Robust economics verified for new rail haulage strategy to port of Prince Rupert
LONDON, ON, Nov. 4 /CNW/ - Fortune Minerals Limited (TSX-FT) ("Fortune" or the "Company") is pleased to announce positive results for the updated definitive
(*bankable) Feasibility Study for its 100% owned Mount Klappan
anthracite coal project in northwest British Columbia ("B.C."),
Canada. This study, by Marston & Marston Inc. ("Marston"), indicates
very attractive economics for the project using a railway development
strategy with haulage of coal products by unit train to the port of
Prince Rupert on the existing Dease Lake Rail Line. This railway
transportation strategy is now commercially feasible for the
development as a result of new capital and operating cost quotes that
were recently received from the Canadian National Railway Company
("CN"), which operates on the Dease Lake Line to Minaret, 150 km south
of Mount Klappan. Notably, the railway right-of-way and roadbed has
already been largely constructed between Minaret and Mount Klappan and
provides an existing transportation corridor that can be easily
upgraded. The railway provides a simple and scalable transportation
solution for the project that allows Fortune to capitalize on Mount
Klappan's world class resources.
The Company continues its active dialogue with all project stakeholders
and is particularly pleased with the ongoing support for the project
from Federal and Provincial governments as well as local communities.
HIGHLIGHTS OF THE STUDY:
-
In-situ Reserves of 102 million tonnes in the initial pit for the Lost Fox deposit;
-
Minimum 20-year mine life at the 3 Mtpa initial planned production rate;
-
Larger 2.8 billion tonne global resource for future expansion;
-
Production of premium PCI coal used to manufacture steel in an expanding
global market;
-
Ability to diversify into other metallurgical coal products;
-
Initial capital (1st 4 years) of C$ 768.4 million for the mine, surface facilities and
railway;
-
Cash cost FOB loading vessel in Prince Rupert US$ 104.79 / tonne (C$
110.30 / tonne);
-
Pre-tax IRR of 25.4%, and 8% discounted NPV of C$ 1.0 billion at base
case price of US$ 175 / product tonne PCI;
-
Pre-tax IRR up to 60.2% and 8% discounted NPV up to C$ 3.8 billion at
coal price sensitivities up to US$ 300 / product tonne of PCI;
-
Pre-tax IRR increases to 32.0% and 8% discounted NPV to C$1.2 billion at
the base case PCI price with third party contribution of railway
capital sensitivity of 50%.
Fortune has engaged Deloitte & Touche Corporate Finance Canada Inc.
("Deloitte") as the Company's financial advisor to pursue strategic
alternatives for the development of Mount Klappan (see Fortune news
release, dated June 30, 2010). Deloitte is assisting Fortune by
identifying potential strategic financial partners for the project and
evaluating potential transactions. Fortune is pleased with the
progress of discussions to date with Tier-1 strategic investors and
expects this announcement to provide positive momentum to the process.
(*A bankable / definitive Feasibility Study is a comprehensive
engineering and economic analysis of a project (typically prepared to
+/- 15% precision) that is used by financial institutions to determine
the credit worthiness of a proposed development for project financing.)
GENERAL INFORMATION:
Fortune retained Marston to prepare an update to its 2005 and 2008
definitive Feasibility Studies for the Mount Klappan anthracite
metallurgical coal project (see Fortune news releases, dated October
17, 2005 and August 7, 2008). This new study updates the capital and
operating costs for the project based on a railway development strategy
after CN provided capital and operating cost quotes for the railway
that are commercially competitive with trucking the coal to the port of
Stewart.
The Marston Feasibility Study update assesses only the economics for the
Proven and Probable Reserves contained in the initial Lost Fox mine for
the Mount Klappan project. The study is based on an open pit mine and
wash plant producing 3 million tonnes per annum ("Mtpa") of clean coal,
consisting of a premium 10% ash ultra-low volatile pulverized coal
injection ("PCI") product used to manufacture steel. The study
contemplates the upgrade and extension of the Dease Lake Railway Line
for haulage of coal products by unit train to the port of Prince Rupert
for export.
COAL LICENSES AND LOCATION:
Fortune owns more than 15,000 hectares of contiguous coal licenses
located 330 km northeast of the port of Prince Rupert in northwest
B.C. These licenses straddle the B.C. railway right-of-way and
roadbed, which provides road access to the site from Highway 37.
RESOURCES AND RESERVES:
The Mount Klappan project consists of 4 resource areas referred to as
the Lost Fox, Hobbit-Broatch, Summit and Nass deposits. Collectively, they contain Measured Resources of 107.9 million tonnes,
Indicated Resources of 123.0 million tonnes, Inferred Resources of
359.5 million tonnes and 2.213 billion tonnes classified as
**Speculative Resources (see News Release, dated June 22, 2004). The in-situ and PCI product
reserves were calculated from the resources for the Lost Fox deposit
area for the 2005 definitive Feasibility Study and remain the same.
