Canadian Mining Journal May 2014

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CANADIAN Mining Journal

Departments 5 Editorial

This month Editor Russell Noble talks about the recent Quebec election and why he thinks that it was good for Canada that the proposed motion for Quebec to become a sovereign nation failed.

6 Investing

Ned Goodman’s regular ‘Investing’ column looks at the Botox economy and the money-printing machine known as the Federal Reserve.

8 Law

Norton Rose Fullbright Canada’s John Pivnicki looks at the oil sands and what’s involved in getting patents on innovations designed for use in this petroleum project.

44 Products & Services

Canadian Mining Journal features products and services available to the mining industry.

48 Company Profile

This month’s featured company is W.S. Tyler of St. Catharines, Ontario.

52 In My Mine(d)

This month’s guest columnist is Annita McPhee, President of the Tahltan Central Council, First Nations in Canada.

54 Unearthing Trends

EY’s Michael Samis, an Associate Partner in Toronto, takes an indepth look at identifying risk and recognizing the ability to respond to uncertainties.

CONTENTS

COAL IN CANADA

12 Coal(d) facts about our coal

A coast-to-coast look at where Coal is found and mined across Canada.

12

16 Offshore Coal Coal Association of Canada President Ann Marie Hann talks about what’s on the horizon for Canadian coal.

18 Coastal Coal B.C. and N.S. provide the bulk of Canada’s coal for export markets.

22 Coal Mining Equipment Equipment manufacturers go to great lengths to improve safety and performance.

26 Coal Mine Water

26

A look at coal mining and its impact on water quality

30 Coal Mine Safety

Underground coal mining and its many risks.

30

OIL IN CANADA

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COAL

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ABOUT THE COVER Created by Art Director Mark Ryan to depict the theme of this issue: “Coal and Oil in Canada.”

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38 Shell Canada’s project

Shell’s Quest project is slated to become the world’s first commercial-scale CCS facility

38

ARE STILL IN GOOD SUPPLY

For More Information New in June/July

Canadian Mining Journal will take a look at “Mining in the Prairies,” plus “Equipment Maintenance and Repairs,” a Special Supplement featuring articles on how to keep mining equipment running.

Please visit www.canadianminingjournal.com for regular updates on what's happening with Canadian mining companies and their personnel both here and abroad. A digital version of the magazine is also available at www.digital.canadianminingjournal.com

www.canadianminingjournal.com May 2014 • Canadian Mining Journal |

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Editorial

CANADIAN Mining Journal May 2014 Vol. 135 — No. 4 80 Valleybrook Drive, Toronto, Ontario M3B 2S9 Tel. (416) 442-5600 Fax (416) 510-5138 www.canadianminingjournal.com Editor Russell B. Noble 416 510-6742 rnoble@canadianminingjournal.com Field Editor Marilyn Scales 613-270-0213 mscales@canadianminingjournal.com Art Director Mark Ryan roduction Manager Print Production Manager P Steve Hofmann Phyllis Wright Circulation Manager Cindi Holder 416 442-5600, ext. 3544 cholder@bizinfogroup.ca Publisher & Sales Robert Seagraves 416 510-6891 rseagraves@canadianminingjournal.com Sales Western Canada, Western U.S.A.

Bonnie Rondeau 416-510-5245 brondeau@canadianminingjournal.com Toll Free Canada: 1-800-268-7742 ext 6891 or 5245 Toll Free USA: 1-800-387-0273 ext 6891 or 5245 President

Bruce Creighton

Vice-president Alex Papanou

Established 1882 Canadian Mining Journal provides articles and information of practical use to those who work in the technical, administrative and supervisory aspects of exploration, mining and processing in the Canadian mineral exploration and mining industry. Canadian Mining Journal (ISSN 0008-4492) is published 10 times a year by Business Information Group L.P. BIG is located at 80 Valleybrook Dr., Toronto, ON, M3B 2S9. Phone (416) 442-5600.

Legal deposit: National Library, Ottawa. Printed in Canada. All rights reserved.

The contents of this magazine are protected by copyright and may be used only for your personal non-commercial purposes. All other rights are reserved and commercial use is prohibited. To make use of any of this material you must first obtain the permission of the owner of the copyright. For further information please contact Russell Noble at 416-510-6742.

