Donkin coal project in Canada will get all new ownership

The Donkin coking coal mining project in Nova Scotia is changing hands, with Advanced Primary Minerals Corp. (TSX VENTURE: APD) saying June 28 that it has reached agreement in principle with Erdene Resource Development Corp. (TSX: ERD) whereby Erdene will sell all of its North American property interests, mainly Erdene’s interest in Donkin, to APM for share consideration from APM.

Erdene currently owns approximately 60% of the issued and outstanding shares of APM. By way of a statutory plan of arrangement, Erdene intends to deliver to Erdene shareholders all of its existing APM shares and those to be received on the sale of its North American property assets to APM. The transaction is subject to signing a definitive agreement and receipt of approvals from the TSX, the TSX-V, the Nova Scotia Supreme Court, the shareholders of Erdene and the minority shareholders of APM, as well as compliance with all other requirements governing related party transactions, including obtaining independent valuations.

“The proposed transaction will provide the current minority shareholders of APM with exposure to the Donkin Coal Project,” said the APM statement. “Erdene believes that this Project is a world class asset with exceptional upside potential that is currently experiencing a period of low valuation.”

APM recently announced the sale of its kaolin production assets and associated mining operation, which is on schedule to close on June 29. After the closing of this transaction, APM will hold as its primary asset, certain real estate in McDuffie County, Ga.

“The objective of this proposed transaction is to unlock and maximize shareholder value by creating two strategically-positioned public companies, one focused on Donkin and the other focused on Mongolia minerals exploration and development,” said a June 28 Erdene statement. “Given Xstrata‘s announcement of its intent to sell its interest in Donkin, the project is expected to go through a transformational ownership process later this year, which is anticipated to bring the project to production.” That is a reference to international mining giant Xstrata plc, which is pulling out of the Donkin project in Nova Scotia in eastern Canada after acquiring in 2011 a coal mine development project in western Canada.

Recently, Erdene has concentrated much of its Mongolian exploration efforts on a new gold discovery, Altan Nar, and advancement of the Zuun Mod copper-molybdenum project. Having these assets in a separate public company will result in a dedicated Mongolia management team with greater flexibility to access capital for future programs, Erdene noted.

Donkin would produce “submarine” coal from under the Atlantic Ocean

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 project. Xstrata Coal cited as the reason for the sale a change in its business strategy since first acquiring the project, with a current focus on larger-volume mining complexes.

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 met 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 in April. 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.

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.

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, said a report on the reserve from consultant Marston & Marston. 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.