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Morien provides update on Donkin coal mine

Published by , Editorial Assistant
World Coal,

Owner/operator Kameron Collieries ULC (Kameron), an affiliate of the Cline Group LLC, recently provided Morien executives with a site tour of the mining operation.

A series of recent photos of the operation can be viewed on Morien's website by clicking here, and an update on Donkin is provided below. Morien has a gross production royalty of 2% to 4% on all coal sales from Donkin.

Donkin coal mine highlights

  • Current production is from a single continuous miner unit, with the addition of a second continuous miner unit expected before the end of 3Q17.
  • It is anticipated that four continuous miner units will be operational in 2018.
  • Kameron is anticipating production of approximately 350 000 to 450 000 t in 2017, 1.2 to 1.8 million t in 2018, and 2.6 to 2.75 million t of salable coal in 2019 (production volumes are subject to change based on numerous market and non-market factors).
  • A coal handling, preparation and processing plant ("washplant") is nearly complete, and is expected to become operational before the end of 3Q17.
  • The washplant has been designed to process 500 tph, enough to process the permitted production at Donkin.
  • Current coal production is being trucked and stockpiled at the Provincial Energy Ventures port in Sydney, Cape Breton.
  • 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.
  • The Donkin Coal Technical Report, dated November 2012, found on Morien's SEDAR profile, supports the above technical disclosures.

Morien royalty and milestone payments

On 27 February, 2015, Morien sold its 25% working interest in Donkin to Kameron for aggregate cash consideration of US$5.5 million and a gross production royalty. Morien owns a gross production royalty of 2% on the first 500 000 t of coal sales per calendar quarter (excluding the initial 10 000 t of coal produced and sold from Donkin) and 4% on any coal sales from quarterly tonnage above 500 000 t (Royalty). The Royalty is payable to Morien on a quarterly basis over the anticipated 30 plus year mine life.

Using a range of coal pricing, annual royalty payments could be in the order of US$4.0 million to US$8.0 million at full production. These values are only estimates based on 2Q17 assumptions that Morien management consider to be reasonable. 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 US$2 million milestone payment on closing of the transaction with Kameron (27 February, 2015) and received a second milestone payment of US$2 million on the second anniversary of the closing (27 February, 2017; click here for Morien news release). Morien is entitled to receive an additional US$1.5 million milestone payment on the earlier of first commercial sale of export coal from Donkin and the third anniversary of the closing of the transaction (27 February, 2018).

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