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The “Big M” fails to score this time

By Russell Noble

N

ot since Frank Mahovlich, the “Big M”, played for the Montreal Canadiens in the early 1970s, has the letter “M” been in the headlines more in Quebec and around the world for that matter than it was recently thanks to former Parti Quebecois leader Pauline Marois.

Unlike the original “Big M” who scored goals and helped his team win, Pauline Marois failed to tally a single marker (namely her own seat) to help her Parti Quebecois team win the recent election in the Quebec league.

Her belief that the province would one day become a sovereign nation was shot down by the other players who overwhelmingly wanted her off the bench and out of the dressing room entirely because of her inept belief that: “We are able to do it if we decide to choose this freedom.”

Thankfully most voters did not want the “freedom” Marois was preaching and hopefully sovereignty is off the table for good because I can’t imagine what Canada would look like without Quebec.

The adjacent map, however, graphically depicts that Canada without Quebec just isn’t Canada as the world knows it so in keeping with my earlier theme of hockey, it makes us look ‘toothless.’

Like the maps we’ve been seeing lately of Russia and Ukraine with distinct regions penciled in different colours, Canada without Quebec also conjures up visions of a war-torn place where borders are lined with burning tires and bombedout Toyotas.

Realistically that will never happen here and aside from a few burning tire

An independent Quebec would probably have created a grey zone in the minds of many investors in Canada.

incidences involving a handful of disgruntled First Nations’ members blocking roads and rail lines, Canada is a pretty level-headed nation.

But I’m sure like many of you, the words “what if ” entered my mind recently when talk of Quebec becoming a sovereign nation came up in conversation.

My first thought was that I’d have to carry my passport when driving to the East Coast because the only routes are through Quebec or the United States.

Then I started thinking about the other horror stories involving commercial transportation that takes the Quebec routes between Ontario and New Brunswick and the other Maritime Provinces for granted.

Quebec, should the sovereignty vote have gone through, would have scored a power play goal that would have caused a time out around the world as trading partners and other investors in Canada stepped back to evaluate “what just happened?”

Again, thankfully, the worst-case scenario didn’t happen but I think it put a scare into a lot of people who believed it could have.

CMJ

Canadian Business Press Indexed by Canadian Business Periodicals Index

May 2014 • Canadian Mining Journal |

5

Investing

Sex, Botox and the Bull Markets Ned Goodman is President and Chief Executive Officer of Dundee Corporation

By Ned Goodman

I

t’s the morning of March 31, 2014 and I am awake and listening to the business news on BNN TV. The announcer is interviewing an analyst from Wall Street who is supposedly famous for his market calls. He is pushing for bank stocks to join the so-called bull market which has been in existence. He must have mentioned “bull market” at least a dozen times while pushing the purchase of U.S. banking stocks. I could not help but remember a comment from my idol of investment management, Warren Buffett, when he said that “a bull market is like sex, it really only begins to feel good when it is almost over.”

Two weeks prior to this – on March 13th – I received a memo from someone who competes with Warren Buffett as one of my best investors on the planet – Seth Klarman – who said recently, “In the face of mixed economic data and at a critical

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inflection point in Federal Reserve policy, the stock market, heading into 2014 resembles a Rorschach test. What investors see in the inkblots says considerably more about them than it does about the market. If you were born bullish, if you’ve never met a market you did not like, if you have a consistent short memory, then stocks probably look attractive, even compelling.

“But if you have the worry gene, if you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have a sense of market history, then there is more than enough to be concerned about.”

A skeptic would have to be blind not to see bubble inflating in junk bond issuance, credit quality and yields, not to mention the nose bleed stock market valuations of fashionable companies like Netflix, Tesla and Facebook.

Both Klarman and I see that there is a growing gap between risk and inadequate potential return almost everywhere we look and Warren is right about sex and bull markets.

To quote Klarman once again, “Whether you see today’s investment glass as half full or half empty depends on your age and personality type as well as your lifetime experiences in the market and how you interpret them.”

It is my assessment, as is Klarman’s, that the Federal Reserve has provided more stimulus than is safe and that, plus low interest rates and suppression of volatility, has triggered a market full of “speculative froth” and is a direct result of the Botox economy created by Dr. Bernanke and his money printing machine.

