Fortune aims to secure funding partners by mid-2012

24th November 2011 By: Matthew Hill

TORONTO (miningweekly.com) – The CEO of Fortune Minerals, who has just returned from a trip to Asia speaking to potential funding partners, said on Wednesday there was “extreme” interest in its Mount Klappan coal project in Northern British Columbia, despite the current economic fears.

The company aims to finalise financing from strategic partners for both Mount Klappan and its Nico gold-cobalt-bismuth project in the Northwest Territories by the middle of next year, Robin Goad said in an interview.

“Metallurgical coal is in short supply. Strategic buyers are looking at backward integration transactions to guarantee sources of supply,” he commented.

Mount Klappan has one of the world’s biggest undeveloped resources of metallurgical coal, in the form of anthracite, which is used in steelmaking.

On his trip, Goad visited prospective partners in Japan, Korea and China, where he met with steel companies, trading firms and coal producers.

London, Ontario-based Fortune already struck a deal with Korean steel giant Posco in July, where the world’s third-biggest steelmaker bought a 20% stake in the company for $30-million, also agreeing to pay for its share of development at Mount Klappan and pay Fortune another $17.2-million based on future project milestones.

Fortune is seeking to raise additional funding through a second deal at the project, estimated to cost around $800-million to build.

“We’re looking for a minority project-level partner, [which will provide] debt guarantees tied to offtake,” Goad told Mining Weekly Online.

The company said earlier this month it had hired Deloitte to assist in finding partners for Mount Klappan and Nico. The consultancy had helped put the Posco transaction together.

A feasibility study at Mount Klappan, which was updated a year ago, foresaw a $614-million capital cost, and Goad said he did not believe this would have risen dramatically since.

The mining industry has experienced massive cost inflation over the past couple of years as wages and other inputs have all surged in price.

Goad pointed out that the recent volatility had caused some materials, such as steel, to pull back.

Fortune aims to start producing at Nico in 2014, and at Mount Klappan the following year.

The feasibility study at the anthracite project outlined a three-million-ton-a-year operation, and Goad said there was the potential to double this five years after first output, which Fortune would seek to fund through cash flows.

The company has a C$85-million market capitalisation and its projects have a $1.3-billion combined base case net present value, according to their feasibility studies, implying the company trades at a steep discount.

One of the solutions to this Fortune was considering would be to split into two separate entities – one to focus on Nico and the other Mount Klappan, which Goad said the company is frequently asked about.

“It would certainly make the story simpler,” he said.

However, the topsy turvy markets made such a move unattractive in the current environment, so the focus remained on finding partners for the projects.

Changing Fortune’s corporate structure was “something that might make sense in the future”, commented Goad.