Sept/Oct 2012

Eyes on the horizon

Coalspur Mines' thermal coal project in Alberta is designed to fuel distant furnaces

By Correy Baldwin

Coalspur Mines Ltd. is looking west, with its flagship Vista Coal project, to the markets across the Pacific where there is a strong and growing demand for high-quality thermal coal. Vista, located just south of the town of Hinton, Alberta, in the foothills of the Rocky Mountains, is set to be the largest export-oriented thermal coal operation in North America.

Coalspur’s focus on exporting its coal is noteworthy in itself, as only high-quality thermal coal can be exported from Canada economically. Coal from Vista will have similar quality to Sherritt’s Coal Valley operations nearby, which has a long history of selling into the Asia-Pacific market. Vista will be the first new export-based thermal coal mine built in Canada in nearly three decades.

“With 566 million tonnes in recoverable reserves and 12 million tonnes of clean coal production a year, Vista is a world-class project that will compete with the largest thermal coal mines in Australia,” says Gill Winckler, Coalspur president and CEO. “Once at full capacity, Vista will be one of the largest export thermal coal mines in the world.”

Winckler knows the competitive landscape well. Before joining the team at Coalspur in July 2012, she spent 15 years at BHP Billiton. One of her roles at BHP was chief development officer of the energy coal division where she was responsible for the business development of greenfield thermal coal projects globally and the oversight of BHP’s increase in thermal coal activities in Australia and South Africa.

“There was a particular project in Australia that I oversaw that was similar to Vista,” she says. “The major difference in the projects really is that Vista has a highly attractive logistics chain – what we call a ‘path to the sea.’ This is a challenging factor for many South African and Australian projects, where rail service is close to capacity and port facilities are congested.”

The business case

“The most common issue that North American companies face is the high cost of transporting their product to tidewater,” says Winckler. “Vista will have the ability to profitably export its coal, as it has secured favourable port contracts, has access to an underutilized rail line, has attractive production costs, and will produce thermal coal that will attract a higher price than most of the producers from the Powder River Basin.” These factors, Winckler explains, separate Coalspur from many of its peers, and will allow it to sell its thermal coal to the Asia-Pacific market.

As an added incentive to export, the domestic market itself is not as enticing for Winckler: “Although much of Alberta’s electricity generation is coal fired, the sale price for domestic coal is currently not high enough to be an incentive for the development of Vista or for any other new thermal coal mine developments.”

“Exporting the coal also exposes us to many more potential customers,” says Chris Borowski, manager of investor relations at Coalspur. “Our ability to sell to domestic and international markets is a significant advantage as it will allow us to adapt to changing market conditions. For example, if the demand for domestic coal increases significantly and the price we can earn exceeds what we can earn on the export market, we will have the option to capitalize on that opportunity.”

The majority of Coalspur’s employees are located in offices in Calgary, Hinton and Vancouver. The head office for the company, listed on both the Australian Securities Exchange and the Toronto Stock Exchange, is in Perth.

Laying the foundation

Coal from Vista will travel by rail to deepwater ports on Canada’s west coast, which provide the vital link to the Asia-Pacific market. Coalspur has completed a memorandum of understanding (MoU) with CN Rail, and expects to finalize a definitive transportation agreement in late 2012 or early 2013. A deal with CN will be equally advantageous for both parties: Coalspur will be a significant customer for CN and use an underutilized line that currently serves Sherritt’s nearby Obed Mountain and Coal Valley mines. Coalspur and CN are also cooperating on the design and construction of a rail siding and loading infrastructure, with construction scheduled to begin in 2013.

The CN line, located less than three kilometres from Vista’s boundaries, can manage trains of up to 175 cars, each with the capacity to haul over 100 tonnes of coal. The MoU allows for the transport of 2.3 million tonnes (Mt) of Vista coal in 2015 increasing to 12Mt/year by 2018, which is over twice the combined output of Sherritt’s two Mountain operations and nearly double the amount of thermal coal currently exported from Canada each year.

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