Fortune announces Posco JV, mulls second partner for BC coal project

13th July 2011 By: Liezel Hill

TORONTO (miningweekly.com) – TSX-listed Fortune Minerals has agreed to sell 20% of its Mount Klappan anthracite coal project in north-west British Columbia to a subsidiary of Korean steelmaker Posco, the world's third-biggest steel producer by market value.

The company still plans to take on a second partner for the project, which could start production in 2014, depending on how long permitting takes, CEO Robin Goad told Mining Weekly Online on Wednesday.

The agreement with Posco Canada (Poscan) involves an initial $30-million upfront payment, as well as Poscan funding its 20% share (about $154-million) of the project development costs. The group will also pay Fortune another $17.2-million based on future milestones.

The funds from Poscan should cover the costs of detailed engineering and design studies, Goad said.

From there, based on the capital estimates from a 2010 feasibility study, London, Ontario-based Fortune's share of project construction costs will be around $614-million.

“And we fully expect to bring in an additional partner that might buy a 20% to 30% tranche, presumably at a much higher price, and be responsible for a large part of Fortune's obligations to finance the mine,” Goad said in an interview.

Once production begins, Poscan will fund 20% of the operating costs and receive 20% of the coal produced at Mount Klappan.

The project has measured and indicated resources of 230.9-million tons and inferred resources of 359.5-million tons, and is expected to start up at an initial three-million tons a year of pulverised coal injection product from an openpit mine and wash plant.

Shares in Fortune Minerals rose 10.96% on Wednesday, to C$1.62 apiece by 14:56 in Toronto. The stock traded as high as C$1.72 earlier in the day.

RAILWAY

Fortune had initially studied and begun permitting processes for a project that involved building a new road to truck production from the mine to port Stewart, but received attractive quotes last year from CN Railway on a plan to extend and upgrade a rail link to the site instead.

“That provided a much simpler and scaleable transportation option, and it is also what our customers would prefer,” Goad said.

The company will be able to access the port of Prince Rupert, use Capesize vessels for ocean transport and share cargoes with other Western Canadian coal producers by shipping from the existing coal-loading terminal at Ridley Terminals.

However, although much of the environmental work for the mine and associated facilities is already completed, Fortune needs to go back and conduct baseline environmental studies on the new railway plan.

The permitting process could take around two years to complete, after which the firm would expect about a year for project construction, he said.

“So we could conceivably be in production by 2014, although that's all based on the permitting timeline which is outside of our control.”

Anthracite has the highest carbon and energy content of all coals. China produces around 85% of world output, but has been a net importer since 2004.

Fortune Minerals also has a cobalt/gold/bismuth project near Yellowknife, in the Northwest Territories of Canada.