It's no surprise that Coalspur Mines’ pre-feasability Study has confirmed the potential of its Vista coal project to become North America’s largest dedicated export thermal coal mine.

It may sound like a bold claim, but consider this.

The venture is located near Hinton, Alberta a well-known, well-established coal mining region.

Numerous coal companies have a long history of mining in the area with the first coal mined in the 1920s to supply the railroad.

The Hinton area has a highly regarded railway system that leads to a deep water, year-round port on Canada’s west coast. This makes for efficient transport to the dramatically expanding Asian marketplace.

Coalspur managing director and chief executive Gene Wusaty is familiar with the potential of the area, having served as a former president of Ivanhoe Mines’ coal division as well as former vice president and chief operating officer of Grande Cache Coal, not to mention his experience with Elk Valley Coal, Fording Coal and Quintette Coal.

“It’s important to note that over the past several decades, the Canadian coal industry has concentrated on developing coking coal projects,” Wusaty pointed out.

“The last real development for export thermal coal took place in the late 1970s and early 1980s.

“There have been some minor additions to thermal exports since then but, for the most part, thermal coal development in Canada has been dormant. That’s mainly because of the huge supply of cost efficient thermal coal that has been developed in areas such as Indonesia, Australia and South America.”

However, the dynamics have changed.

“The massive industrialisation occurring in Asia requires more and more power and the demand for thermal coal continues to grow,” Wusaty said.

“China was historically an exporter of coal but now is importing increasing tonnages every year as are most emerging Asian countries.

“The combination of easy-to-extract coal deposits located within proximity to existing infrastructure has become quite rare, so the industry has had to seek out supplies in more exotic areas, which present a variety of new challenges. That is where our strength lies.

“We have a large coal reserve located in a first world region with direct access to rail and to a year-round port.

“We have assembled a very experienced management team that has the capability to build the project and we are convinced this is the right time for Vista to be developed.”

The Vista project PFS ratifies Coalspur’s initial analysis of the potential of the project.

The PFS identified a 31-year mine life producing about 9 million tonnes per annum of saleable coal from processing about 18Mtpa of run of mine coal.

At full capacity there will be 8Mtpa of export coal production and 1Mtpa of domestic coal production.

The coal quality characteristics, based upon

historical data, new drilling and washability studies, show expected yields at about 54% which produces a low sulphur 24,270 kilojoule per kilogram gross-as-received product. This product is in very high demand in the Asia Pacific export thermal coal market.

That estimated 260Mt of saleable coal to be developed over the life of the mine is the key number, according to Wusaty.

“To put it into perspective, in my positions with larger mining companies, if we had more than a 100 million saleable tonne reserve, it would be categorized as an elephant,” he said.

“In addition, assessing the life of the mine at 31 years is considered a lengthy project by anyone’s standards.”

The relevance of those numbers is evident when considering the price of coal as forecast by Wood Mackenzie to be at $US95/t in year one of the VCP, increasing to $US105/t by year 10 and then $US111/t from year 17 onwards.

Cost projections, both capital and operating, strongly indicate that the VCP will become a very competitive export thermal coal development in global terms.

Development costs to first production are estimated at $C590 million.

The gently dipping coal seams subcrop near the surface allowing for low initial strip ratios that result in very competitive operating cash costs.

Costs for the first 10 years are projected at $C51/t and the life of mine costs will be $C60/t free-on-board at Ridley Island Coal Terminal.

All of these factors contribute to an expected robust earnings before interest, tax, depreciation and amortisation operating cash flows of $C361 million per annum in the first 10 years of operations and $C375 million a year over the 31-year mine life.

The properties that have been consolidated had three feasibility studies completed on them in the early 1980s. One had a mine and wash plant permit originally issued in the 1980s.

“We are in discussions with the provincial regulatory authorities as we try to determine the projects development process based on these permits ,” Wusaty said.

“The existing permit allows for the development of a 4.2 million tonne per annum operation.”

In the PFS, production was designed to commence on the first phase at 4.2Mtpa. This initial cash flow would allow Coalspur to finance a significant portion of the development second phase to 9Mtpa.

The PFS schedule shows the second phase production beginning two years after the initial phase with full production capacity of 9Mtpa being achieved in the fourth year of operation.

The method of extraction for the VCP will be similar to other Alberta foothill/prairie multi-seam coal mines. At the 18Mtpa run-of-mine coal production rate applied in the PFS, a large scale dragline, truck/shovel combination mining approach was selected.

It will take about 400 jobs to develop the first phase and the workforce will peak at about 900 jobs during the latter stages of the project.

The export product is planned to be railed to Ridley Island Terminals in Prince Rupert, British Columbia, 1100km from the mine site. The coal will be loaded onto vessels up to Cape size for export to customers in Asia, where coal from the nearby Coal Valley coal mine has been sold since the early 1990s.

The return cycle time for CN Rail from the Coalspur project to Prince Rupert is about five days. The vessel sailing time to Japan from Prince Rupert is about 11 days.

With the conclusion of the PFS, the next major step is the bankable feasibility study, which is expected to begin in the first quarter of 2011.

“With the start of the BFS we will now start to look at financing options for the project,” Wusaty said.

“We’re expecting the BFS to be complete by the third quarter of 2011 with a production go ahead late in the year, which will put us into position to start construction in mid 2012.”

Wusaty is certain Coalspur has all the fundamentals in place to supply much needed energy resources in the medium-term to the growing Asian Pacific economies.

*This report, first published in the March 2011 edition of RESOURCESTOCKS magazine, was commissioned by Coalspur Mines