It’s the tail end of sex and the bull market, enjoy it.

CMJ

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Law

Getting a patent for oil sand innovations within one year John Pivnicki is a patent agent in Norton Rose Fulbright’s Montreal office.

By John Pivnicki

T

he companies of the Canadian oil sands innovate in the fields of applied/ process chemistry and mechanical engineering. This less-than-surprising finding was established through a keyword search of the expression “Oil Sand” in the title of patent documents publicly available at the website of the Canadian Intellectual Property Office (CIPO). The patent documents uncovered at CIPO are owned by many of the companies working the Canadian oil sands.

There are several strategies that the oil sands companies can use to protect their innovations by obtaining a Canadian patent as quickly as possible. The strategies set forth here may permit an innovative company to obtain a Canadian patent within one year of filing a patent application in the fields of applied/process chemistry or mechanical engineering. The strategies proposed here may NOT be applicable to other fields.

Definitions - Patent and Patent Prosecution A “patent” permits its owner to exclude others from benefitting from the invention defined in the patent.

“Patent prosecution” is the process of obtaining a patent that includes: defining an invention in an application; filing the application in a jurisdiction that examines the application; and negotiating the breadth of the patent with the jurisdiction, before the jurisdiction grants the patent. Patent prosecution takes typically three or more years. In Canada, due to deferred examination, prosecution may take seven to eight years before a patent issued. Importantly, only a granted patent can be enforced by its owner.

There are three options for accelerating patent prosecution in Canada.

8 | Canadian Mining Journal • May 2014

A) Section 28(1)(a) of the Patent Rules - Special Order The prosecution of a Canadian application can be accelerated under Section 28(1)(a) of the Patent Rules, by meeting formal requirements, and by submitting a declaration stating that: “failure to advance the application is likely to prejudice the owner’s rights.” This route is used when the owner of the patent application believes that the application is under attack from a third party who may be copying or otherwise exploiting the subject matter of the application. A patent can be granted within one year of filing the Special Order.

B) Section 28(1)(b) of the Patent Rules - Green Technology.

The Canadian Patent Rules were amended in 2001, to allow the acceleration of patent applications under Section 28(1)(b) of the Patent Act for Green Technology. The requirements under Green Technology include a declaration stating that the application: “ relates to technology the commercialization of which would help to resolve or mitigate environmental impacts or conserve the natural environment and resources.”

This definition of Green Technology is very broad and permits accelerated examination, for many process innovations including those in the oil sands meeting these criteria. Allowance of a patent application is likely to be received within one year from filing the Green Technology examination.

C) The Patent Prosecution Highway (PPH) Under the PPH option, an allowed counterpart patent application from one of 16 jurisdictions cooperating with CIPO may request accelerated examination in Canada.

The counterpart application is most often from the United States. However, CIPO also has similar programs with: Australia, China, Denmark, Finland, Germany, Iceland, Israel, Japan, Korea, Mexico, the Nordic Patent Institute, Portugal, Russia, Spain, Sweden and the UK. For the PPH option the pending Canadian Application should be adapted to conform with Canadian requirements.

For the PPH route, an allowed patent may be received in one to two years from the filing of the PPH examination. The PPH examination route is a reciprocal arrangement that uses a success in one jurisdiction to accelerate prosecution in a another. An issued Canadian Patent may be used to accelerate issue in the jurisdictions listed above.

Costs For each of options A), B) and C) a government examination fee of $800 must be paid.

For the Special Order Option A) an additional $500 government fee is also required.

The PPH Option B) and the Green Technologies Option C) require no additional government fees.

The patent agent service cost for filing any one of these examinations vary, but start at the amounts paid for the government fees.

Conclusion A patent can be obtained in Canada within one year. If either option A) or B) of Section 28 of the Patent Rules is used, the issued Canadian patent obtained (within one year) can then be used in the 16 cooperating jurisdictions of the PPH program, to accelerate patent allowance in these jurisdictions also.

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| Coal in Canada

COAL(d) FACTS A hard look at coal mining across Canada

By Russell Noble

A

province-by-province, territory-by-territory look at Canada clearly shows that it’s a massive nation containing a vast and envious amount of natural resources.

