By R. Bruce Striegler
Global coal prices fell in 2015 for the third straight year. But at the Coal Association of Canada annual conference, held in Vancouver in early June, Robin Campbell, President of the organization, says the industry is still relevant, despite low market prices. Dropping global demand, however, may still prove to be an uphill climb for the industry. In a New York Times article, published on the last day of the Canadian conference, the story quotes a newly-released U.S. Department of Energy quarterly report as saying that American coal production in the first three months of 2016 was at the lowest since a major coal strike in 1981. The report says that production has declined due to, “Increasingly challenging market conditions for coal producers.” Electricity generation accounts for more than 90 per cent of U.S. domestic coal use. In addition to complying with environmental regulations and adapting to slower growth in electricity demand, coal-fired generators also are competing with renewables and with natural gas-fired electricity generation during a time of historically low natural gas prices.
Canadian production and consumption of coal has also decreased dramatically over the past decade, and is under further threat as a result of the recently adopted Paris Agreement on reducing greenhouse gasses, as countries around the world look to reduce carbon emissions. According to Natural Resources Canada, Canada’s exports dropped by 4.8 million tonnes in 2014 to total 43.5 million tonnes. Canadian power generation used 41mt in 2014, a decrease of 42 per cent since 2005. The decline can be accounted for by Ontario’s actions of phasing out coal-powered electricity generation. With Alberta’s announcement earlier this year to shut-down its 18 coal-fired generators by 2030, these declines will only increase. Reports from Alberta indicate that some of the plants are likely to shut well before the 2030 deadline. Currently, 55 per cent of the province’s electricity is generated from coal plants.
While British Columbia and Alberta are both coal powerhouses, the two provinces’ coal industries face very different challenges. Metallurgical coal is abundant in British Columbia, as well as a few areas of Alberta. The export market for metallurgical coal is a major economic driver for Canada’s most westerly province. Nevertheless, in 2015, Teck Resources shut its six British Columbia steelmaking coal mines due to weak market conditions. Published in January 2016, BC’s Ministry of Energy and Mines Geological Survey says, “The value of coal production for the province is forecast at $3.04 billion for 2015, constituting about 44 per cent of all mineral production value in the province. This forecast represents a decrease of 16 per cent from 2014 sales levels, due to lower prices and a drop in production tonnage due to mines closing in the northeast Foothills coalfield.” Natural Resources Canada reported in March 2016 that for the third consecutive year, Canada’s overall coal production value declined by 20 per cent, but that since a high in 2011, the realized value of export metallurgical coal has declined by over 55 per cent. Despite this, coal remains an important mineral with a total production value of $3.1 billion in 2015, ranking it as the fifth-most valuable commodity mined in Canada. For Canadian producers, there are two bright spots; the Atrum Coal anthracite deposit on Canada’s westcoast, and Cape Breton’s Donkin mine project in the Maritimes.
Atrum Coal begins development of massive B.C. anthracite deposit
Robert Bell, Executive Chairman of Atrum Coal, told the conference, “I know it’s a tough time in the industry today, but we have a fascinating niche product, we have a lot of interest, and we are going to build the mine.” Atrum Coal NL is a publicly listed Australian company developing anthracite mines in Canada, and the company’s Groundhog project has been estimated as the world’s largest undeveloped high/ultra-high grade anthracite deposit. The remote location of Atrum, in B.C.’s northwest corner, has its challenges, but port access is available through two separate facilities. By rail, the mine is 1250km from Prince Rupert’s Ridley Terminal. The CN railhead is 80km south of the Groundhog project and is connected by existing easement. An alternate transportation route would include trucking 235km to Port of Stewart. Bell says that higher production would provide the impetus for development of a dedicated transportation corridor to the west. That corridor would include new road construction for 118km to join existing the highway to the privately-owned Port of Stewart. Mr. Bell notes in this case, the Groundhog project would be the shortest distance to port of any operating export mine in Canada.
“We’ve developed engineering approaches to the deposit that will allow us to produce it at low cost, and we’re ready to start building. We’ve recently received a bulk sample permit which allows us to begin mining anthracite.” Mr. Bell outlined steps the company has already taken, which include increasing port allocation at the Port of Stewart from 1.5Mtpa to 3.5Mtpa and have conducted an effective trial of the shiploader in Stewart. “We have the ability to conduct mining activities and extract a 100,000 tonne sample and the permits we need have been granted, and we are beginning a small-scale starter mine that will get the field into commercial production.” Further, Atrum has signed take-off MOU’s with Japanese, Korean and European customers while executing a $100 million equipment finance package. Calling the approach ‘phased development’, Bell notes that the starter mine is expected to have a life-span of 28 years, with a saleable production of 880ktpa, so as to provide early cash flows while the larger operations are being developed.
In Alberta, Riversdale Resources wants to increase Canada’s share of the hard coking coal market
Global prices of premium hard coking coal dropped in 2014, from $121 to $89, while pulverized coal injection (PCI) dropped to $73 from $107, and thermal coal dropped from $82 to $64 (all prices per tonne, in US$, based upon West Coast port price). Adding to the falling rates, the China-Australia Free Trade Agreement signed in June 2015 immediately removed a three per cent tariff on coking coal, putting other coking coal exporting nations at a disadvantage. A year earlier, in 2013, for a price reported at US$49.5 million, Australia based Riversdale Resources purchased properties in Alberta’s Crowsnest Pass area. The purchase included the Grassy Mountain property north of Blairmore, a town of about 3,000 people.
