Donkin Project

Nova Scotia, Canada

Recent Activities

On March 1, 2017, Morien received notice from Kameron Collieries that production at Donkin had commenced. Initial production at Donkin is from a single continuous miner, with the addition of a second continuous miner scheduled for later in 2017.  A total of 64 full-time employees/contractors are currently working onsite at Donkin, and Kameron is forecasting a total of 135 full-time workers onsite at full production.  Construction of a coal handling, preparation and processing plant is anticipated to begin during the first half of 2017.  In 2018, two, dual coal sections are anticipated to be operational; a typical coal section consists of two continuous miners, six battery haulers, one feeder breaker, and two roof bolters.

Kameron has indicated that it expects the washed coal quality of Donkin to be a high fluidity, high volatile metallurgical coal, with 3.0% ash, 1.65% sulphur, 13,500+ BTU/lb, 0.88% RO, +25,000 ddpm fluidity, and 120-150 dilation.  Kameron has cited the following as key project strengths at Donkin:

  • Coal quality
  • low ash, high energy thermal coal;
  • high quality metallurgical coal (low ash, high vitrinite content, high fluidity, high crucible swell number (“CSN”));
  • Low mining costs – 8.1 raw tonnes per linear foot, 6.9 clean tonnes per linear foot;
  • Short truck haul to local power stations and deep water ports; and
  • Substantial Resource – 483 million tonnes; 30 year expected project life (2 continuous miner sections)
  • The Donkin Coal Technical Report, dated November 2012, found on Morien’s SEDAR profile, supports the above technical disclosures.

Royalty & Milestone Payments

Morien owns a gross production royalty of 2% on the first 500,000 tonnes of coal sales per calendar quarter (excluding the initial 10,000 tonnes of coal produced and sold from Donkin) and 4% on any coal sales from quarterly tonnage above 500,000 tonnes (“Royalty”).  The Royalty is payable to Morien on a quarterly basis over the anticipated 30 plus year mine life.

Production is expected to rise to 2.75 million sales tonnes per year (the current permitted production rate) over a three to four year period. Using a range of coal pricing, annual royalty payments could be in the order of $4.0 million to $8.0 million at full production. These values are only estimates based on assumptions that Morien management consider to be reasonable, as approved on February 28, 2017. Actual results and royalties received, if any, and subject primarily to production rates and coal pricing, may vary from those estimated by Morien.

Morien received a $2 million milestone payment on closing of the transaction with Kameron (February 27, 2015) and received a second milestone payment of $2 million on the second anniversary of the closing (February 27, 2017; click here for Morien news release).  Morien is entitled to receive an additional $1.5 million on the earlier of first commercial sale of export coal from Donkin and the third anniversary of the closing of the transaction (February 27, 2018).

Cline Acquisition

In April 2012, Project Manager Glencore (then Xstrata Coal) announced it was seeking an operating partner to assume its 75% interest in the Donkin Project. Glencore cited a change in its business strategy since first acquiring the Project, with a current focus on larger-volume mining complexes, as the reason for choosing to sell its interest.

On December 3, 2014, it was announced that Glencore had completed the sale of its 75% interest in Donkin to Kameron Collieries ULC (“Kameron”), a subsidiary of The Cline Group, LLC (“Cline”). The Cline Group’s US coal company, Foresight Energy LP, is one of the largest coal companies in the United States and well known for its underground mining expertise; currently operates three of the four most productive underground coal mines in the United States.

On December 12, 2014, Morien announced it had entered into an agreement with Kameron to exchange its 25% working interest in the Donkin for $5.5 million in cash and a production royalty on sales from Donkin (“Transaction”). Kameron also agreed to pay Morien a gross royalty of 2% on the first 500,000 tonnes of coal sales per calendar quarter and 4% on any tonnage thereafter from the Donkin Project. In addition, Morien closed a private placement in December, 2014, with Atlantic Royalty LLC, a subsidiary of The Cline Group LLC, for 3.45 million common shares in Morien at $0.30 per share, a 58% premium to market, for gross proceeds of $1,035,000.

In February 2015, Morien shareholders voted overwhelmingly (99.99%) in favour of the Transaction with Kameron. In March 2015, the Transaction closed and Morien’s 25% working interest was successfully transferred to Kameron. On closing, Morien received an initial cash payment from Kameron of $2 million. The remaining cash consideration of $3.5 million is to be paid in stages, with $2 million on the earlier of either first production from the Project and the 2nd anniversary of closing, and a further $1.5 million on the earlier of either first export sales from the Project and the 3rd anniversary of closing.

Permitting

In July 2013, Morien received approval from the federal and provincial Ministers of Environment for the Donkin Coal Project (“Project”). The Project now has all of the necessary environmental approvals to advance toward full production.

To view the full Canadian federal Minister decision and related documents, please visit the Canadian Environmental Assessment Agency website here.

To view the full Nova Scotia provincial Minister decision and related terms and conditions, please visit the Nova Scotia Department of Environment website here.

Simple Share Buttons