Western Canadian to take over Falls Mountain

VANCOUVER-based producer Western Canadian Coal said Monday it had signed a conditional agreement with Cambrian Mining to acquire Falls Mountain Coal in Canada.
Western Canadian to take over Falls Mountain Western Canadian to take over Falls Mountain Western Canadian to take over Falls Mountain Western Canadian to take over Falls Mountain Western Canadian to take over Falls Mountain

Courtesy Western Coal

Donna Schmidt

The plan commenced earlier this year when the two operators entered into a master agreement for WCC to manage Cambrian's Willow Creek mine. FMC controls the Willow Creek coal wash plant and rail load-out facilities as well as other coal properties in the Canadian province of British Columbia.

WCC noted that Willow Creek is a neighbour to one of its existing complexes, the Brazion Group, which includes the Brule mine. Because of that proximity, Brule and Willow Creek can share a wash plant, negating the need for previously outlined new construction.

Additionally, the takeover will expand its reserve holdings with the two properties holding saleable reserves of 35 million tons to produce 2.2Mt per annum.

"Owning FMC ... is expected to unlock approximately 21 million tons of reserves at Brule that may not otherwise be developed," the company said.

There are also other attractive attributes to Willow Creek, noted the British Columbia operator, including its potential to be the world's top exporter of ULV-PCI coal; the potential for it and Brule combined is 7Mt. Willow Creek is also anticipated to be a low-cost coal operation with about 8Mt of premium-priced reserves, it said.

While the mine is awaiting restart permits, connector road engineering to link the operations and a drilling program at the site are in progress.

"Drilling program results to date have broadly confirmed the geology that was expected at the Willow Creek deposit," it said, adding that Willow Creek could see start-up within nine months.

"The transfer of Falls Mountain Coal will allow Western to take advantage of the synergies that exist between the Willow Creek facilities and the Brule Mine, while being in a well funded position. Cambrian looks forward to working more closely with Western going forward," Cambrian chief Mark Burridge said.

The sale's completion is conditional on approvals, which both sides anticipate having by the end of March 2008.

WCC's private placements

WCC also announced Monday it had secured $30 million in unsecured financing through a private placement of convertible debentures with Audley European Opportunities Fund and is in the process of closing on $10 million more.

Its proceeds will be utilised for working capital requirements at WCC's Wolverine operation as well as corporate financial items to reduce debt from $35 million to $27.5 million.

Company president John Hogg said the announcement was a significant milestone for WCC.

"The pieces are coming together to build a long-term sustainable business," Hogg said.

"We recently signed a long-term coal contract for a three-year supply of hard coking coal at the rate of 350,000tpy and have signed several memorandum of understandings and letters of intent for the supply of hard coking and PCI coal for three to five-year terms with major steel mills in Asia and Europe.

"We've started to see the productivity improvements expected at our Wolverine mine, we now have the financing in place to bridge us to the higher coal prices next year, we're receiving the benefits of the recent weakening of the Canadian dollar, and with the addition of Falls Mountain Coal we have a tremendous asset base of high quality metallurgical coal upon which to grow."

He added that the completion of the private placement would help the organisation better its financial outlook.

"The agreement with Cambrian for Falls Mountain Coal, with cash savings of approximately $45 million from reduced capital spending and revenue enhancements and the access to high quality coal reserves, makes a lot of sense for the company," Hogg said.

"All the recent initiatives undertaken ... will position us to take even better advantage of higher expected metallurgical coal prices going forward."

In total, WCC has an annual metallurgical output of 3.4Mt from two mines located in the northeast region of British Columbia, as well as varied coal property interests in the northern and southern regions of the province.