Pacific Coal sees strong steam coal output, reworks coking operations

Canada-based Pacific Coal Resources Ltd. (TSXV: PAK), which has coal mining operations in Colombia, said Nov. 29 that it produced 341,248 tonnes of coal during the third quarter of 2012, representing a 2% increase over the 335,008 tonnes produced in the second quarter of 2012.

Hernan Martinez, the company’s Executive Chairman, commented: ‘”The second half of 2012 has thus far seen the Company re-focus on its core competencies by selling our BACF investment and signing an MOU for the sale of our Barranquilla port interest. The sale of the BACF investment, which closed in October, provided us with $5 million in cash, which will be used in operating and selling activities at our producing coal and coke sites. Coal operations continued through the third quarter of 2012, with 341,248 tonnes of thermal coal produced at our La Caypa and Cerro Largo sites. We expect production improvements and cost reductions at La Caypa as we replace the current operator in the fourth quarter. The Company’s cost cutting program resulted in a 20% reduction in G&A expenses in the third quarter compared to the second quarter of 2012, with an expected quarterly run rate as of the fourth quarter of 2012 that is approximately 30% below the average in 2011. Management believes the decisions made and actions taken during the quarter and through the remainder of 2012 are positioning the Company towards significantly improved operations and liquidity.”

Production at La Caypa in the third quarter was 251,525 tonnes representing a decrease of about 6% from the second quarter of 2012 and 72% of its planned production. Production was significantly impacted by issues with the mine operator and destabilization of the mine footwall in August. Production at the Cerro Largo mine was 89,723 tonnes, an increase of about 33% from the second quarter of 2012.

Total revenues for the third quarter of 2012 were $35m, consistent with $35.2m in the second quarter of 2012, on the strength of coal sales of 366,678 tonnes, at an average realized price of $92.53/tonne.

In October 2012 the company sold its Blue Advanced Colloidal Fuels (BACF) investment for cash proceeds of $5m and in November signed a memorandum of understanding (MOU) covering its interest in Sociedad Portuaria Terminal de las Flores S.A. (SPTF), which holds the Barranquilla port concession. The cash generated by these transactions will be used in the company’s operating and selling activities at its producing coal and coke sites.

As a result of reduced production in the third quarter of 2012 and an expected change in operator, the company’s 2012 production target at La Caypa has been revised to 970,000 tonnes. In light of the third quarter results and the ongoing work required to clear the mud concentration in the pit, the company has revised its 2012 production target for Cerro Largo to 400,000 tonnes.

Masering to take over operations at La Caypa

In 2007, Operación Minera S.A. (today Obras, Proyectos y Minería S.A.) (OPM) was engaged to operate the La Caypa mine and render services related to all the activities necessary to extract and manage coal from milling to transportation to the stockpile for a minimum quantity of coal equivalent to the greater of seven million tonnes or the total reserves recoverable from the open pit according to the mining plan. In November, Pacific Coal communicated to OPM its intention to terminate the mine operation agreement, effective Dec. 28. Masering, the current operator of Cerro Largo, is expected to replace OPM as the mining operator at La Caypa. The company and Masering are reviewing the terms and conditions of a new mine operating contract.

In August 2011, Pacific Coal said it entered into agreements with Geoformaciones S.A.S. for the operation of the underground mining at the Cerrejoncito and La Mona mines located on the Jam property and the processing and operation of Jam’s coking infrastructure. The agreements have a term of 36 months and require the company to pay a tariff on tonnes of coal extracted and coke produced. As of Sept. 30, Pacific Coal has terminated the agreements with Geoformaciones in order to evaluate the economic feasibility of the underground mines, and then determine a course of action for the project.

“The Company is focusing on improving coking ovens and optimizing personnel at Jam, and anticipates re-starting met coal production (dedicated to feeding coking ovens) and significant coke production in the first quarter of 2013,” the company said in a Nov. 29 management’s discussion and analysis document filed in Canada. “The Company’s met coal production at Jam was suspended through the third quarter of 2012 as a consequence of high costs and weak international prices, and the plant focused on processing third party purchased materials for use in the production of coke. Coke production was held at minimal levels during the third quarter of 2012 as a result of low international coke prices, with activity during the quarter concentrated on conducting repairs to coking infrastructure.”

During the nine months ended Sept. 30, the company modified the terms of its 10-year coal screening contract with Oceans Maritime S.A.S. Oceans Maritime provides screening services for both the Cerro Largo and La Caypa projects. Under the revised terms, the company is billed monthly on a cost plus margin basis.

As of Sept. 30, Pacific Coal had entered into various contracts to deliver about 2.2 million tonnes of coal from its La Caypa and Cerro Largo mines, at an average FOB price of about $99 per tonne, over the next two years. Some of the contracts include buyer’s options, which permit buyers to purchase up to an additional 10% of the committed delivery quantities.

The company also has a contract to deliver about 0.6 million tonnes from Cerro Largo at an FOT price derived from South African FOB prevailing market prices less a $7.50 per tonne adjustment to reflect geographic location, over the next three years. This contract also includes a buyer’s option to purchase up to an additional 10% of the committed delivery quantity.

During the year ended Dec. 31, 2011, Pacific Coal entered into an agreement with LCC Group to sell 0.7 million tonnes of coal annually for up to five years or 3.5 million tonnes in total. The price for the sales will be agreed annually between the parties with reference to forward prices per leading coal indices. This agreement will go into effect upon completion of an existing contract with this customer.

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.