Asian demand for electricity driving Western Canadian thermal coal explorer

The main markets are in China and India, which he said are expected to add about 2 billion tonnes a year worth of coal consumption.

That compares to about 5.9 billion tonnes of hard coal used worldwide last year, with coal being consumed faster than any other fuel since 2000, according to the World Coal Association. In 2009, 940 million tonnes of coal was sold, 730 million of which was thermal coal used for electricity generation.

Wusaty pointed out that half of the world’s population has only partial access to electricity, and those are the areas that will become the big target markets for the thermal coal business.

He said China has 40 times the population of Canada but only nine times the power generating capacity, meaning the demand for thermal coal is only going to increase. The Asian juggernaut currently derives 80% of its power from thermal coal; in India, it’s 71%.

Canada’s thermal coal production, 70 million tonnes a year, is dwarfed by China’s 3.2 billion t/yr, much of which is going to power new homes and businesses, as China’s rural population migrates to new cities being built at the rate of “one Vancouver every two months,” said Wusaty.

Many will be surprised to know that despite negative media reports about coal-fired power generation in the United States, half that country’s power comes from coal.

The futures market for thermal coal makes for greater pricing certainty than metallurgical coal, said Wusaty, noting that the Newcastle coal price index shows futures prices of $119 per tonne looking ahead to 2014.

“When you’re developing a project it gives you a little warm and fuzzy feeling that the markets are strong,” he said. “It’s also telling me that when you get this kind of volatility, with natural disasters like floods out there, that supply and demand are very tight.”

Wusaty said his company, Coalspur Mines Ltd., aims to grab a piece of the thermal coal action with a large coal project in Alberta, a Canadian province better know for squeezing crude oil from tarsands than for hoisting buckets of coal.

Coalspur’s Vista Coal and Vista South Coal projects cover about 32,000 hectares close to Hinton, Alberta.  The coal resource comprises 1.37 billion tonnes of low-sulphur thermal coal, with 1.014 billion tonnes in the measured and indicated category. The Vista Coal property contains a 20-kilometre strike of “continuous gently dipping near surface coal,” according to the company’s 2010 annual report.

According to the recently completed pre-feasibility study, the surface mine operation would move 18 million tonnes  per year and produce 9 Mt/a of saleable coal, for an estimated mine life of 31 years. The project carries an after-tax net present value of US$1.546 billion at an 8% discount rate. It is expected to generate a 23.2% internal rate of return enabling capital payback in 4.6 years.

“This is a beast. It’s a really world-class reserve,” Wusaty said.

The project is accessible via existing CN rail track; the company plans to export the coal through Ridley Terminals in Prince Rupert.

Wusaty said he’s targeting the third quarter of 2011 for a completed feasibility report, with construction beginning by mid-2012 and the first coal sales in 2014.

Analyst Andrew Harrington with Patersons Securities Ltd. included Coalspur among 11 “small-cap standouts” in an industry report dated August 16, 2010, citing the project’s close proximity to existing rail infrastructure and two producing coal mines nearby. The company is trading on the Australian stock exchange under the symbol CPL and on the Toronto Stock Exchange under CPT.

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