorm we believe that we will accomplish this.”

MCoal Corp., a wholly-owned subsidiary of Novadx. which operates the Rosa coal mine and is developing the Rex No. 1 mine.

“Sandstorm has two Coal Stream agreements with Novadx Ventures Corp. (‘Novadx’) to purchase 25% of the first 3.8 million tons of metallurgical equivalent coal produced (where the value of three tons of thermal coal equals one ton of metallurgical equivalent coal), and 16% of the life of mine coal produced thereafter from the Rosa Mine and the Rex No. 1 Mine,” said a May 3 financial filing by Sandstorm. “For consideration, the Company has paid a total of $30.0 million in upfront payments. The Company will also make ongoing per ton payments equal to the lesser of (i) $75 for metallurgical coal and $55 for thermal coal, both of which are subject to certain price adjustments (the ‘Novadx Fixed Price’), and (ii) the prevailing market prices for metallurgical and thermal coal, respectively. In accordance with such adjustments, if any coal extracted or produced from the Novadx Mines is sold to an off-taker at the applicable pit mouth, then the Novadx Fixed Price shall be reduced by $10 per ton for metallurgical coal and $5 per ton for thermal coal.”

The Rosa mine is a currently producing auger mine and is expanding its strip mining operations in addition to increased auger mining, said Sandstorm. The newly-commissioned Rosa wash plant has increased its recoverable coal yield to 90%. During December 2011, the Rosa mine achieved commercial production and commenced shipments of cleaned coal to customers in the coking coal and activated carbon markets.

The Rex No. 1 mine is a development asset known for its high quality metallurgical coal. Novadx recently assembled a continuous miner with a belt line to transport mined coal to the surface, Sandstorm noted. Novadx has received a regulatory notice indicating that its application to revise its permit to construct and operate a coal washing facility has met all technical requirements. Novadx expects to receive the final permit shortly after posting a reclamation bond, Sandstorm added.

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.