NovaDx looks to specialty coal

NovaDx Ventures (NDX-V), once a pharmaceutical shell turned merchant bank, has 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,” Neil MacDonald, CEO of Novadx, says by phone. “We do sell coal to the traditional steel industry, but we have two other significant markets that no one even realizes coal is used in, and that’s silicon metal and activated carbon. These are high-value industries.”

Now in commercial production, the company’s Rosa mine in Alabama should produce 10,000 short tons of high quality metallurgical coal per month with two auger machines active. The coal is being sold to coking coal and activated-carbon markets, with the company expecting an average price of US$180 per 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 purposes.

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 20,000 tons per month, which it expects to reach by mid-2012.

The Rex mine hosts 32.2 million tons of measured and indicated resources while the Rosa mine hosts 453,000 tons of proven and permitted reserves, but the company plans to add significantly to that, with an update expected in the short-term.

The company expects to sell a large portion of Rex coal to the silicon metal market, which uses the material in silicon production for computer chips, solar photovoltaics, specialty metal alloying 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 ton.

“We’re not your typical coal company that is looking to sell several hundred thousand tons a year of thermal coal,” MacDonald says, “We’re not terribly interested in that. I’d rather sell two or three hundred thousand tons a year of coal that 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 used while building 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 says, “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.”

In the silicon metal market, which commands high prices, the coal buyers are concerned about the raw materials that go into the foundry since impurities such as iron and titanium in the raw material are  hard to extract from 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 says.

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 79.2 million shares out.