Dec '11/Jan '12


Burning demand

By E. Moore

As the 2011 Chinese growth slowdown and European debt crisis ripped into commodity prices, coal held up remarkably well. Australian floods and other supply disruptions pushed up coal prices early in the year; the lingering effect may be prolonged by another season’s rains. But the underlying story is one of demand from emerging markets. Wood Mackenzie predicts that Asia will account for 75 per cent of global metallurgical coal demand by 2030. A similar need for thermal coal will arise from planned power generation in China and India, which have limited reserves.

Teck Resources Limited reports that while its steel customers have been deferring shipments, they continue to produce from existing inventories. Analysts now forecast a softening in the international markets for both coking and thermal coal. Still, the numbers remain high by historical standards, above US$200 per tonne of metallurgical coal and US$100 per tonne of thermal.

Feeding blast furnaces

Projects that had been mothballed in leaner times are now coming back into production. The restarted Willow Creek Mine in British Columbia, which Walter Energy took over in its 2010 acquisition of Western Canadian Coal, will eventually produce 1.7 million tonnes a year of steelmaking coal. Teck is running a new feasibility study on its closed Quintette Mine in British Columbia, which it expects will produce three million tonnes.

A joint venture between Fortune Minerals Limited and Korean steelmaker POSCO is developing the new Mount Klappan project in northwest British Columbia, which contains 2.8 billion tonnes of anthracite resources. Xstrata Coal is looking at a number of properties in Canada. In addition to its Donkin Exploration project in Nova Scotia, the company acquired First Coal Corporation in the Peace River area of British Columbia and the adjacent Lossan deposit from Cline Mining Corporation. “The combined licenses have the potential to support the production of a range of export quality metallurgical coals sharing common infrastructure,” says James Rickards, Xstrata’s group manager – media and communications.

Another approach to Asia

International exports also shape the future for Canadian thermal coal production. Domestic coal-fired power generation is on a downward trend, as Ontario phases out its coal plants and no new plants are built. The last few years of development activity at Sherritt International Corporation, which produces 94 per cent of Canadian thermal coal (39 million tonnes in 2010), have targeted international markets.

Thermal coal exports have attracted Coalspur Mines Ltd., which will release a bankable feasibility study in early 2012, detailing its planned Vista coal project near Hinton, Alberta. Targeted to begin production with 2.5 million tonnes in 2015, ramping up to 11.2 million tonnes in 2019, the site has Measured and Indicated Resources of 985.4 million tonnes of low-sulphur bituminous coal – all bound for the Asia-Pacific Rim.

Chris Borowski, manager of investor relations for Coalspur, explains that the potential for profits on domestic coal sales within the United States and Canada are much lower than in international markets. “Firstly, the domestic market is much smaller than the international market, and secondly, the prices that end users in Korea, Japan and China are willing to pay are much higher, even when transportation costs are accounted for,” he says.

Port buildups

To accommodate a greater amount of exports, British Columbia’s ports will need to expand. Plans are already in the works at Westshore Terminals to increase capacity from 28 to 33 million tonnes per year; and Ridley Terminals Inc. in Prince Rupert, the closest to Asian markets, will double its capacity from 12 to 24 million tonnes by 2014. If the market scenario allows, Ridley could grow even further. “We are engaged with the Prince Rupert Port Authority (PRPA) to secure more lands,” says Ridley chairman Bud Smith. “If PRPA grants Ridley Terminals a lease for their development, these lands could be used to build capacity well beyond the 24-million-tonne threshold.”

Keeping it under wraps

Natural Resources Canada estimates the country’s Proven coal reserves at 8.7 billion tonnes. Proponents of underground coal gasification (UCG) argue that with new technologies, the amount of recoverable coal might be higher. The Alberta Geological Survey estimates that the plains area could contain over three trillion tonnes of coal, most of which is inaccessible through conventional mining methods.

Swan Hills Synfuels has operated a UCG demonstration project in Alberta for two years and plans to begin developing a commercial-scale project in 2012, while Laurus Energy has acquired land for a demonstration project. If these projects show commercial and environmental success, they could change the way coal is extracted.

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