Coal news and updates

In hindsight it may have been a mistake for the Nova Scotia government to allow mining giant Xstrata plc to win control of the mothballed Donkin coal mine.

 

It seemed like a good idea at the time to have a company of the stature of Xstrata, with the know-how and financial backing to get the job done, to take over management of the underground mine.

 

But now, after several years of waiting, the market for coal has changed and so has the makeup of Xstrata, which was acquired by a major competitor, Glencore, in 2012.

 

It didn’t take long for the new company, Glencore Xstrata plc, to realize the Donkin mine was too small for a corporation of its scale and that the return on investment couldn’t possibly meet its expectations.

 

So Glencore Xstrata announced it would instead sell its 75 per cent stake. But until a buyer could be found it would lay off the few workers looking after the site and would allow the mine to flood.

 

Although Glencore considers the Cape Breton project small, its 25 per cent minority partner in the Donkin mine, Morien Resources Corp. of Dartmouth, believes the development of the mine is still a winning proposition.

 

Back when the federal government’s Cape Breton Development Corp. was still operating coal mines on the island, it put out a report suggesting there were 1.9 billion tonnes of coal in the Donkin resource block. Xstrata took a much more conservative view of the mineable resource, but even so the estimate was almost 500 million tonnes.

 

Over the years Morien, and its predecessor company Erdene Resources, has steadfastly maintained that Donkin has very high–quality coking and thermal coal, and the mine’s proximity to deep water makes it a unique business opportunity on a global scale.

 

Morien officials are still hopeful Donkin could be put into production. In earlier interviews with company officials, I was told they estimate Donkin could have an annual output of about 2.75 million tonnes of coal, with potential for more.

 

It would only make sense that Nova Scotia Power, which continues to use coal to generate most of Nova Scotia’s electricity, would become a customer of the Donkin mine.

 

Cheaper transportation costs would provide one cost advantage to NSP and I’ve been told that Donkin coal also offers an upgrade on the energy value of its coal by about 15 per cent, over the Colombian coal Nova Scotia Power has been importing recently.

 

One mine promoter told me the power utility could save as much as $20 million in annual resource acquisition costs if it signed a contract to acquire one million tonnes per year from Donkin.

 

But the power company isn’t counting on Donkin coal being in its future. The utility recent acquired the international coal pier in Sydney for $6.3 million. That transaction is being reviewed by the Nova Scotia Utility and Review Board because the power company wants to pass the expense on to ratepayers.

 

Potentially, Donkin coal would make the cost of owning a pier unnecessary. Donkin could also effectively lower the cost of generating electricity while helping employ Nova Scotians at the mine.

 

The mine would also provide some much needed tax revenue to the cash-strapped Cape Breton Regional Municipality.

 

Morien Resources indicated in a release last week that it hasn’t yet given up and has been negotiating with Glencore Xstrata and the provincial government in an effort to change ownership of the mine.

 

Glencore, however, appears to be in control.

 

It may take a while longer before the mining giant extracts the price it wants for the mine and in the meantime it can hold out, thus keeping a potential competitor out of the coal market.

 

 

Source: http://thechronicleherald.ca/