MINERAL RESERVES FOR THE LOST FOX DEPOSIT AREA
|
IN-SITU COAL RESERVES (Mt)
|
10% ASH PRODUCT RESERVES (Mt)
|
Proven
|
Probable
|
Total
|
Proven
|
Probable
|
Total
|
85.6
|
16.1
|
101.7
|
51.6
|
9.2
|
60.8
|
The Mount Klappan mineral resource and mineral reserve estimates were
prepared in 2004 and 2005, respectively by Marston in compliance with
National Instrument 43-101. Richard Marston, P.E. is the Qualified
Person responsible for the estimates. **Speculative Resources
estimated in 2004 are no longer used under NI 43-101. Further
information regarding the Mount Klappan Mineral Resource and Mineral
Reserve estimates is available from the Company's disclosures under the
Company's profile on the SEDAR website at www.sedar.com.
MINING:
The reserves for the Lost Fox deposit will support clean coal production
of 3 Mtpa over a minimum mine life of 20 years. The mine will utilize
conventional open pit mining using 177 tonne class trucks, with 26 m3 hydraulic shovels for waste rock mining and 17 m3 backhoes to mine the coal from 10 metre benches. The life of mine
average in-pit strip ratio is 6.6 bank cubic metres ("bcm") of waste
rock / tonne of coal, with a clean coal strip ratio of 11.6 bcm / PCI
product tonne.
PROCESS PLANT AND ON-SITE INFRASTRUCTURE:
Coal from the Lost Fox deposit will be processed in a wash plant
constructed at the site for the production of a 10% ash, ultra-low
volatile PCI product for the overseas steel industry. The Mount
Klappan wash plant will use standard processing methods of heavy media
separation, cyclones and froth floatation with annual washability
yields ranging between 47 and 70%, averaging 57.3% for the 14 coal
seams that are economic in the initial open pit mine. The plant is
configured to produce other premium anthracite products in the future,
including charge carbon for electric arc steel manufacturing, coke
replacement and metallurgical processing, as well as sinter.
PCI COAL QUALITY
10% Ash Product (air dried basis)
|
Specification
|
Mean
|
Residual Moisture
|
0.9%
|
Ash
|
10%
|
Volatile Matter
|
6.5%
|
Fixed Carbon
|
82.6%
|
Sulphur
|
0.5%
|
Gross Calorific Value
|
31.1 GJ / t
|
Gross Calorific Value
|
7423 kcal / kg
|
Gross Calorific Value
|
13,352 Btu / lb
|
HGI
|
40-45
|
Size
|
0-50 mm
|
A camp will be constructed to accommodate the work force of
approximately 470 employees, primarily from nearby communities, and
working on a rotational basis. Power supply for the process plant, camp
and other facilities would be generated by diesel with an installed
load of 11.7 megawatts. However, the B.C. Government is extending the
electrical grid north along Highway 37 to Bob Quinn Lake, and if the
grid is extended to Mount Klappan, it has the potential to reduce
operating costs for the project.
RAILWAY:
CN operates on the Dease Lake Line under a long-term lease with B.C.
Rail between Fort St. James and Minaret to its current terminus, 150 km
south of Mount Klappan. This existing railway requires upgrades to the
track and sub-grade to accommodate fully loaded unit trains (263,000
pound / car) with efficient haulage of coal to the port. The railway
right-of-way and roadbed has been substantially completed beyond
Minaret to Mount Klappan. Capital of C$ 317.8 million has been
estimated to upgrade and extend this railway and is included in the
initial capital for the project with Fortune paying this cost. The
Feasibility Study contemplates that Fortune will lease six, 127 car
train sets with capacity of 95 tonnes / car to transport the production
of 3 Mtpa to the port with the cost of leasing included in the
operating costs. Rail transportation provides a simpler and scalable
alternative compared with trucking that was previously contemplated.
PORT:
Railway transportation provides access to the port of Prince Rupert,
which has a modern government-owned, bulk handling facility with
capacity for up to 16 Mtpa that is underutilized and is capable of
loading Cape-size ocean vessels. This terminal also provides an
opportunity to blend and split cargos with coal from other Canadian
producers and is up to 36 hours closer to Asia than other west coast
ports. Collectively, these make Prince Rupert the preferred point of
export for potential customers.
ECONOMIC ANALYSIS:
The Marston Feasibility Study update uses a base case price of US$ 175 /
tonne of PCI product and a Canadian : US dollar exchange rate of C$ 1 =
US$ 0.95. The Lost Fox Mine produces robust economics using base case
conditions.