In fact, it’s the second largest land mass on the planet at 9,984,670 km2, following only Russia at 17,098,242 km2, and like Russia, it’s also the home to some of the more varied and abundant supply of minerals found anywhere.

From Yukon to Newfoundland and Labrador, and from the 49th Parallel to the Arctic Circle, Canada is a country rich in commodities; base and precious metals 12 | Canadian Mining Journal • May 2014

being the most sought after, followed by strong showings of iron ore, uranium, potash, oil and naturally, coal.

With the exception of the central regions of Manitoba, Ontario and Quebec, coal is a mineral being explored and mined throughout most of the country.

In fact, it’s the world’s most abundant and widely distributed fossil fuel and according to the International Energy Agency, the world’s total proven coal reserves are 1,000 billion tonnes spread over more than 70 countries and thankfully, Canada is where much of it can be found.

Canada holds 8.7 billion tonnes of

Photo by Caterpillar.

proven coal reserves, including 6.6 billion tonnes of proven recoverable coal reserves that will provide more than 100 years of production at current production rates. In addition, about 193 billion tonnes of coal resources have also been identified.

Even in the far reaches of Ellesmere Island in Nunavut where iron ore has dominated exploration, coal is now a player thanks to the perseverance of companies like Petro-Canada, Gulf Canada and currently Canada Coal Inc; all determined to help develop coal mining in the extreme north.

But a closer look at where most of the country’s coal is coming from shows www.canadianminingjournal.com

Coal mining projects in Canada range from massive open-pit operations to smaller, more localized mines where less equipment is required.

(according to the most recent (2012) figures from Natural Resources Canada (NRCan), Minerals and Metals Sector*), there were 24 permitted coal mines in Canada; 19 of which are currently in operation. Ten are located in British Columbia, nine in Alberta, three in Saskatchewan and two in Nova Scotia.

Kevin Stone, Senior Advisor at NRCan, says that Canada produced almost 67 million tonnes (Mt) of coal in 2012, of which 47 per cent was coking coal. The production of coking coal increased by 5.5 per cent from 29.5 Mt in 2011 to 31.1 Mt in 2012.

This increase was driven by the steel industry, but not necessarily Canada’s because we shipped almost all of our coal to offshore customers while keeping only a small amount for domestic purposes.

Most of the output in the coking coal category was hard coking coal and only a small portion was pulverized coal injection (PCI) coal.

Approximately 4.3 Mt of bituminous thermal coal were produced in 2012, most of which was exported, and about 21.6 Mt of subbituminous coal and 9.5 Mt of lignite coal were produced in 2012, both of which were used for domestic coal-fired power generation.

Stone added that statistics showed that British Columbia produced 28.8 Mt of coal, Alberta produced 28.3 Mt, while Saskatchewan subsequently produced 9.5 Mt. in relation to the number of coal mines in each province.

With further reference to the number and location of operating coal mines in

Canada, Stone says there was “a boom in coal projects development in 2012” with five new projects applying for environmental assessment: Carbon Creek, Murray River, Echo Hill, Bingay, and Sukunka. All five projects are located in B.C., with four of them planning to produce coking coal and other bituminous thermal coal for export.

Coal mining projects in other parts of the country also made headlines recently, starting with Nova Scotia’s Donkin coal project and the Canadian Environmental Assessment Agency’s (CEAA) release in April 2013 of its

comprehensive environmental assessment study for public consultation for the proposed Donkin coal project.

The CEAA found that the project is not likely to cause significant adverse environmental effects. The project proponent proposes to construct and operate an underground coal mine at the site of the existing Donkin mine located on the Donkin Peninsula in Cape Breton.

It would produce 3.6 Mt/y of run-ofmine coal and 2.75 Mt/y of coking coal for export. Production is projected to begin by the end of 2017. The mine life is expected to range between 20 and 30

FIVE NEW COAL MINES PROPOSED FOR B.C. As mentioned above, here’s a brief description of the five projects proposed for British Columbia.

