Halifax-based Kameron Collieries, a subsidiary of U.S.-based giant Cline Group — which acquired Canada’s Nova Scotia’s touted Donkin coal project from Glencore (LON:GLEN) and Morien Resources (TSX-V:MOX) last year— is getting closer to reopening the mine once seen as the pillar for the province’s mining industry.
In a project update provided at the 128th Annual Meeting of The Nova Scotia Mining Society last week, the company laid out its plans to for moving the project forward.
Donkin, a vast coal reserve that stretches for dozens of miles beneath the Atlantic Ocean, was originally dug by the now-defunct Cape Breton Development Corporation (DEVCO).
When the Crown corporation closed the last coal mine back in 2001, the provincial government allowed the mine to flood with ocean water to save the cost of constant pumping.
In recent months, the mine has been pumped out and now the company is working on fixing a 69kV power line it owns between the mine site and Glace Bay.
“The line has been out of service for many years since the mine has not been operational so it needs some work,” a spokesperson for Nova Scotia Power told Cape Breton Post.
“This investment (…) to upgrade the power lines sounds like they’re in a hurry to get those power lines up and running because they have indicated they have two huge generators on site that are very ‘thirsty.’ And it appears to be a costly venture to keep those generators going,” Cape Breton Regional Coun. Kevin Saccary told CBC News.
He also noted that heavy-duty vehicles designed to carry miners to the coal face and a huge loading machine for use underground have both appeared on the site.
Kameron has said it will send its first coal to the power company under a trial agreement, which will test the quality of the fuel and a number of other factors to determine whether it will be able to provide what the utility needs.
If everything goes as planned, a more permanent arrangement will be negotiated between the miner and Nova Scotia Power.
That will mean that, instead of importing coal from the U.S. and Colombia, as it does now, the power firm will once again burn locally produced coal at its generating plant in Lingan, located not far from Donkin, where the mine is located.
Tough business case
It is said that between 60% and 70% of the coal from the operation will be of metallurgical grade, while the balance will be thermal coal. Experts attending the meeting agree that the timing in terms of coal prices is not the best, and that prospects for putting the mine into production will be greatly enhanced if the company can land a long-term contract to sell thermal coal to Nova Scotia Power.
“We just want to make sure we’re doing it right,” Ed Griffith, vice-president of human resources, told about 60 executives at the Nova Scotia Mining Association’s annual general meeting Friday afternoon at the Fox Harb’r Resort.
“But we plan on opening it, and we plan on running it.”
There are also plans to export coal from Donkin, either via the deep-water coal pier in Sydney or by barge from a site offshore, not far from the mine.
“It’s been a priority of our government to get that mine into production,” Natural Resources Minister Zach Churchill told MINING.com. “This will be an important economic generator for Cape Breton and for Nova Scotia. It will significantly increase our mining output.”
He noted that reopening the mine would be a careful process, where community and environmental issues will always take priority. Churchill added the Cline Group, which began hiring for Donkin earlier this month, will employ between 90 to 120 people to start.
The company will then assess the quality of the coal and the state of the market as production begins, adjusting plans accordingly. This, if everything goes well.
In a worst-case scenario, Griffith hinted, the market could give Donkin coal the thumbs-down after testing, and plans would be abandoned.
“That would be absolutely the worst case, but we don’t believe that’s what is going to happen. We believe that we’ve done our diligence and we feel that the customer base is out there, if it’s Nova Scotia Power or if it’s someone in Europe,” Griffith said.
The Cline Group, headed by self-made billionaire and coal mining magnate Chris Cline, is one of the top 20 coal producers in the U.S. with a capacity of about 10 million tons per year. The company has a 35-year track record of building coal mines in Illinois and selling coal to power plants across the U.S. and in 23 countries around the world, and its safety record is said to better than the Canadian average.