Introduction: Fortune's wholly-owned Mount Klappan project in northwest British Columbia contains 231 million tonnes measured and indicated and 2.57 billion tonnes inferred and speculative of high rank anthracite coal (see reserve and resource table below) making this the largest undeveloped deposit in North America and one of the largest in the world. More than $85 million of work has been carried out at Mount Klappan by Fortune Minerals and also by Gulf Canada Resources Limited prior to being taken over by ConocoPhillips. This included test mining of more than 200,000 tonnes of coal for processing in a pilot plant test at the site and producing 100,000 tonnes of various coal products for trial cargos to customers in North America, Asia and Europe. Mount Klappan is the only near-term anthracite development in the western world and is in the environmental assessment process to permit a mine, process plant and related infrastructure to sell metallurgical coal products to the overseas steel industry. Fortune is actively pursuing a strategy to partner the project.
3-dimensional model of the proposed Lost Fox mine pit and waste roack dumps.
Pilot plant for the 1985-86 test mining and trial cargo of 100,000 tonnes of clean coal products.
Fortune's coal licenses cover more than 150 square kilometres of lands straddling the B.C. Railway right-of-way,150 kilometres northeast of the port of Stewart and 330 kilometres northeast of the port of Prince Rupert. The rail bed provides road access to the site from Highway 37, and track has been installed to within 150 kilometres south of the proposed mine.
Mineral Reserves and Resources:Several Mineral Resource and Mineral Reserve estimates have been prepared for Mount Klappan by Marston & Marston Inc.(Marston). Coal has been identified in more than 30seams to a depth of 300 metres in four deposit areas referred to as the Lost Fox,Hobbit-Broatch, Summit and Nass deposits.Global resources are 108 million tonnes of which are classified as Measured, 123 million tonnes as Indicated, and 2.6 billion tonnes in the Inferred and Speculative classes of in-situ anthracite coal.In 2005, Marston updated the Mineral Resources and Mineral Reserves for the Lost Fox deposit area identifying Proven and Probable Reserves of 102 million in-situ tonnes for the initial open pit mine. In 2007, Marston completed a pre-feasibility economic assessment of a thermal coal option,which identified reserves of 106 million in-situ tonnes.
Lost Fox mine plan for the open pit,waste rock dumps and process plant.
Coal processing in the 1985-86 pilot plant.
The "I" coal seam at Lost Fox was test mined in 1985-86.
Marston has completed several feasibility studies for the Lost Fox deposit area,including the 2005 bankable feasibility study that was updated in 2008. This 2008 study assessed an open pit mine,wash plant and infrastructure to support 3 million tonnes of annual clean coal production over a minimum 20 year mine-life.The product was assumed to be 10% ash pulverized coal injection (PCI) coal for sale to the overseas steel industry with potential to diversify into additional metallurgical and thermal coal products. A new 100 kilometre short-cut haul road between the mine and Highway 37 has been engineered in order to truck the coal to the port of Stewart,as well as improvements to the Stewart loading terminal.Alternatives have also been assessed for the transportation of coal to the loading ports by rail or a slurry pipeline.In 2009,the town of Stewart conducted a study on an alternative port development that would be suitable for shipping coal from Mount Klappan.
The 2008 feasibility study showed attractive rates of return for the development at base case prices of US$175 per tonne for the first 5 years, and then US$150 per tonne for the remainder of the 20-year mine life.Coal price sensitivities were also assessed between US$100 to US$300 per tonne, the latter being the price for ultra-low volatile PCI contracts in 2008.The study was initially conducted using a Canadian to U.S. dollar exchange rate of C$1.00 = US$ 0.97 (C$ 1.03 = US$ 1.00). This currency exchange rate became rapidly out of date and the economics was subsequently re-assessed using C$1.00 = US$0.83 (C$ 1.20 = US$ 1.00). The base case economics shows a 40.9 % pre-tax internal rate of return (IRR) and 8% discounted net present value (NPV) of C$ 1.28 billion.The economics at coal price sensitivities are up to 101.9% in pre-tax IRR and C$ 4.9 billion at US$300 per tonne of coal product. US$ 300 101.9% $4,921 76.9% $3,096 $110
B.C.Rail right-of-way and roadbed provides access to the Mount Klappan site.
