Erdene holds a 25% interest in the Donkin Coal Alliance (DCA) with partner Xstrata Coal Canada, which holds a 75% interest. The DCA continues to evaluate the development of the Donkin Coal resource, specifically the Harbour seam, which contains an indicated resource of 101 million tonnes and an inferred resource of 115 million tonnes classified as high volatile A bituminous, high-sulphur, medium-ash coal. In the second quarter of 2008, the DCA announced that it has committed to funding a feasibility study of an Evaluation and Development Program at the Donkin Coal Project. The Program is considered an interim step in establishing a large scale underground longwall mining operation.
The feasibility study regarding the Program is expected to be complete by the end of the second quarter 2009. The Program will focus on gaining greater certainty of the geological, geotechnical and mining conditions of the proposed operation. It is expected the Program will commence within a year of obtaining all requisite external and internal approvals with coal generated from the Program to be marketed domestically and internationally in order to establish a customer base for future levels of forecast production.
During the estimated 18 month duration of the Program, the DCA will be able to decide on the progression of the project into a feasibility study of the proposed large scale underground longwall mining operation.
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 local markets and the growing market along the U.S. eastern seaboard and Europe. It is also located proximal to infrastructure, coal fired power plants and a marine transport coal loading facility, which allows transportation via rail to the international coal port within 60 kilometres of the Donkin Coal Project.
In April 2007, Erdene received a National Instrument 43-101 compliant resource for the Donkin Coal project from McElroy Bryan Geological Services. The report identified a 227Mt Indicated and 254Mt Inferred high volatile A bituminous coal with over 14,000 BTUs, high sulphur, low ash and low moisture. To view a copy of the resource report click here for the MBGS Report.
In November 2007, the DCA received an independent Preliminary Assessment Study (“PAS”) by Norwest Corporation’s (“Norwest”). The PAS was a study into the business case for a continuous miner development and longwall (“LW”) extraction coal mine at the Donkin project. The PAS’s base case scenario returned a net present value (NPV) for the project of US$194M (or US$49M for Erdene’s 25% interest) using a coal price of US$52/tonne. The proposed mine has a projected life of 30-plus years, producing approximately 108 million tonnes of run-of-mine coal. The initial target market for this product will be domestic and export thermal coal for power generation. To view a copy of the PAS report click here.
The Norwest PAS should be considered preliminary in nature based on the inclusion of inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Until there is additional information to upgrade the inferred resources to a higher category, there can be no certainty that the preliminary assessment will be realized.
On October 29, 2008 an Environmental Assessment report for the Program was registered with the Province of Nova Scotia’s Environment Department. 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.
