Donkin Mine

Nova Scotia, Canada

Recent Activities

Kameron commenced production at the Donkin Mine from the first continuous miner unit in Q1 2017, and Morien received its first royalty from Kameron on saleable coal from Donkin the following quarter.  In Q3 2017, a 500 tonne per hour coal handling and preparation plant (washplant) became operational at Donkin, triggering the first export of washed, saleable coal in Q4 2017.

In Q2 2018, Kameron signed a multi-year coal offtake agreement with local power utility Nova Scotia Power Inc., to supply a portion of Donkin coal production to Nova Scotia Power’s nearby Lingan Generating Station, a short 20 kilometre truck haul from the Donkin Mine.  The majority of Donkin coal production, however, is and will be sold overseas either as a high-quality metallurgical coal and/or as a low ash, high-energy thermal coal.

Kameron has largely completed the construction of a newly dedicated coal haul road that will by-pass certain communities along the truck route between the Donkin Mine and the Sydney harbor facility that it uses for coal export, approximately 30 kilometres from Donkin.  The private haul road is expected to become operational in Q2 2019.

Kameron currently employs over 100 employees/contractors, and has five continuous miner units on site. In December 2018, Kameron installed a continuous haulage Flexible Conveyor Train (“FCT”) coal mining system to replace part of Donkin’s shuttle car fleet. The FCT is expected to significantly increase production volumes and hence export sales.

In Q1 2019, it was reported that Provincial Energy Ventures Ltd. (“PEV”) is proceeding with the first phase of its $75 million expansion of its export facility in Sydney, Cape Breton.  The PEV port is located approximately 30 kilometres from the Donkin Mine and is currently responsible for handling all of the exported coal from Donkin.  Once complete, the PEV port will be capable of accommodating larger, Capesize vessels and is expected to have the capacity to export up to 3 million tonnes of Donkin coal annually.

Donkin is anticipated to reach an annualized sales volume rate of between 2.7 and 3 million tonnes in 2020

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 (March 2, 2015; click here for news release), received a second milestone payment of $2 million on the second anniversary of the closing (February 27, 2017; click here for Morien news release), and received a third and final milestone payment of $1.5 million on the first commercial sale of export coal from Donkin (December 11, 2017; click here for Morien news release).

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.

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