Mount Klappan production delayed

Mineral resource company Fortune Minerals says it aims to start production at its Mount Klappan metallurgical coal project, in north-west British Columbia, Canada, in 2016.

Initially, Fortune was targeting late 2015 to start production but because of the permitting processes for the project, they are now targeting 2016.

“We have advanced the project through environmental baseline studies and are currently in the environmental assessment process required to permit the upgrade and expansion of railway infrastructure to the Port of Prince Rupert as well as the development of an openpit mine and wash plant.

“We have entered the project finance stage and are using innovative strategies to reduce development risks by seeking to secure the requisite funds to finance the various aspects of the project through strategic partnerships,” says Fortune Minerals CEO Robin Goad.

The company engaged, mining advisory group Deloitte & Touche Corporate Finance Canada, on June 30, 2010, as its financial adviser in pursuing strategic alternatives for the advancement of Mount Klappan.

On November 3, 2011, Fortune re-engaged Deloitte to assist the company in identifying potential financing partners and in evaluating potential transactions that would provide for development, construction and production for both the Nico and Mount Klappan projects.

Mount Klappan is expected to produce three-million tons a year of premium ultra-low volatile pulverised coal injection products for the overseas steel industry.

In February, Mining Weekly reported that new reserves and new economics, which were expected to demonstrate Fortune’s ability to ramp up commercial production at Mount Klappan well above the initially contemplated rate, were expected in the second quarter. Fortune now expects this report to be released in the third quarter.

Mount Klappan consists of 16 411 ha for which coal exploration licences have been obtained. It is one of the world’s premier metallurgical coal deposits and the only known significant Canadian deposit of anthracite – a key ingredient in steel and metal processing, states Fortune.

As a result, it caught the attention of South Korea steel company Pohang Iron & Steel Company’s (Posco’s) Canadian subsidiary, Poscan, which is Fortune’s initial Mount Klappan joint venture (JV) partner.

Posco is recognised as one of the most inno- vative and the largest steel-producing companies in the industry and its goal of expanding steel production to 50-million tons, combined with the world’s reduction in coal availability, contributed to its interest in Mount Klappan.

The anthracite coal, which comprises naturally high carbon and a low volatile content, makes it an ideal steelmaking coal. Although China produces 85% of the world’s anthracite, it is now a net importer. This allows for a prominent future producer to provide steel companies with new supply, explains Goad.

“As the developer of two significant assets, [Mount Klappan and Nico], we needed to assess the various options available to finance these projects. The value gap between project-level JV-style investments and the more traditional option of an equity issue is significant, meaning that by attracting strategic partners, we can fund in a much less dilutive manner,” he says.

As a first-stage partner, Poscan has acquired a 20% interest in Mount Klappan and has committed to provide 20% of the total development, capital and operating costs for the project in return for 20% of the coal.

Goad explains that, in some cases, project-level deals have attracted higher valuations than the entire capitalisation of the firm as reflected by the markets. These investors not only have the financial wherewithal but are also motivated by their need to secure sources of supply.

Based on current cost estimates, it is expected that Posco will contribute C$181-million to the development of Mount Klappan, including C$20-million of its initial C$30-million contribution.