New deal essentially shelves Arctos coal mining project in British Columbia

Fortune Minerals Ltd. (TSX: FT) (OTCQX: FTMDF) and POSCO Canada Ltd. (POSCAN) announced May 5 the completion of an agreement with the British Columbia Government with respect to their coal licenses located in the Klappan area of northwest British Columbia, Canada (part of the “Arctos Project”).

Fortune, through wholly-owned Fortune Coal Ltd., and POSCAN, through wholly-owned POSCO Klappan Coal Ltd., are partners in the Arctos Anthracite Joint Venture (AAJV). The AAJV has sold its interests in 61 contiguous provincial coal licenses in the Klappan, totaling 16,411 hectares, to British Columbia Railway for C$18,308,000. The AAJV partners maintain the exclusive right to purchase back the coal licenses at the same price for a 10-year option period. If both partners do not wish to exercise the repurchase option, each of them may do so individually.

Fortune and POSCAN have also entered into an amending agreement to restructure the AAJV and share the proceeds from the sale of the Arctos coal licenses on an equal basis after purchasing the royalty held by the previous owner of the property for C$308,000. Fortune will use its C$9 million share of the funds from this transaction for working capital and to repay debt.

“This is a good outcome for Fortune Minerals in the context of the current market,” said Robin Goad, President and CEO of Fortune. “Fortune and POSCAN invested significant funds and effort to try to resolve the complex First Nations issues associated with the proposed development of the Arctos Project. Mining is a cyclical industry, and considering the weak metallurgical coal prices at the present time, it was considered prudent to step back from Arctos and focus our efforts on our near-term production assets. The back-in option allows for the repurchase the coal licenses should conditions improve and make development an attractive path forward for the joint venture.”

Fortune and POSCAN are selling their respective interests in the Arctos Project to BC Rail in order to allow the province and Tahltan First Nation to continue their dialogue on a shared vision for responsible resource management in the Klappan. By maintaining the coal licenses through BC Rail, the province is preserving the value of the coal deposits while it continues its discussions with the Tahltan. Fortune and POSCAN can repurchase the licenses should this dialogue be successful in determining that development can occur in the area under a framework of cooperation. The companies will each receive C$9 million in exchange for amounts already expended on the Arctos Project.

Pursuant to the agreement, the province will also perform, at its expense, any reclamation required on the road to Lost Ridge that was constructed to support previous test mining activities at the site under the existing mine permits. This road is being maintained in the interim period because it is used by members of the Tahltan First Nation and may also be required for any future mining at the site should development of the project occur in the future.

Under the amending agreement between Fortune and POSCAN, the interests of both companies have been restructured such that each company now owns 50% of the AAJV, and Fortune continues to be the operator. The realignment of interests in the joint venture was done to allow both companies to share equally in the cash proceeds of the agreement with the province. It also eliminates certain funding schedule obligations of the partners contemplated under the original joint venture agreement. Under the amending agreement, Fortune will assume the responsibility for reclaiming the Arctos site from the joint venture’s previous work on the property, but will also be entitled to receive the funds currently held in trust as security for this work.

The AAJV was established as an international collaboration between Fortune and South Korea’s POSCO, one of the world’s largest steel producers, in order to develop the significant anthracite metallurgical coal deposits in the Klappan area of northwest British Columbia. The Arctos coal licenses are located 330 kilometers northeast of the Port of Prince Rupert and straddle the existing BC Rail right-of-way and largely completed road bed. The AAJV had intended to complete the railway to the site in order to provide rail access to the Ridley Coal Terminal in Prince Rupert for export of metallurgical coal products to the overseas steel and metal processing industries.

Fortune is a diversified North American mining and development company that owns and operates the Revenue Silver Mine in Colorado. The company is developing the vertically integrated NICO Gold-Cobalt-Bismuth-Copper Project that is comprised of a proposed mine and mill in Canada’s Northwest Territories that will produce a bulk concentrate for shipment to a refinery the company plans to construct in Saskatchewan for processing to high value metal and chemical products.

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.