Donkin coal is newsworthy … again

Chris Cline is a publicity-shy billionaire who acquired his fortune operating coal mines in Appalachia and Illinois. He has, however, made headlines elsewhere recently in two very distant locales, and for two very different reasons; one in sunny Palm Beach, Florida, and of more interest to Canadians, in Cape Breton, Nova Scotia.

 In Florida, Cline, a 57-year-old native of West Virginia, made the society pages of the Palm Beach Post when he began dating the woman who lives next door to his 34,000-square-foot mansion. Namely, 35-year-old Elin Nordegren, the Swedish beauty and ex-wife of golfer Tiger Woods.

In Canada, by stark contrast, Cline also made Page One of the Cape Breton Post last December when it was disclosed that one of his companies–Kameron Collieries–had finalized a deal with the Nova Scotia government to acquire the Donkin coal block, a vast and hitherto untapped reserve that stretches for dozens of miles beneath the Atlantic Ocean and was once seen as the future of mining on the island.

“It looks like Cape Breton is getting coal for Christmas,” the Post gleefully reported, and the deal was a rare bit of good news both for a region with a chronically sluggish economy and for the province itself.

“It’s been a priority of our government to get that mine into production,” Natural Resources Minister Zach Churchill told Canadian Mining Journal. “This will be an important economic generator for Cape Breton and for Nova Scotia. It will significantly increase our mining output.”

Nova Scotia mineral production suffered a grievous blow in May, 2001, when DEVCO, the federally owned Cape Breton Development Corporation, closed the last coal mine on the island, three centuries after islanders had
first begun digging pits or tunneling underground to exploit a rich and valuable resource.

By the time it pulled the plug, DEVCO had already spent in the neighbourhood of $100 million exploring and developing the Donkin block. The company had commissioned offshore drilling to obtain core samples. It had also constructed two tunnels, each 7.5m in diameter and stretching some 3.5km from the tip of the Donkin Peninsula to the Harbour coal seam—one of several seams in the block.

Based on that work, DEVCO estimated that block spans 110km(2) and may contain over half a billion metric tonnes of high-grade metallurgical and thermal coal. But that wasn’t enough to convince the company to move from development to production–and labour troubles were part of the problem.

“You have to blame the federal government and the unions,” says Adrian White, who is now executive-director the Syndey and Area Chamber of Commerce, but was formerly DEVCO’s vice-president of international marketing.

“The unions knew how to push buttons and the government didn’t want any embarrassing strikes that might cost a local member his seat. The government continued to give the miners what they wanted until the Cape Breton mines were completely uncompetitive with third-world coal.”

Miners who had followed their fathers and grandfathers into the mines, and had worked alongside friends and neighbours, abruptly found themselves unemployed. Most had little or no chance of landing work locally, and many headed west to Alberta’s booming oil sands.

Others hoped that someday the industry would be revived and they kept fingers cross when in December, 2004, the Nova Scotia government called for proposals to lease and develop the Donkin block.

Hopes soared one year later when the government announced that it had awarded a lease to a consortium of four companies led by the Anglo-Swiss mining giant Xstrata. Two members of the group eventually dropped out, but Xstrata and a local partner, Erdene Resource Development Corp., forged ahead.

They de-watered the DEVCO-constructed tunnels and collected bulk samples from the Harbour seam, as well as smaller samples through horizontal and directional drilling.They obtained environmental approvals and announced plans for a mine that would produce 2.75 million tonnes of high-grade metallurgical coal for export markets.

The project included construction of a third tunnel to provide ventilation, a washing plant to prepare the coal for shipment and an ocean-side barge-loading facility. The five-year development phase was expected to create nearly 8,500 person years of employment and the mine itself would employ about 200 people directly and create up to a 1,000 spin-off jobs.

But in April, 2012, the region received more disheartening news. Corporate priorities had changed at Xstrata headquarters in Switzerland and the company had decided to sell its 75 per cent stake in Donkin.

