| Donkin Headland | Donkin Tunnel | Sydney Port |
Erdene holds a 25% interest in the Donkin Coal Alliance (DCA) with project manager and joint venture partner Xstrata Coal Canada Ltd. (“Xstrata”), which holds a 75% interest. On February 10, 2010, Xstrata announced that they intend to move forward with the development of the Donkin Coal Project (“Donkin”) based on sales into the seaborne metallurgical coal market. At full production, Donkin is projected to produce approximately 3.5 million tonnes per year (“Mtpa”) Run of Mine coal that would be subsequently washed to provide 2.75 Mtpa of product coal suitable for the international export coking and thermal coal markets and domestic thermal coal markets, pending the receipt of all approvals.
A National Instrument 43-101 compliant Technical Report (“Report”) for Donkin was prepared by Marston & Marston, Inc, to present the results of an internal Pre-Feasibility Study and marketing report commissioned by Erdene and Xstrata in early 2010. The Report confirms the technical and economic viability of Donkin and supports advancing the project to Feasibility Stage. The Report concludes that Donkin has a US$1.06 billion Net Present Value (8% discount rate) based on project development capital of approximately $500 million and demonstrates the potential for first quartile operating costs. To view the Report, please click here.
The Feasibility Study will serve to provide greater detail on the geology, structure and quality of the resource which, due to its sub-sea location, is not conducive to extensive drill testing. Currently, the report recommends a room and pillar continuous miner operation. However, should the initial underground Feasibility exploration and development program confirm acceptable conditions, it is possible the project could eventually convert to a longwall operation, potentially advancing to a 4 Mtpa to 5 Mtpa operation. Along with plant trials, the information gathered during this phase will provide the data necessary to further refine the mine plan and secure sales.
The Donkin coal project is located on tidewater in Cape Breton, Nova Scotia, Canada. The project is strategically positioned for the transport of the high quality Donkin coal to international seaborne markets including Europe, Brazil, and Asia.
The Donkin Coal Alliance continues to work towards the development of the Donkin coal resource, specifically the Harbour and Hub coal seams, which contain an indicated resource of 227 million tonnes (“Mt”) and an inferred resource of 254 Mt. The Report has classified a portion of the indicated resources for the Harbour and Hub Seams as reserves. The Indicated Resources for the Hub and Harbour Seams are 73 Mt and 101 Mt respectively, for a total Indicated Resource of 174 Mt. Included in these resource numbers are 28 Mt and 30 Mt of Probable Reserves from the Hub and Harbour Seams, respectively, for a total of 58 Mt of Probable Reserves, sufficient for the first 20 years of mining. Subject to further coal testing, approximately 75% of product coal from Donkin is targeted to be marketed as a coking coal blend into international coking coal markets with the remaining 25% expected to be marketed to domestic and international thermal coal markets.
THE COAL QUALITY AT DONKIN IS CHARACTERIZED BY LOW ASH, HIGH ENERGY, HIGH VITRINITE CONTENT, HIGH FLUIDITY, HIGH CRUCIBLE SWELL NUMBER (“CSN”) AND ELEVATED LEVELS OF SULFUR.
The Report concludes that Donkin is financially robust, with an estimated after-tax net present value of CDN$1,060 million at an 8% discount rate and a discounted cash flow-internal rate of return of 36% (for the marine transport option). The forecast for long-term realization is projected at US$159 per tonne for standard hard coking coal, US$151 per tonne for semi-hard coking coal and US$90 per tonne for thermal coal. Using these forecasted coal prices, the Report projects a strong EBITDA of CDN$294 million in the first year of full production. The report also estimates a Payback Period of 5 years, with peak funding at CDN $331 million.
To view a PowerPoint presentation of the Donkin Coking Coal Project, please click here.
On October 29, 2008 an Environmental Assessment report for the Program was registered with the Province of Nova Scotia’s Environment Department, allowing for the production of 2,000 tonnes of coal per day (approximately 0.5 Mtpa). On December 18, 2008 the Minister of Environment released a decision approving the undertaking in accordance with Section 13(1)b of the Environmental Assessment Regulations, pursuant to Part IV of the Environment Act. The undertaking has been approved subject to a number of conditions. All of the related project documents can be viewed on the Nova Scotia Department of the Environment’s website by clicking here. A copy of the Environmental Assessment report can be viewed by click here.
The plan to focus on coking coal markets, announced in February 2010, will require modifications to the Nova Scotia Environmental Assessment reports and will require a Federal Environmental Assessment report for approval of the barge to ship transport system. Work on these approvals is underway.
