ATLANTIC REPORT Technology highlighted at Halifax session

A Wall Street bankruptcy could slow financing for a Nova Scotia coal project. Drexel Burnham Lambert was in the process of floating a junk bond issue for Curragh Resources of Toronto when it filed for Chapter 11 protection from creditors in mid-February. Curragh owns the Westray project in Pictou Cty. Curragh had filed documents with the Securities and Exchange Commission in the U.S. for a planned $190-million junk bond issue. In the SEC filing, Curragh said it planned to use most of the proceeds of the unsecured bond issue to repay debt. Although Curragh’s filing said that the Westray project would cost $140 million to bring into production, it didn’t specify how much of the bond issue would be used for the project.

Curragh has been seeking funding from other sources. An agreement in principle has been reached with Industry, Science and Technology Canada, which would provide millions of dollars in loan guarantees — presumably of the junk bond issue — to Westray. The final legal documents should be signed by mid- March.

The Westray project lies in federal Minister of Public Works Elmer MacKay’s riding. It was reported last April that the federal government, through the Atlantic Canada Opportunities Agency (ACOA), would guarantee a loan for 85% of the then- estimated $127-million cost of the venture, and would support the mine with a 7-year interest buydown.

However, officials at ACOA now say that agency has no financial involvement in the Westray project.

The Nova Scotia government has loaned Westray $12 million over five years at the province’s cost of borrowing. The loan enables Westray to construct access tunnels down to the coal face, while it awaits federal funding. The province, through the Nova Scotia Power Corp. (NSPC), is also committed to purchasing a specified amount of coal.

After spending $17 million, most of its government funds, Curragh closed down the Westray project last fall, when federal funding hadn’t materialized. Full production capacity of 750,000- 1,000,000 tonnes was planned by 1993, with most of it to be sold to NSPC.

The federal government appears to have balked at directly funding a mine project of this magnitude. Westray was reported to have been seeking loan guarantees for 85% of the estimated $100- to $127-million project and an interest rate buydown worth about $26.7 million.

If the project succeeds, the funds set aside as a loan guarantee would never have to be used, but the interest buydown would not be recovered by the federal government.

The last private coal mine funded by the federal government was the Quintette coal mine in northeastern British Columbia. Clifford Frame, chief executive officer of Westray Coal, opened the troubled Quintette mine for Denison Mines.

Frame was president of Denison before he left that company in 1985. He then founded Curragh Resources and reactivated the lead/zinc mine at Faro, with extensive government assistance at all levels. Frame has been characterized as a master of exploiting politically driven situations.

Curragh purchased the coal property from the Brinco Mining- Suncor joint venture a few years ago for an undisclosed amount. Suncor had signed a joint venture agreement with Brinco in 1981 to evaluate the potential of the property.

The coal deposit figures prominently in plans by Nova Scotia Power to build a 150-megawatt generating station in Trenton, 11 km away. By using the low- sulphur Pictou coals, NSPC will save the $225-million cost of building a scrubbing plant, as well as the $60-million annual cost to operate such a plant.

Besides creating financial problems, the proposed coal mine has set mainland coal miners against their Cape Breton counterparts. Cape Breton Development (DEVCO) has opposed the venture, saying that it will lose some of its NSPC business and thereby reduce job opportunities in Cape Breton.

When DEVCO was formed in 1967, the province agreed not to issue further coal mining permits for 15 years without DEVCO’s consent. That agreement effectively ruled out any mainland coal mining ventures until 1982.

Early in the 1980s, in anticipation of the restriction being lifted, Suncor began exploring the Pictou coalfields, spending $7 million before putting the project on the market.

Although Placer Developments had a look at it, the project was eventually acquired by Westray Coal, owned by Westray Mining and Giant Yellowknife Mines. Westray Mining, a private company controlled by Clifford Frame, also holds a majority interest in Curragh Resources.

About 47 million tonnes of low sulphur coal reserves have been outlined so far, and there is potential to double this amount. Westray will mine from the 7- to 10-metre-thick Foord seam, from which 15 million tonnes have been taken in the past.

Reserves of an additional 47 million tonnes have been identified in the Foord seam, 15 million tonnes in the Cage seam (4-7 metres) and five million tonnes in the MacLeod seam (1-2 metres).

Pictou coal has been characterized as high volatile Class A bituminous coal — it has low sulphur, high ash content and high volatility. However, volatility differs from high to low throughout the Pictou coalfield, and some seams are subject to spontaneous combustion.

Average sulphur and ash contents of the Foord and Cage seams are 0.07% and 15.9%, and 1.5% and 13.1%, respectively. The high ash content is a function of the coal’s lacustrine, non-marine origin, compared with the lower ash fluvial coals of the Sydney coalfield.

Gerald Phillips, the general manager of the Westray coal project, could not be reached for comment.