NovaDx looks to specialty coal

Vancouver – NovaDx Ventures (NDX-V), once a pharmaceutical shell turned merchant bank, has now found itself on more solid footing as a specialty coal company.

Having brought one mine to commercial production in December 2011, and just starting production at a second, the company is firmly committed to the sector.

“We’ve positioned ourselves really as a specialty coal company,” said Neil MacDonald, CEO of Novadx by phone. “We do sell coal to the traditional steel industry, but we have two other significant markets that no one even realises that coal is used in, and that’s silicon metal and activated carbon. These are high-value industries.”

Now at commercial production, the company Rosa mine in Alabama should produce about 10,000 short tons of high quality metallurgical coal per month with two auger machines active. The coal is being sold to both coking coal and activated carbon markets, with the company expecting an average price of about US$180 per short ton. The activated carbon market, where about half of coal from Rosa will go, mostly uses the processed coal for large-scale water purification and other purification demands.

NovaDx’s Rex mine in Tennessee, from which it started trial shipments in early February, contains high quality coal demanded by the silicon metal, metallurgical and industrial stoker coal markets. The company’s full-scale production target for Rex is roughly 20,000 short tons per month, which it expects to reach by mid-2012.

The Rex mine hosts 32.2 million short tons of proven and probable in situ reserves while the Rosa mine hosts 453,000 short tons of proven and permitted reserves, but the company plans to add significantly to that.

At Rex the company expects to sell a significant portion of the coal to the silicon metal market, which uses the material in the production of silicon for computer chips, solar photovoltaics, specialty alloys and other advanced materials. Combining the metallurgical coal and more specialized coal, the company expects to sell the coal for more than US$140 per short ton.

“We’re not your typical coal company that is looking to sell several hundred thousand tonnes a year of thermal coal,” MacDonald said, “We’re not terribly interested in that. I’d rather sell two or three hundred thousand tonnes a year of coal I can get the highest price in the market for.”

The company started production at its Rosa mine in mid-2010, but found it was getting poor recoveries from the antiquated wash plant it was using while it built its own next to the mine. Finally in late 2011 the Rosa wash plant was completed and the company could adequately ramp up production. NovaDx is still working to get the final permits for a wash plant at its Rex Mine, and is ramping up production in anticipation of the approval.

The specialty coal products the company is producing make wash plants especially important, as customers have much tighter specifications.

“We sell a very high quality product,” MacDonald said, “and we’ve got very tight specs we have to meet on sulphur and ash, to be able to maintain the prices we’re getting for it.”

For the silicon metals market, which command the highest prices, companies are very concerned about the raw materials that go into the smelter because things like iron and titanium are very hard to get out of the silicon metal.

“You have to have a coal that is very low in iron oxide and titanium dioxide, and there aren’t many coals around that can meet that spec, and it’s a very tight spec. The Rex coal that we have here, and have lots of, is one of them,” MacDonald said.

Novadx also dabbled in thermal coal with the Dry Branch coal mine in Kentucky, but after starting to mine there the company quickly realized the 43-101 report promised more coal than was actually there. The estimated strip ratio of 10:1 turned out to be more like 20:1. Following drawn-out negotiations and legal action the company managed to reach a solution with both the original vendor and the buyer of the coal that satisfied everyone. Royal Coal (RDA-V), which needed the low sulphur coal to blend with its higher sulphur coal, agreed to mine the coal at the lower margin and pay Novadx for what it mines.

“We actually managed to turn a fairly difficult situation into something that will see our company and our shareholders get whole on the investment we made into it,” MacDonald said.

With the episode behind them, Novadx does not plan to return to the thermal market anytime soon, and is instead on the lookout for more specialty coal deposits.

NovaDx, which is planning a rebranding in the near term, saw its share price close at 30¢ on news of coal being shipped from the Rex mine. The company has a 52-week share price range between 15¢ and 63¢ and has 79.2 million shares out.