Steve Mallyon, Managing Director of Riversdale, outlines the scope of the Grassy Mountain project to the conference, “This is a promising hard coking coal development with three metallurgical coal exploration opportunities and a substantial freehold land package which includes a significant area near the Grassy Mountain Project that is suitable for locating project related infrastructure.” In 2015, Riversdale completed a feasibility study on a 4.0Mtpa operation and commenced further optimization study.
The proposed open-pit mine would be roughly six kilometres long and two kilometres wide, and the operation expects to employ nearly 1,000 people. Riversdale Resources estimates the mine would produce two to four million tonnes of coal per year, over a mine lifespan of about 25 years, with the coal shipped to Asian steel-making markets. The company has signed a 12 year port agreement with Westshore Terminals south of Vancouver in anticipation of receiving final environmental approvals. With the exception of access roads and a main electrical power transmission line, there is no major existing infrastructure at the Grassy Mountain Project. The basic mine infrastructure must be established and will include an electrical power system, haul roads, a coal conveyor system, a coal preparation plant, a rail loadout, maintenance shops, a laboratory and other necessary facilities. The company’s plan is to transform about 12 square kilometres on top of Grassy Mountain to become a terraced mine.
There are environmental issues the mine must overcome, however. The Crowsnest River, nearby Gold and Blairmore Creeks are considered crucial habitat for native cutthroat trout, which federal scientists are recommending should receive Canada’s highest level of habitat protection. An Alberta Energy Resources spokesperson is quoted in published reports as saying said her organization, the federal Department of Fisheries and Oceans and Alberta Environment and Parks have been working with Riversdale to address fisheries interests, including concerns related to the habitat of the west slope cutthroat trout. On Jan. 25, 2016, the Alberta Energy Regulator informed Riversdale Resources that its impact assessment was incomplete and that the review process has been paused until the deficiencies identified have been addressed. The response from regulators outlined 24 areas where the impact assessment fell short, and Riversdale was asked to supply more data in order to further clarify key issues including biodiversity, anticipated impacts on regional ecosystems and proposed land use. The company is currently preparing a response to the deficiencies before any further activity may take place.
And in Nova Scotia, coal from under the Atlantic soon to move to market again
Donkin, a vast coal reserve that stretches for dozens of miles beneath the Atlantic Ocean, was originally developed by the now-defunct Cape Breton Development Corporation (DEVCO). When the Crown Corporation closed the last coal mine in 2001, the provincial government allowed the mine to flood with ocean water to save the cost of constant pumping. Shuttered Donkin was acquired in 2014 by Halifax-based Cutlass, a subsidiary of U.S.-based Cline Group. By the time it pulled the plug, DEVCO had already spent about $100 million exploring and developing the Donkin block. DEVCO had commissioned offshore drilling to obtain core samples. It had also constructed two tunnels, each 7.5m in diameter and stretching some 3.5km from the tip of the Donkin Peninsula to the Harbour coal seam, one of several seams in the block.
Cutlass Collieries says the Harbour coal seam is 3.8 km out under the ocean and the total coal reserve has been identified as nearly half a billion tons. Sixty per cent of this coal is recoverable and the company says it plans to eventually mine two million tonnes a year with production to start this summer. Mine officials estimate there will be 135 mining jobs when the mine is in production, with an additional 35 jobs on the surface as well as trucking jobs. An underground coal mine has not operated in Cape Breton in more than 15 years.
Jim Bunn, Vice-President of operations at Cutlass Collieries updated the conference on the progress the company has made in rehabilitating the formerly shuttered mine. He says that there appear to be 482 million tonnes of coal in three seams named Harbour, Hub and Lloyd Cove. It is the 216 million tonnes in the Harbour seam that the company is currently focusing on. Mr. Bunn detailed the amount of material removed from the once-closed tunnel, as the company proceeded to rehabilitate the shaft under the Atlantic. “There were 80 square sets, which consisted of 150,00 pounds of steel, 3,000 metres of rail – another 180,000 pounds of steel, 3,000 metres of ventilation tubing, a forest of old wood cribbing, thousands of tonnes of waste rock and over 1.3 billion litres of water.” Bunn says the work is on-schedule and he expects production to begin later this year from section one of the property, while the preparation plant will become operational sometime in the first half of 2017, with additional production from a new section of the Harbour seam.
Conference moderator, British-based Gerard McCloskey, now in his fifth consecutive year as conference host, reflected during opening remarks, “That if now is the winter of our discontent, it should bear close analysis, and somewhat reflects my view that for the coal market and certainly the coking coal market that the worst is over.” McCloskey is considered an international coal expert, having founded in 1987 the privately held McCloskey Group (acquired by IHS Markit in 2007). The organization provides the Financial Times with coal and energy-related newsletters, and continues to provide coal traders, shippers and customers around the world with industry related news through eight print and online publications. The coal industry is taking the decline seriously to look for technical and environmental advances to improve commodity extraction and shipment, as a result of which it included a number of technical workshops during the three-day run of the conference.