Cardero Resources Corp. proposes to develop a mine with surface and underground operations that would have a combined annual production capacity of 2.9 Mt of coking coal for export. The proposed Carbon Creek mine site is located approximately 40km west of Hudson’s Hope in northeastern B.C. HD Mining International Ltd. proposes to develop the Murray River underground coal mine with an annual production capacity of 6 Mt of coking coal for export over 31 years. The proposed mine site is located about 12.5km southwest of Tumbler Ridge in northeastern B.C. Hillsborough Resources Ltd. proposes to develop an open-pit mine with an annual

production capacity of 1-1.5 Mt of bituminous-grade thermal coal for export over a mine life of 10-14 years. The proposed Echo Hill mine site is located approximately 44km north of Tumbler Ridge.

Centermount Coal Ltd. proposes to develop a mine with surface and underground operations that would have a combined annual production capacity of 2 Mt for export.

The proposed Bingay Main mine site is located approximately 21km north of Elkford in southeastern B.C. Xstrata Coal Canada proposes to develop a mine with surface and underground operations that would have a combined annual production capacity of 1.5-2.5 Mt of coking coal for export that would increase to 6 Mt/y over 20 years. The proposed Sukunka coal mine site is located approximately 55km south of Chetwynd and 40 km west of Tumbler Ridge.

May 2014 • Canadian Mining Journal |

13

| Coal in Canada

Canadian miners go to great depths to make Canada the 13th most productive coal mining nation in the world.

years. Xstrata owns 75% of the Donkin coal project and Erdene Resource Development Corp. owns the remaining 25 per cent.

Also making the news was Fortune Minerals Ltd. (Fortune) who resubmitted its application for an environmental assessment for its Arctors anthracite project in April 2013. Fortune changed the name of its Mount Klappan project to Arctors in August 2012. The proposed project is located 160km northeast of Stewart in northern B.C. The company plans to produce anthracite coal for export at a production rate of 3 Mt/y.

And in June 2012, the B.C. Environmental Assessment Office and the CEAA issued the Application Information Requirements/Environmental Impact Statement Guidelines for the Raven underground coal project proposed by Compliance Energy Corp. (CEC). As of March 31, 2013, the project was still at the pre-application stage. It is a joint venture between CEC (60%), Itochu Corp. of Japan (20%), and LG International Corp. of Korea (20%).

The proposed project, located in the Comox Basin on Vancouver Island, B.C., would produce coking coal for export at a rate of 1.5 Mt/y with a mine life of 20 years.

In Alberta, Coalspur Mines Ltd.’s 14 | Canadian Mining Journal • May 2014

Vista project, located approximately 4km east of the Town of Hinton and 60km southwest of the town of Edson, is a proposed two-phase development: Phase 1 entails commencing production at a level of 6 Mt/y of bituminous-grade thermal coal and Phase 2 would increase output to 12 Mt/y by 2019.

In 2012, Coalspur completed a feasibility study of the Vista project that identified a marketable reserve of over 313 Mt from a recoverable reserve of 566 Mt. The company further defined, in a follow-up study, two stages of development for Phase 1: Stage 1 would have a production capacity of 3 Mt/y with production beginning in mid-2015 and Stage 2 would add an additional capacity of 3 Mt/y by 2017.

The mine life is projected to be approximately 30 years.

With coal producers across much of Canada, the country was able to export 34.8 Mt of coal in 2012, up 3.2 per cent compared to 33.7 Mt in 2011, and making it the world’s third largest coking coal exporter.

Canadian coking coal exports increased by 11 per cent to 30.7 Mt in 2012 from 27.7 Mt in 2011 due to increased global demand.

Canada imported 9.8 Mt of coal in 2012. Coking coal accounted for 45 per cent of its total coal imports and the rest

was thermal coal destined for coal-fired power generation and industrial uses.

While prices are always a subject of sensitivity for the mining industry, NRCan found that in 2012, the benchmark price for hard coking coal averaged US$210 per tonne. It started the year at US$235/t in the first quarter, went down to US$$210/t in the second quarter, reached US$223/t in the third quarter, and dropped to US$168/t in the fourth quarter.

Based on Canadian customs records, the average achieved unit value in 2012, on a free-on-board (f.o.b.) basis, was $193/t for coking coal exports and $98/t for thermal coal exports. The average unit value in 2012 for Canadian imported coking coal was $149/t and for imported thermal coal was $65/t.

