Compliance Energy Corp. (TSX: V.CEC, Stock Forum) wants to develop a coal mine in the Comox Valley, a scenic region of Vancouver Island that is known for its hiking trails, sandy beaches and wildlife.
The company is going ahead despite obvious investor skepticism, and concerns that the Raven Coal project will suffer a similar fate to some of the other B.C. mining projects which have been stopped in their tracks in recent years.
“The fact that Compliance was trading at 37.5 cents on Thursday tells you that investors are assigning no value to the coal project,” said one Canadian analyst who preferred to remain anonymous.
The analyst said the current share price is a reflection of Compliance’s cash on hand and 2.2 million shares of Copper Mountain Mining Corp. (TSX: T.CUM, Stock Forum). (Those shares are worth $16.3 million, based on $7.41, the closing price of Copper Mountain on Wednesday).
Still, in spite of local concerns about environmental impacts, Compliance chief executive officer John Tapics says he is optimistic that the coal project will make it through Federal and provincial regulatory hurdles to the production stage.
Tapics remains undaunted even though Compliance tried and failed in 2007 to develop a coal fired generation plant in the British Columbia interior community of Princeton. The project was a victim of a change in the B.C. provincial government’s energy policy, he said.
“We don’t see any show stoppers,’’ Tapics told Stockhouse during a telephone interview from Toronto.
The Raven Coal project will be an underground mine located in the Comox Valley about 198 kilometres north of Victoria, on the east coast of Vancouver Island. It is located on the same coal seam that supports the Quinsam coal mine, which is located 70 kilometres further north, near Campbell River. Quinsam is operated by Hillsborough Resources Ltd., a unit of Vitol SA of Geneva Switzerland.
According to a technical report, the property contains sufficient reserves to produce 13.1 million tonnes (850,000 tonnes per year) of semi-soft coking coal over a projected 15.5-year production mine life. That material would be trucked to Port Alberni, loaded into boats, and shipped to steel mills in Asia.
“We’ve been told that we will be the largest private employer on Vancouver Island,’’ said Tapics. He expects to project to create 350 full time jobs, including 279 at the mine site, 50 in transportation and 21 at the port in Port Alberni.
Another 500 spin-off jobs will result from the need to provide service and support to the mine.
During a series of meetings this week in Toronto’s Bay Street’s financial district, Tapics was anxious to send a message that his company has the financial wherewithal to achieve its goals. “I’m not sure that the market understands that we have $4 million in cash and shares of Copper Mountain Mining,’’ he said.
Tapics said Compliance’s partners I-Comox Coal Inc., a subsidiary of Itochu Corp. and LG international Investments (Canada) Ltd. have an obligation to arrange project debt financing.
With capital costs estimated at $240 million, Compliance says his company’s share of that amount will add up to $60 million.
In developing the mine, the junior is hoping to cash in on buoyant prices for coking coal, which have doubled from levels seen in mid-2009. Metallurgical coal settlements are reported at around US$315 per tonne for low volume Australian coking coal, as the damage from Australian floods earlier this year continues to constrain global supplies,’’ said Wojtek Nowak of Fraser Mackenzie Ltd. in a report.
Compliance hopes to deliver the first coal shipments in late 2013.
But those plans depend on the company’s ability to stickhandle its way through an environmental assessment process that is subject to a review by the provincial and federal governments
In public meetings on Vancouver Island, concerns have already been expressed about the impact of acid rock drainage, and the local shellfish industry.
“There is a local opposition and not a lot of grass roots support for this project,’’ said Tria Donaldson, a Pacific Coast campaigner with the Canada Wilderness Committee.
Vancouver Island oyster farmer Greg Wood said he is concerned about the impact of coal production on the sea water. “It would have a devastating effect if something did go wrong,’’ he said.
Maxine Leger-Haskell, a communications advisor with the Canadian Environmental Assessment Agency (CEAA) in Ottawa said any final decision on whether the project can proceed rests with the B.C. and Federal environment ministers. “If one says no, it can’t happen,’’ she said.
Meanwhile, at this stage of the environmental review process, concerns that are being identified are merely potential impacts, Tapics said. Over the next several months, he said the company will have an opportunity show that any impacts can be mitigated. “We have been very transparent with this project,’’ he said. “We want to make sure that we deliver in a socially and environmentally responsible manner.’’