Coal’s Comeback in Cape Breton: Xstrata to reopen Donkin mine

http://www.ocean-resources.com/articles.asp?articleid=667 Atlantic Canada - Saturday, May 11, 2013 By: Tom Mason Industrial Cape Breton is built on a foundation of coal, both literally and figuratively. The vast Sydney coalfield was the foundation for the Island’s industry for more than 300 years before coming to an end when Nova Scotia Power switched to other fuel sources two decades ago. Now the coal industry may be returning to Cape Breton in a big way. With new owners, lucrative new export markets and an innovative new production strategy, the Donkin mine located between Glace Bay and Port Morien could soon be producing approximately 2.75 million tonnes of washed export grade coking coal per year – an operation that could create as many as 300 direct jobs and hundreds more spin-off jobs in the economically depressed region. Stretching 50 kilometers from Kelly’s Mountain to Port Morien, and under the Cabot Strait almost to Newfoundland, the Sydney coalfield is the largest and most valuable coal deposit in Eastern Canada. In three centuries of exploitation, about 100 mines have opened and closed in the field. During the volatile energy markets of the 1970s, Cape Breton coal fueled the generators of Nova Scotia Power plants, ensuring a ready market for the resource. But in recent years, the big coal mines at Lingan and Point Aconi have shut down their operations for good. The Donkin Coal Project started in the late 1970s with the drilling of a series of offshore exploration boreholes. In the early 1980s construction began on two 3,600-metre access tunnels – a project that was completed in 1988. But before the mine could produce a single kilogram of coal, the world market for coal stagnated, the project was suspended and the access tunnels were sealed. The pumps were shut off and the Donkin mine was allowed to fill with groundwater. The project was effectively dead before it started. Enter Xstrata. The Swiss-based corporation is a major international mining company with global interests in copper, zinc, nickel and the steel-making alloy vanadium. Xtrata’s coal division is the world’s largest exporter of thermal coal and the fifth-largest producer of metallurgical coal used in steelmaking, with more than 30 operating coal mines in Africa, South America and Australia. In June 2006, Xstrata was part of a consortium that was selected in a tender bid to develop the Donkin site and the access tunnels were reopened and the pumping of the groundwater initiated. Peter Akerley is the president and CEO of Erdene Resource Development, a Nova Scotia-based mining company that has partnered with Xstrata on Donkin and now owns 25 percent of the project. Akerley says that with a new upswing in the steel production industry and growing consumption of coal for electricity, especially in China, thermal and metallurgical coking coal are high demand commodities again, with prices for the resource on the rise. With the economic conditions in place, Donkin was a natural draw for the company. “I believe the Donkin deposit is unrivalled globally in terms of quality, quantity and strategic location, says Akerley. “Donkin is an exceptional coal deposit. It’s high energy and very good coking properties along with thick all add to its value.” The resource includes 227 million metric tonnes of indicated coal with another and 254 million metric tonnes of inferred coal – all in the form of high volatile-A bituminous (12,000-14,000 Btu), high sulphur and medium ash coal. But quality and favorable market prices are only a part of the puzzle. Geography is the other key piece that makes Donkin so appealing; the fact that the mine is located on the Atlantic Coast with the ability to either convey and barge the product offshore from the site or send 35 kilometers to the Port of Sydney – making the possibility of shipping the coal to markets in America, Europe and now Asia extremely cost effective. Akerley says that demand for coal is so great that landlocked places like Wyoming are transporting its coal by rail to the East Coast and many US Appalachian producers shipping overseas – an expensive proposition that in some cases can add 60 or 70 percent to the end price of the product. “In Donkin we have a situation where we can put something on a boat and send it almost anywhere globaly and be competitive.” It’s an ideal situation, that I believe exists nowhere else on Earth, he says. “Nowhere else in the world do you get this size of deposit, this quality, the infrastructure and this depth of water all in combination.” Akerley says that Xstrata originally considered transporting coal from Donkin to the Port of Sydney by rail, an idea it has now put on hold in favor of using a system of barges to an offshore docking facility. The company is now formulating plans to build a barge terminal at the Donkin site. While the Eastern United States might be one potential market for Donkin coal, Akerley says his company is setting its sights farther afield – to the burgeoning steel markets of Asia and Europe. “We’re certainly looking at China as an attractive market, but we’re also taking a close look at India,” he says. “Europe also has a lot of potential as a market for us.” Work on the Donkin project is well underway. A small workforce of contractors is continuing the dewatering process and developing the access tunnels so that the coal seam, located two kilometers offshore and 150 meters below the Atlantic Ocean where it can be reached safely. Xstrata engineers and geologists are also busy obtaining coal samples and developing geological and financial models for the operation. The project still requires some final regulatory approvals from the Nova Scotia and Canadian federal governments. Akerley expects that if all internal; and regulatory approvals are received the first coal could come out of the ground by late 2011 or early 2012 with the Donkin mine moving to full production in 2013.