The majority of domestically sourced coal was from so-called “mine-mouth” operations, which involve extracting coal from a mine site and then trucking it to adjacent coal-fired power generation plants to produce electricity.

The majority of mining and power generation operators are engaged in longterm contracts.

Sherritt, the largest thermal coal producer in Canada, reported an average realized price of $17.48/t in 2012. However, NRCan says this price is merely a reflection of the cost of mining coal and cannot be regarded as the prevailing market price.

As just outlined, coal is the prime target for many miners around the world (particularly the Chinese) and it’s no wonder because there’s so much of it. In fact, the world’s total coal production was estimated at 7,865 Mt in 2012, of which close to half (46 per cent) was produced in China.

Canada, however, is no slouch at almost 67 Mt. The country ranks 13th in the world but for a nation with only 24 permitted coal mines by comparison to China’s 16,000 permitted (or otherwise) coal mines, that’s a very impressive place to be in terms of productivity.

CMJ * Information provided by Kevin Stone, Senior Advisor, Minerals and Metals Sector, Natural Resources Canada. The content is to provide general information. It is not intended as a reference, guide or suggestion to be used in trading, investment, or other commercial activities. The author and Natural Resources Canada make no warranty of any kind with respect to the content and accept no liability, either incidental, consequential, financial or otherwise, arising from the use of information contained in this article. e-mail: kevin.stone@nrcan-rncan.gc.ca

www.canadianminingjournal.com

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The Group

| Coal in Canada

STILL IN

DEMAND Need for steel-making coal continues to rise

By Ann Marie Hann*

C

anada’s most abundant mineral resource delivers tremendous economic and social benefits that can’t be denied and recent trends show that Canada’s steel-making coal is particularly in high demand.

Recent statistics from (NRCan) show that 67 million tonnes of coal were produced in Canada in 2012 and of that total, 46 per cent was metallurgical or steelmaking coal. This was a 5.5 per cent increase in production from 29.5 Mt in 2011, to 31.1 in 2012, which is a positive sign for Canada’s metallurgical coal producers. In 2012, Canada also produced close to 26 Mt of thermal coal, the majority of which was used for domestic coal-fired power generation.

The increase in metallurgical coal production was driven by the demand for coking coal which is directly tied to the production of steel. Almost all of Canada’s steelmaking coal was exported with only a small portion shipped to 16 | Canadian Mining Journal • May 2014

domestic users. Canada’s metallurgical coal is exported primarily to South Korea, Japan and China through British Columbia ports and terminals. In fact, over 80 per cent of all of Canada’s coal exports go through British Columbia.

Coal is extremely important to Canada’s economic health and well-being.

In 2012, the Coal Association of Canada (CAC) asked Pricewaterhouse Coopers to undertake an economic analysis of the coal mining industry Canada. They found that the industry makes an economic contribution of $5.2 billion to Canada’s GDP, including $3.2 billion in direct impacts and $2.0 billion of indirect impacts.

More than 42,000 people are directly and indirectly employed in the coal industry across Canada. This includes those who work in mine production, construction, exploration, transportation and reclamation activities as well as those who supply goods and services to the industry.

Canadians directly benefit from the

coal industry through the royalties coal companies pay to governments. In addition to royalties exceeding $300 million annually, additional economic impacts on government revenues in 2011 was estimated at $698 million, which was available to fund public infrastructure, such as roads, hospitals, schools and government programs, which have the potential to enrich the lives of Canadians.

So what’s on the horizon for Canada’s coal industry?

There are several new projects which applied for regulatory approvals in British Columbia on the horizon including; Arctos located near Mt. Klappan (Fortune Minerals) Carbon Creek (Cardero Resources Corp.) located west of Hudson’s Hope in Northeastern BC, Murray River, (HD Mining) located southwest of Tumbler Ridge, Echo Hill (Hillsborough Resources) located north of Tumbler Ridge, Bingay (Centermount Coal Ltd.) located north of www.canadianminingjournal.com

Massive mounds of coal are stockpiled in preparation for loading to offshore markets.

Elkford, and Sukunka (Xstrata Coal Canada) located west of Tumbler Ridge).