Unique properties make anthracite suitable for use in a broad range of premium metallurgical, thermal, water purification and composite materials products, including fuels used to manufacture cement and generate electricity.
World annual production of anthracite is approximately 400 million tonnes, most of which is consumed locally for power generation. Notably, China produces half of the world's anthracite and, as a result of increasing domestic use, has recently become a net importer. Vietnam, the world's second largest producer, is also now curtailing exports in order to satisfy its own domestic energy requirements. This, combined with increasing consumption and depletion of other deposits, are restricting supply in traditional global markets. Mount Klappan is one of only three significant new anthracite projects in the development stream, and the other two, located in Russia and China, are unlikely to be able to service the export market due to domestic demand. Prices for anthracite products currently range from US$80 to more than US$300 per tonne depending on the quality and market application.
Anthracite use is growing, particularly for pulverized coal injection (PCI) products used in the manufacture of steel.Injection of finely powdered coal directly into the blast furnace,reduces the consumption of coke making it a more efficient and cost effective method of manufacturing steel over conventional blast furnace technology.Notably,injection processes favour the high carbon and low volatile content of anthracite,which allows for higher injection rates over PCI produced from lower rank bituminous coals.The natural high carbon content of anthracite also makes it suitable as a blend coal to reduce consumption of coke in conventional steel industry blast furnaces,in sintering plants, and as a binding agent to make iron ore pellets. Coarse, low-ash anthracite is used as a reducingagent in aluminium and titanium processing and for charge carbon used in electric arc furnace steel manufacturing processes. Sized, low-ash anthracite is also used to make carbon filters for water purification and carboncomposite materials.
Lump coal and filter media
Thermal uses for anthracite include smokeless fuels used for space heating,the manufacture of heating and cooking briquettes,and kiln fuels used to make cement and lime.Approximately 40% of the world's electricity is generated from coal-fired thermal power plants, many of which are configured to burn anthracite, including new "clean coal" technologies that reduce greenhouse gas emissions.The rising cost of oil is also making gasification and coal-to-oil liquefaction technologies economically attractive. This technology has been used for decades to make superior quality synthetic diesel and jet fuels in South Africa, and new plants are now being constructed in China, the U.S.A. and other parts of the world. Notably, a recent study prepared by the Massachusetts Institute of Technology on the future of coal concluded that its use will increase for both power consumption and as an alternative source of synthetic fuels. The study also concluded that even with the additional of carbon capture and sequestration of greenhouse gasses, coal will be cheaper and represents a more secure source of energy supply than other fossil fuels, including oil and natural gas.
Joint Venture Discussions:In 2008,Fortune retained CIBC World Markets as its
financial advisor to assess variousalternatives for advancing the Mount Klappan project. This engagement has now expired, however, the Company continues to conduct discussions with a number of companies interested in participating in the development of Mount Klappan,including companies introduced under the CIBC engagement.
Sustainable Development: Fortune has been actively collecting baseline environmental data at Mount Klappan and its access corridors since 2004 through Rescan Environmental Services Ltd. and Rescan Tahltan Environmental Consultants (RTEC). In addition to the recent work, the project has benefited from studies undertaken in the 1980's and 1990's by Gulf. Work has included traditional use, archaeology, socio-economics,human health/country foods,land use, soils, vegetation, wildlife, habitat mapping, hydrogeology, surface hydrology, water quality, wetlands, fisheries, meteorology and metal leaching/acid rock drainage potential studies. The project is currently in the environmental assessment pre-screening process to permit the mine and was recently given major project status to streamline the permitting of the mine.
In the early 2009, Fortune completed an environmental assessment cooperation agreement with the Tahltan Nation. This agreement sets out the mutual respect of each others interests and the framework for efficient navigation through the environmental assessment process. Fortune is in discussions with all First Nations that may be affected by the development.