“The community was annoyed at Xstrata for holding on to the asset for so long,” says White. “At the end, people felt Xstrata was in the way. They weren’t helping to put the mine into production.”

The Nova Scotia Ministry of Natural Resources put the Donkin reserve back on the block and went looking for another lessee. Late last November, Minister Churchill announced that the U.S.-based Cline Group LLC had acquired 100 per cent of Donkin and the reaction in Cape Breton was hardly surprising. People were jubilant.

“In many other places, opening a mine poses great challenges, often due to public opposition,” says Cecil Clarke, Mayor of the Regional Municipality of Cape Breton.

“Here, it’s being celebrated and eagerly anticipated. Because of our history, people see mining as a good thing and they’re embracing it.”

This time around, though, both the government and people of Cape Breton believe that they’ve landed the right buyer in Chris Cline.

“He’s a global leader in the coal mining sector and a leader when it comes to providing a safe working environment,” says Churchill. “We visited one of his mines in Illinois. It was a very impressive operation, very efficient.”

Furthermore, Cline may be worth an estimated $1.9 billion and rank 399th on the Forbes list of America’s richest. He may own that Palm Beach mansion, a private jet and a 164-foot luxury yacht called Mine Games, but he comes from the coal-mining country of West Virginia and both his father and grandfather were miners.

In 1980, at age 22, he dropped out of university and went to work underground for his father’s company.

According to a biography posted on the corporate website, (neither Cline nor his senior executives agreed to be interviewed) the company earned a reputation as a highly efficient, low-cost operator under his leadership.

In 1990, he formed the Cline Group and began acquiring mines and within 10 years, his company had become one of the top 20 coal producers in the U.S. with a capacity of 10 million tons per year.

Then in 2003, he sold his Appalachian properties and took a gamble few others were willing to take. He began buying mines in central and southern Illinois that produced high-sulfur coal that could not be burned in most U.S. power plants. But he guessed correctly that the Environmental Protection Agency would impose new regulations forcing power producers to install scrubbers and, with that, Cline’s Illinois coal increased exponentially in value.

Currently, the company operates four mines in Illinois through its Foresight Energy subsidiary. Their productive capacity totals 71.5 million tons annually and the Cline Group owns reserves estimated at 3 billion tons, enough to support 100 years of mining at the current rate of output.

To date, the company has been typically tight-lipped about its plans for Donkin, though Cape Breton residents are excited about what they’ve seen so far.

Kameron Collieries, the Cline Group subsidiary, has established a Halifax office, appointed an operations manager, Matt Fifield, and hired more than a do
zen former miners to de-water the tunnels.

In an interview in mid-February, Fifield told the Cape Breton Post that the pumps had been installed 39 days ahead of schedule and de-watering was proceeding much more quickly than expected. As well, he said he was struck by the reception the company had received.

“It’s hard to describe the feeling of positive support that we get out of the community,” Fifield said. “It just knocked us over. It makes you really want to succeed because you can feel these people rooting for you.”

Between 60 and 70 per cent of the coal from the Harbour seam will be metallurgical grade while the balance will be thermal. The prospects for putting the mine into production will be greatly enhanced if the company can land a long-term contract to sell thermal coal to Nova Scotia Power.

Hopefully, that should be a proverbial slam-dunk. The utility relies on coal-fired plants for 60 per cent of its electrical output and the two largest plants in the province are located on Cape Breton, mere kilometres from Donkin.

Furthermore, N.S. Power currently imports most of its coal from Colombia and United States.

But there is one snag. Donkin coal contains too much sulfur and would have to be blended with lower-sulfur coal to ensure that emissions meet provincial environmental regulations.

Nevertheless, negotiations have begun, according to a spokesperson for the utility.

Naturally, neither party is saying anything yet, but the talks are expected to be protracted and complicated.

Meantime, Cape Breton residents are again keeping fingers crossed and hoping for the best.