Xstrata and JX Nippon commit $35M to B.C. coal project

VANCOUVER — Xstrata‘s (XTA-L) coal division is wasting little time in advancing its recently secured coal fields in British Columbia’s Peace River region as it and 25% joint venture partner JX Nippon Oil and Energy launch into a $35-million pre-feasibility study on the Suska coal project.

The financial commitment was announced in Tokyo during B.C. Premier Christy Clark’s trade mission to Asia, which along with Japan includes Korea and the Philippines.

It was only in mid-March that Xstrata and JX Nippon announced the joint venture on Xstrata’s coal holdings in northeastern B.C., with JX Nippon paying US$435 million for its quarter stake in Xstrata’s more than 1,000-sq.-km of claims in the prospective Peace River region.

The joint venture deal came shortly after Xstrata paid US$500-million for Talisman Energy‘s (TLM-T, TLM-N) Sukunka coking coal project in B.C., while last year Xstrata paid US$153 million for First Coal’s metallurgical coal deposits and US$40 million for Cline Mining‘s (CMK-T) Lossan deposit, both contiguous to the Talisman holdings. First Coal’s and Cline’s projects have been combined into what Xstrata refers to as the Suska project.

The joint venture partners expect the pre-feasibility study on the Suska project will be completed in the first half of 2013. Work will include further exploration and environmental studies and will lead into a future feasibility study and permitting.

The latest financial commitment to the western coal fields come on the heels of Xstrata’s announcement that it is looking to sell its 75% stake in the Donkin coal mine in Cape Breton, Nova Scotia. The Donkin project, 25%-owned by Erdene Resource Development (ERD-T), has 48 million tonnes of probable reserves plus 227 million indicated and 25 million inferred tonnes.

Of the contiguous Peace River projects, Sukunka has 236 million measured and indicated tonnes; Lossan has 186 million measured and indicated tonnes and 54 million inferred tonnes; and First Coal’s deposits have compliant resources of 16 million measured, 28 million indicated, and 35 million inferred tonnes, plus well over a billion tonnes of non-compliant resources from work in the early 1980s.

The Donkin project is expected to produce 2.75 million tonnes of saleable coal per year, while Xstrata believes the combined Sukunka and Suska projects could produce upwards of 9.5 million tonnes per year. The Donkin project would produce a combination of thermal and coking coal, while the majority of coal from the Peace River would be metallurgical coal and the rest PCI coal, both used in steel making.

Xstrata is not the only major miner consolidating its presence in B.C.’s coal fields, with Anglo American (AAL-L) paying a combined US$166 million last year for the 25.17% of Peace River Coal, plus outstanding royalty, it did not already own. Peace River Coal hosts roughly a billion tonnes of high quality coking coal and Anglo is looking into ramping up production from 1 million tonnes per year to 3.5 million tonnes per year. 

Unlike Anglo, Xstrata does not yet have any producing coal mines in Canada. This despsite Xstrata being the world’s largest seaborne exporter of thermal coal and a major supplier of metallurgical coal, with 30 coal mines operating in the world. 

In the first quarter of 2012 the company increased coal production by 9% to 21.1 million tonnes compared with the first quarter of 2011. The increase came from smoother operations at its Australian and South African mines that were hit by severe weather and other interruptions last year.