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Donkin coal production could rise to 3 million mt annually over next two years: Morien

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Donkin coal production could rise to 3 million mt annually over next two years: Morien

Highlights

Morien owns a gross production royalty on coal sale revenues

Donkin coal sold into both metallurgical and thermal markets

Louisville, Kentucky — Production at Kameron Coal's Donkin underground coal mine on Nova Scotia's Cape Breton Island could reach 3.3 million st/year over the next two years, aided in part by a $75 million ongoing expansion project at an ocean-going port 20 miles south of the mine in Sydney, Cape Breton, according to Morien Resources.

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Dartmouth, Nova Scotia-based Morien, Donkin's former co-owner along with Xstrata Coal, owns a gross production royalty for Donkin of 2% on revenue from the first 550,000 st of coal sales per calendar quarter, and 4% on revenue from any coal sales from quarterly tonnages exceeding 550,000 st.

Since production started nearly two years ago, Donkin's ramp-up has been slowed by a number of issues, including its sixth roof fall on December 28 that has idled the mine. It is unclear when production will resume.

Morien, though, sees a bright future for Donkin, as evidenced by its Tuesday update that said Kameron continues to improve mine productivity by installing a continuous haulage flexible conveyor train in December. The new coal mining system replaces part of Donkin's shuttle car fleet and was approved by the Nova Scotia Department of Labour last month.

It is expected to "significantly" increase production volumes, and, as a result, export sales, in 2019 once mining resumes at Donkin, Morien said.

Morien said Donkin's production is anticipated to reach annual sales volumes of 2.98 million-3.3 million st over the next two years. The mine was expected to turn out 1.2 million-1.8 million st in 2018, although official results are not yet available.

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Morien cautioned, however, that "while it is assumed that production at Donkin will resume in a timely manner, the timing of production recommencement is unknown at present and may delay the rate of production increases."

In any event, Donkin is expected to benefit from the expansion at Provincial Energy Venture's export facility in Sydney, Morien added. PEV currently is responsible for handling all of the export coal from Donkin.

Once the port expansion is completed later this year, PEV "will be capable of accommodating larger, Capesize vessels and is expected to have capacity to export" up to 3.3 million st of Donkin coal annually, Morien said.

A new, dedicated coal haul road that will bypass several eastern Cape Breton coastal communities between Donkin and PEV is expected to be completed in the second quarter this year, Morien said.

Although most of Donkin's met coal is sold into the seaborne market, Kameron entered into a multi-year thermal coal supply agreement last year with Halifax-based Nova Scotia Power, the dominant electric utility in Nova Scotia.

Kameron is a subsidiary of US-based Cline Group.

-- Bob Matyi, newsdesk@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com