| Donkin Headland | Donkin Tunnel | Sydney Port |
On April 26, 2012, Erdene announced in a joint press release that Xstrata Coal Donkin Limited ("Xstrata Coal") is seeking an operating coal company to assume its 75% interest in the Donkin Export Coal Project (the "Project"). Xstrata Coal cited a change in its business strategy since first acquiring the Project, with current focus on larger-volume mining complexes, as the reason for choosing to sell its interest in the Project.
It is anticipated that the sale process will be concluded during 2012, with the selection of an entity with the underground coal mining experience, technical expertise and financial capability to operate this underground mine safely and efficiently. Erdene has a 60-day right of first refusal on the sale by Xstrata Coal of its interest in the Project.
During this process the Project timelines will be maintained, including planned completion of the environmental assessment, progression of engineering work and obtaining the necessary approvals for commencement of the underground exploration phase.
The Environmental Impact Statement document was filed on July 16 2012, along with the commencement of a 60-day public review period, keeping the Project on track for full environmental approval anticipated in mid-2013. Commencement of coal production is targeted for mid-2014.
Under their joint venture agreement, Xstrata Coal, is committed to fund the first $10 million of Erdene's development funding requirement. Xstrata Coal will bring forward up to $1 million of this to cover Erdene's share of expenditure on the Project during the sale process.
In June 2011, the Donkin Joint Venture ("DJV") released a National Instrument 43-101 compliant Technical Report for the Project prepared by Marston & Marston, Inc. of St. Louis, Missouri (the "Report"). The Report presents the results of the Pre-Feasibility Study ("PFS") on the Donkin Export Coking Coal Project as prepared by Xstrata Coal and the reserves defined by the PFS.
The Report confirms the technical and economic viability of the Project and supports advancing the project to Feasibility Stage. At full production, the Project 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. The Project is expected to directly employ about 300 people.
The Report concludes that the Project 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 Project is strategically located next to a deep water port in Cape Breton, Nova Scotia, Canada, ensuring affordable seaborne export of the high quality Donkin coal to international markets including Europe, Brazil, and Asia.
The Project contains 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 the Project 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 MEDIUM LEVELS OF SULFUR.
The Report concludes that the Project 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.
