Colonial Coal International Corp. (TSXV: CAD) is a pure-play metallurgical (met) coal development company. It owns two major coal projects in the Peace River Coalfield in northeastern British Columbia (B.C.): Huguenot and Flatbed.
Huguenot and Flatbed have nearly 700 million tonnes of steelmaking coal resources. When fully operational, the projects could produce about six to seven million tonnes of coal per year. The B.C. ports from which Colonial’s coal would be shipped represent the closest port of entry from the west coast of North America to Asia.
Huguenot is located about 175 kilometers (km) east-northeast of Prince George, B.C. and around 120 km southwest of Grande Prairie, B.C. The project may be configured to be solely an open pit mine or could be modified to include both open pit and underground mining techniques. Flatbed, an underground mining project, is situated 27 km south-southeast of Tumbler Creek and 131 km west-southwest of Grande Prairie. Like Huguenot, all necessary infrastructure is in place to accommodate coal production.
Colonial Coal is actively marketing these properties. Indeed, the company has hired three financial advisors, including Canaccord Genuity, to aid in the sales process. Colonial Coal has disclosed that it has signed Non-Disclosure Agreement (NDAs) with around 15 parties potentially interested in acquiring its assets. The majority of these entities are believed to be large steel or coal companies located in India, China and Japan.
A risk for Colonial Coal is B.C.’s December 2022 decision to reject Glencore plc’s (LSE: GLEN) proposed Sukunka coal mine project primarily due to the impact Sukunka would have had on the endangered Quintette caribou herd. Sukunka would have produced around two million tonnes per year of met coal over 20 years using open pit mining technology.
However, this ruling may not be applicable to Colonial Coal. Caribou tend to feel safe around open pit mining operations; they seem to sense innately that hunters will not be present at such sites. On the other hand, caribou do not favor underground mines. Such projects do not provide them any sense of protection. These considerations represent a distinction between Sukunka and Colonial’s Flatbed project. Like Sukunka, Flatbed is located about 30 km away from Tumbler Ridge, but Flatbed’s coal will be extracted via underground mining.
Colonial Coal’s ability to reach constructive deals to sell Huguenot and Flatbed will obviously be the key determinant of shareholder value. If Colonial Coal’s CEO David Austin is ultimately able to sell the properties at an average of US$2 per tonne of resources, a level consistent with the most recent coal deals (which were struck during times of lower met coal prices than currently prevail), Colonial Coal would receive proceeds of approximately US$1.4 billion, or US$2 per tonne times 695 million tonnes of aggregate resources.
The price of Australian hard coking coal spiked to about US$650 per tonne when Russia invaded Ukraine in March 2022. Prices quickly normalized from these unsustainable levels and now sit at about US$400 per tonne. Nevertheless, spot met coal prices have approximately tripled since early 2021.
Since Colonial Coal has approximately 185 million fully diluted shares outstanding, the pretax proceeds from such a sale would equate to around US$7.50 per Colonial Coal share. Clearly, there would be tax consequences from such a transaction, but a reasonable guess of after-tax proceeds in this scenario could be US$4.50 to US$5.00 per share, or C$6.00 to C$6.75 per share.
Colonial Coal International Corp. last traded at $1.89 on TSX Venture Exchange.
Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.