Morien looks at fall-back options for Donkin while Xstrata tries to sell its share

Morien Resources Corp. (TSX VENTURE: MOX), which owns a 25% stake in the Donkin coal mine project in Nova Scotia, said March 18 that Xstrata plc is making progress on its planned sale of its 75% stake in the Donkin project.

“Although the Xstrata sales process has stretched beyond the targeted date, we have been assured by Xstrata and the Province of Nova Scotia that all efforts are being made to bring the process to a rapid close,” said John Budreski, CEO of Morien. “Morien continues to stand ready to take on a more active role with its potential partners should the Xstrata sale process fail to proceed to a favorable conclusion.”

Morien, which acquired its 25% share of Donkin last year from Erdene Resource Development, recently completed a bulk sampling program from the Harbour coal seam, the principal target seam at Donkin. Approximately 880 pounds of the bulk sample material was sent to SGS Laboratories in Kentucky and West Virginia for comprehensive tests to confirm thermal and coking coal qualities.

With this bulk sample, Morien wanted to assess the sulfur beneficiation opportunity and the resultant impact on other coal quality parameters and yield from utilizing a lower density laboratory separation. Out of seam dilution and wash plant efficiency were not considered. Clean coal analysis was performed on a low density laboratory separation of floats 1.30 g/cc material, producing a theoretical yield of 64%, on the full seam section.

A June 2011 National Instrument 43-101 pre-feasibility report, which can be found on SEDAR, employed a compilation of clean coal composite results from various working sections and separating densities between 1.40 g/cc and 1.60 g/cc with an average simulated yield of 81%.

Company outlines latest coal quality test results

The coal quality results confirm that the Harbour coal seam will produce a very high energy and low ash product, with excellent high-vol coking coal characteristics, and based on this sample, lower sulfur levels. All results below are on a washed clean coal, air dried basis.

  • Calorific Value – The value of 14,580 Btu/lb (8,100 kcal/kg) is well above other coals and will be advantageous in pricing;
  • Ash – The low ash content of 3.5% is well below the ash content of competing coals and will attract a pricing premium;
  • Volatiles – A volatile content of 39% is within the typical range for high-vol coking coals;
  • Sulfur – On a full seam basis, the bulk sample returned 2.54% total sulfur, which is less than the 3% previously reported under NI 43-101, but above the typical range for stand-alone thermal and coking coals. The elevated value establishes the use of Donkin coal in coal blends or in coal-fired power plants with SO2 scrubbers;
  • CSN – With a crucible swelling number of 8, Donkin exhibits strong swelling properties consistent with benchmark premium hard coking coals;
  • Fluidity – High fluidity of greater than 20,000 dial divisions per minute (ddpm) facilitates Donkin’s use as a coke blend component with lower fluidity coals;
  • RoMax – Donkin’s reflectance value of 0.87% places it within the range for typical high-volatile semi hard coking coals.

Canadian regulators near finish of environmental review

The project is nearing the end of a comprehensive study type environmental assessment by the Canadian Environmental Assessment Agency (CEAA). It is anticipated that a Comprehensive Study Report for the project will be finalized and released for a 30-day public review period sometime early in the second quarter of this year, followed by announcements by the provincial and federal Ministers of the Environment of their respective environmental assessment decisions sometime in the third quarter.

The project received provincial environmental assessment approval in December 2008 for an underground delineation program using a continuous miner to produce 2,000 tonnes per day of run of mine (ROM) coal for a two-year feasibility period.

According to Statistics Canada, Nova Scotia continues to use imported coal for power generation, having imported 17.6 million tonnes of thermal coal since 2005, which represents imports of more than 2 million tonnes per annum (Mtpa). The Province of Nova Scotia has projected that at least 40% of the province’s electricity will be generated using coal until 2020. In addition, thermal coal consumption in New Brunswick and the northeastern states provide additional markets for Donkin coal, the company noted.

The Atlantic market, beyond the northeastern Canadian provinces and U.S. states, is well suited for Donkin coal with its high heat content being used to offset declining heat content for thermal coals from Colombia and its transportation advantage providing a competitive edge in cost comparison with high-vol Appalachian coal products into the European steel industry, the company said.

Although Western Europe and the Mediterranean region continue to be key end markets for Atlantic Basin seaborne coal, growing demand in China and India, together with low seaborne freight costs, have altered the structure of coal markets, said the company. More recently, the coal industry experienced significant supply disruptions due to heavy rains in Australia, Indonesia and Mozambique, as well as rail and labor issues in South Africa, New South Wales and Colombia.

International miner Xstrata plans to divest its share of the project

Morien’s 75% joint venture partner, Xstrata Coal Donkin Ltd., announced in April 2012 that it planned to sell its interest in the Donkin project. Xstrata and Morien indicated that during this sale process, the project timelines will be maintained with the planned completion of the environmental assessment, progression of engineering work and obtaining the necessary approvals for commencement of the underground exploration phase. Xstrata had originally targeted the end of 2012 for completion of the transaction. However, as of March 18, no public announcement of a prospective buyer has been made by Xstrata.

Morien said it has entered into discussions centered around the Xstrata sale and joining forces with an operator to act on its right of first refusal. Morien has a 60-day right-of-first-refusal to purchase Xstrata’s 75% interest in the Donkin Project should Xstrata accept an offer.

“Indications from Xstrata suggest sale efforts are well advanced,” Morien noted. “If the process does not come to the accepted offer stage in the near term, the Company has requested that Xstrata initiate discussions with Morien to allow for a transition of the Project to a new operating team.”

Following a successful sale process and on completing the CEAA process, it is anticipated by Morien that it will take approximately three months to receive the necessary provincial government approvals to begin tunnel refurbishment. It is also estimated by Morien that this work will take six to twelve months to complete, at which point a single continuous miner can produce first coal from the underground evaluation program.

The full project proposal includes the construction and operation of an underground coal mine with a lifespan in excess of 30 years. The 2011 Marston pre-feasibility report states that underground operations will include multiple continuous-miners producing approximately 3.6 Mtpa of ROM coal. A coal handling and processing plant capable of processing the ROM coal will be constructed to produce about 2.75 Mtpa of product coal suitable for international coking coal markets, as well as international and domestic thermal coal markets.

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.