LOST FOX MINE BASE CASE ECONOMICS
|
|
Pre-Tax
|
After Tax
|
IRR
|
25.4%
|
20.7%
|
NPV (8% Discount)
|
C$ 1,027.8 M
|
C$ 667.4 M
|
Capital (1ST 4 Years)
|
C$ 768.4 M
|
Capital to achieve full production is C$ 768.4 million during the first
four years of the project and includes the mine, process plant and all
required on-site and railway infrastructure.
CAPITAL SUMMARY
|
Capital Item
|
Cost C$
|
Mine & Equipment
|
222.4 M
|
Process Plant & Facilities
|
164.8 M
|
Off-site transportation
|
317.8 M
|
On-site Infrastructure
|
63.4 M
|
Total
|
768.4 M
|
The operating costs for the Mount Klappan project include all mining,
processing, transportation, royalties and administration FOB vessel in
Prince Rupert and total C$ 110.30 / tonne (US$ 104.79 / tonne). This
is within the range of cash costs for all Canadian metallurgical coal
producers.
OPERATING COST SUMMARY C$ / TONNE
|
Waste Drilling & Blasting
|
8.56
|
Stripping & Topsoil Removal
|
26.27
|
Coal Loading & Haulage
|
4.53
|
Mine Maintenance
|
4.13
|
Operations Support & Interim Reclamation
|
6.30
|
Coal Processing & Loadout
|
7.48
|
Supervision & Administration
|
2.46
|
Total Direct Operating Cost
|
59.74
|
On-site Infrastructure
|
4.05
|
Mine Overhead
|
1.89
|
Coal Transportation - Rail
|
30.84
|
Coal Terminal
|
6.00
|
Selling, General & Administration
|
0.24
|
Production Royalties
|
7.54
|
Total Indirect Operating Costs
|
50.56
|
FOB Vessel Cash Cost C$
|
110.30
|
FOB Vessel Cash Cost US$
|
104.79
|
The Mount Klappan project produces attractive rates of return for the
development for coal price sensitivities above US$ 150 / tonne, mining
only 3.6% of the in-situ resource. The Mount Klappan project is well
positioned to benefit from the projected global shortage of high
quality metallurgical coals that will result in strong prices for the
foreseeable future. Coal price sensitivities for the project were
prepared to assess project economics with prices up to US$ 300 / tonne,
the price for metallurgical coal attained in 2008.
COAL PRICE SENSITIVITIES
|
FOBT PRICE
(US$ / t)
|
Pre-Tax
IRR
|
Pre-Tax NPV
(8%)
|
After Tax
IRR
|
After Tax NPV
(8%)
|
$150
|
16.6%
|
C$ 476 M
|
13.1%
|
C$ 252 M
|
$175
|
25.4%
|
C$ 1,028 M
|
20.7%
|
C$ 667 M
|
$200
|
33.4%
|
C$ 1,598 M
|
27.5%
|
C$ 1,095 M
|
$225
|
40.8%
|
C$ 2,163 M
|
33.6%
|
C$ 1,518 M
|
$250
|
47.6%
|
C$ 2,719 M
|
39.2%
|
C$ 1,934 M
|
$275
|
54.2%
|
C$ 3,285 M
|
44.6%
|
C$ 2,357 M
|
$300
|
60.2%
|
C$ 3,837 M
|
49.6%
|
C$ 2,771 M
|
Initial capital for the Mount Klappan development includes C$ 317.8
million for the upgrade and extension of the Dease Lake Rail Line to
Mount Klappan. The Feasibility Study assumes the total capital cost
for this infrastructure would be paid by Fortune. Sensitivities were
prepared in the event of a third party user or government paying 25 or
50% of this infrastructure cost. This would lower Fortune's costs for
the development and further improve project economics.
THIRD PARTY RAIL CONTRIBUTION TO CAPITAL
|
|
25% Contribution
|
50% Contribution
|
|
Pre-Tax
|
After Tax
|
Pre-Tax
|
After Tax
|
IRR
|
28.4%
|
23.1%
|
32.0%
|
26.0%
|
NPV (8% Discount)
|
C$ 1,092.5 M
|
C$ 723.4 M
|
C$ 1,154.2 M
|
C$ 777.0 M
|
Capital (1ST 4 Years)
|
C$ 688.9 M
|
C$ 609.4 M
|
ABOUT ANTHRACITE COAL:
Mount Klappan has very large resources of high quality anthracite
metallurgical coal, the highest rank coal based on carbon and energy
content. Anthracite is used in a broad range of applications,
including reductants used in metallurgical processing, blend coals for
blast furnace coke replacement, and charge carbon, sinter and PCI coals
used to manufacture steel. Only about 1% of world coal reserves are
anthracite grade, making Mount Klappan coal a relatively uncommon
premium product. Global annual anthracite production is approximately
565 million tonnes with 85% of supply currently produced in China,
which notably became a net importer in 2008. Vietnam, the world's
second largest producer with annual production of approximately 43
million tonnes, is curtailing exports in order to satisfy domestic
requirements. Mount Klappan is well positioned to service the growing
demand from the growth of emerging economies, primarily in Asia and
constrained supply.
