Morien issues project and corporate update

Donkin coal mine

Kameron Collieries ULC (Kameron), an affiliate of The Cline Group LLC, and owner/operator of the Donkin coal mine in Cape Breton, Nova Scotia (USA), has temporarily suspended production at Donkin due to a roof collapse in an older part of the mine. The incident occurred on 28 December 2018 during Kameron’s scheduled holiday shutdown and no workers were injured. Kameron has been directed by the Nova Scotia Department of Labour to review a variety of engineering and operational measures designed to monitor, control and prevent future mine roof falls. Production at Donkin is expected to resume after Kameron and government inspectors are satisfied that the appropriate measures are in place. Kameron’s top priority is the safety of its 128 employees and contractors and it will resume operations as soon as practicable. Morien welcomes Kameron and the Nova Scotia government’s commitment to safety and will provide further updates as they become available.

Kameron continues improvements in productivity. In December 2018, it installed a continuous haulage flexible conveyor train (FCT) coal mining system to replace part of Donkin’s shuttle car fleet. The FCT was approved by the Nova Scotia Department of Labour in December and is expected to significantly increase production volumes in 2019 once production resumes and hence export sales.

In 2018, Kameron signed a multi-year, thermal coal offtake agreement with local power utility, Nova Scotia Power Inc., for a portion of Donkin production. The majority of Donkin coal is and will be sold overseas either as a high quality metallurgical coal and/or as a low ash, high energy thermal coal.

On 4 January 2019, it was reported that Provincial Energy Ventures Ltd. (“PEV”) is proceeding with the first phase of its US$75 million expansion of its export facility in Sydney, Cape Breton. PEV is located approximately 30 km 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 t of Donkin coal annually. A new, dedicated coal haul road that will bypass certain communities along the truck route between the Donkin mine and PEV is expected to be complete in 2Q19.

Morien owns a gross production royalty for the Donkin mine of 2% on the revenue from the first 500 000 t of coal sales per calendar quarter, net of certain coal handling and transportation costs, and 4% on the revenue from any coal sales from quarterly tonnage above 500 000 t, net of certain coal handling and transportation costs. The royalty is payable to Morien on a quarterly basis over the anticipated 30 plus year mine life. Morien’s royalty payments from Kameron have increased from US$4000 in 2Q17 to US$241 000 in 3Q18.

Production at Donkin is anticipated to reach annual sales volumes of 2.7 - 3 million t over the next two years. 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. Should Kameron’s production schedule change, Morien management will provide revised guidance when supporting information becomes available, which could be materially different from prior guidance. Using a wide range of coal pricing (CAN$65 - 115/t), annual royalty payments could be in the order of CAN$5 - 9 million at full production of approximately 3 million tpy. These values are only estimates based on assumptions Morien management consider reasonable, as of 1Q19, and would only be achieved if and when Donkin reaches permitted production levels. Actual results and royalties received, if any, subject primarily to production rates and coal pricing, may vary from those estimated by Morien. As a public company, Morien incurs general and administrative expenses that are necessary for the collection of the aforementioned royalties.

Black Point aggregate project

Morien owns a 50 plus year production royalty on the Black Point aggregate project in Guysborough County (Nova Scotia) owned by Vulcan Materials Company, the US’ largest aggregate producer. Black Point is permitted and, although production has not yet begun, Morien is currently receiving advanced quarterly minimum royalties of CAN$25 000, which will be credited against future production royalties. In April 2018, Vulcan was granted a two year extension by the Nova Scotia provincial government for Black Point and must commence work on Black Point by April 2020 unless granted a further extension.

Project generation

Morien continues to search for royalty assets to complement its existing royalty portfolio. The company is focused on acquiring long-life, cash-flowing royalties in the industrial mineral and bulk commodity market segments in North America.

Land holdings

Morien is currently pursuing options for the sale of 1054 acres of land in Georgia, USA.

Normal course issuer bid

Morien’s normal course issuer bid (NCIB) purchased 1.6 million common shares between April 2018 and 8 January 2019. Since the NCIB started in 2015, Morien has purchased 9.9 million, or 17%, of its common shares at an average price of US$0.36 per share. Morien considers its common shares to be trading at prices that do not reflect the underlying value of its royalty portfolio, its strong and growing financial position and its growth opportunities. Morien intends to renew its NCIB after the current NCIB expires on 31 January 2019. The company’s cash position allows for continued share purchases without adversely affecting its other opportunities. However, future purchases will be based on market conditions, share price, best use of available cash, and other factors. All common shares acquired under the NCIB are cancelled.

Quarterly dividend

In 2018, Morien paid quarterly dividends of US$0.0025 per common share. It is Morien’s intention to pay a quarterly dividend of US$0.0025 per common share in 1Q19. The company anticipates increasing the quarterly dividend amount commensurate with Donkin mine production expansion, having regard to the stability of cash flow and the need to maintain flexibility to secure new royalty assets. However, the declaration, amount and timing of any future dividends will be subject to the Board's determination that the payment of a dividend is in the best interest of Morien and its shareholders, having regard to the company’s cash reserves, anticipated financial requirements, legal requirements for the declaration of dividends and other conditions existing at such time, including forward production guidance from Kameron.

The company granted options to Susanne Willett, Morien’s Chief Financial Officer, pursuant to the company’s stock option incentive plan and related to Willett’s appointment to the CFO position in 3Q18. The option grant consisted of 200 000 options, each exercisable for one common share of the company until 7 January 2024 at an exercise price of US$0.48. The options vested immediately.

Read the article online at: https://www.worldcoal.com/mining/10012019/morien-issues-project-and-corporate-update/