OPPORTUNITIES:
Opportunities exist to further improve the economics for the Mount
Klappan project and were identified in the 2008 Marston Feasibility
Study update. They include:
-
There is a significant opportunity to expand the economic resource base
for Mount Klappan and Marston has recommended a four-phase drill
program to increase and upgrade the resources in the Inferred and
Speculative classes to Measured and Indicated. In addition, the
current resources are only estimated to a depth of approximately 300
metres. Drilling by Fortune, Gulf and Shell have identified thick
intersections of coal beneath this depth that may be amenable to future
underground mining.
-
The current study is predicated on diesel-generated power and the use of
diesel mining equipment. The B.C. Government is extending the
provincial electrical grid along Highway 37. Access to grid power
would eliminate the need for on-site power generation, allow for the
use of more efficient electric-cable shovels and electric assisted haul
trucks, and alleviate uncertainties associated with fluctuations in the
price of diesel.
-
Opportunities exist to finance mobile equipment for the mine through a
"lease-to-purchase??? program and would lower the up-front capital for
the development.
CURRENT ACTIVITIES:
Substantial engineering, feasibility and environmental work have already
been completed for the Mount Klappan development, totalling more than
$86 million. The development plan has been designed so that there will
be no significant adverse impacts on fish habitats. The project is
currently in the B.C. Environmental Assessment ("EA") pre-screening
process and Fortune expects to complete the EA process after it
identifies a financial partner. Fortune is working with the local
communities to explain the project and its benefits and potential
impacts. Development of Mount Klappan will bring long-term employment
to an area already adversely impacted by the downturn in the forestry
industry as well as provide important infrastructure for the benefit of
other projects and the public.
Fortune is pursuing opportunities to attract a strategic partner for the
development of the Mount Klappan project and has retained Deloitte to
assist the Company in this process. With rail transportation to the
port of Prince Rupert commercially feasible, robust economics from the
initial development, strong prices for metallurgical coal products
extending into the foreseeable future, and the potential to expand
production from a world class resource base, Mount Klappan will benefit
a broad range of stakeholders for many years.
The scientific and technical information contained in this news release
is based upon information prepared by or under the supervision of
Richard Marston, P.E. of Marston & Marston Inc., who is a Qualified
Person under National Instrument 43-101.
ABOUT FORTUNE:
Fortune is a diversified resource company with several mineral deposits
and a number of exploration projects, all located in Canada. The
Company is focused on the development of its NICO
gold-cobalt-bismuth-copper deposit in the Northwest Territories and its
metals processing plant in Saskatchewan. Fortune Minerals owns the
buildings and equipment from the Golden Giant Mine at Hemlo, Ontario,
which have been dismantled for relocation to NICO. Fortune also owns
the Mount Klappan anthracite coal deposits in British Columbia, the
Sue-Dianne copper-silver deposit and other exploration projects in the
Northwest Territories. Fortune is focused on outstanding performance
and growth of shareholder value through assembly and development of
high quality mineral resource projects.
This press release contains forward-looking information. This
forward-looking information includes, or may be based upon, estimates,
forecasts, and statements as to management's expectations with respect
to, among other things, the proposed development of and anticipated
production from the Mount Klappan project, the establishment of a
railway link to Prince Rupert and the pursuit of strategic alternatives
for the Mount Klappan project. Forward-looking information is based on
the opinions and estimates of management at the date the information is
given, and is subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ materially
from those projected in the forward-looking information. These factors
include the risk that the Company may not be able to arrange the
necessary financing to construct and operate the Mount Klappan mine
and/or the railway link to Prince Rupert, the risk that the Company may
not be able to conclude a strategic transaction for Mount Klappan or an
agreement with CN for the transportation of coal from Mount Klappan to
Prince Rupert, the possibility of delays in the commencement of
production from the Mount Klappan project, the inherent risks involved
in the exploration and development of mineral properties, the risk that
actual capital and operating costs for the Mount Klappan project may
differ from those anticipated, uncertainties with respect to the
receipt or timing of required permits and regulatory approvals, the
uncertainties involved in interpreting drilling results and other
geological data, fluctuating metal prices and other factors. Readers
are cautioned to not place undue reliance on forward-looking
information because it is possible that predictions, forecasts,
projections and other forms of forward-looking information will not be
achieved by the Company. The forward-looking information contained
herein is given as of the date hereof and the Company assumes no
responsibility to update or revise such information to reflect new
events or circumstances, except as required by law.