Five of these companies plan on producing metallurgical coal for export, and one plans on producing thermal coal for export.

There is also interest by companies including Altitude Resources, Riverside Resources, and Capital Investment Partners in the Crowsnest Pass area of

Exporting coal by ocean-going ships.

southwest Alberta, an area known for its rich coal mining history. A number of other projects are under consideration to the northwest of Crowsnest Pass.

In 2015, Alberta’s newest coal mine, Vista, located in Hinton and operated by Coalspur, will become operational and will export thermal coal through the Ridley Terminal in Prince Rupert, B.C. With about 6.6 billion tonnes of recoverable coal reserves, Canada has the potential to provide more than 100 years of production at current rates. At the Coal Association of Canada we are working hard to ensure that coal has a bright future in Canada.

The Association represents a broad spectrum of companies engaged in the exploration, development, production, transportation and commercial use of coal. This diversity provides us with a unique “big picture” perspective on trends and emerging issues in the coal industry which we can share with stakeholders, governments, media and the public.

The primary goal of the Association is to support its members in ensuring coal is developed in a manner that is safe, and

socially and economically responsible.

Through communication, outreach and advocacy activities, we work with our members to help Canadians and governments understand and recognize the importance of the coal industry.

We share a great deal of information at our annual conference and trade show.

This year our conference will take place September 10-12 at the Westin Bayshore Vancouver. We’re delighted to have worldrenowned coal analyst Gerard McCloskey back as the conference moderator.

We’re also excited to have 15 outstanding speakers from around the world presenting on the challenges and opportunities facing the global and Canadian coal industry. Our conference and trade show is open to anyone who wants to connect with Canada’s coal industry. To learn more about our conference you can visit our web site at www.coal.ca Coal has been a part of our past but I think that it has a great future for our country. CMJ * Ann Marie Hann is President, Coal Association of Canada.

Rail is a primary mover of coal in Canada.

May 2014 • Canadian Mining Journal |

17

| Coal in Canada

COASTAL COAL Canada’s rugged shorelines have an inner beauty too

By Russell Noble

C

anada is blessed with many distinct features; most notably its thousands of fresh-water lakes, its flat, fertile and seemingly endless prairie lands; a long and open border with its largest trading partner and probably most outstanding of all, mountainous coastal regions that flank the country with rugged beauty.

It’s truly a country of distinction but perhaps its most outstanding features are not visible, they’re buried deep beneath the surface; an abundance of minerals that are almost second to none anywhere in the world.

From the iron-rich regions of Newfoundland and Labrador in the east, to the gold and other precious metals in Ontario, through potash, uranium and oil midway through the country to finally, the B.C. coast and the wealth of ore found in the Rocky Mountains, 18 | Canadian Mining Journal • May 2014

Canada is a nation bursting with a plenitude of minerals.

Coal, as mentioned in the previous articles, is found on both coasts (plus Alberta and Saskatchewan) but nowhere is it more plentiful and easy to access than in British Columbia.

Its mountains are loaded with it and according to the British Columbia Geological Survey, Ministry of Energy and Mines, B.C.’s 10 permitted coal mines produces close to 58% of revenues for all mines in the province.

Coal comes from four regions; five mines in the southeastern part of the province and three in the northeastern part where mainly coking and pulverized coal injection (PCI) coal is produced, while two other mines, the Quinsam mine on Vancouver Island and the Basin mine in the southwest interior produce thermal coal.

In total, these 10 mines produced an estimated 31.2 million tonnes of coal valued at about $4.6 million last year.

Bruce Madu, Director, Mineral Development Office, British Columbia Geological Survey, points out that exploration expenditures by companies looking to expand or find new coal deposits reached about $119 million and new coal license applications numbered 155 in 2013 for a total of 197,681 hectares.

“For the first time since 2007, the province also issued new coal leases,” says Madu. “A 3800 ha-lease expanded the existing lease at Teck Coal Limited’s Mount Babcock project, southeast of Tumbler Ridge.”

As a further sign that coal is of growing interest, Madu says The Government of Canada is also considering an open, competitive sale of parts of the Dominion Coal Blocks in the Kootenay region. www.canadianminingjournal.com

Rugged mountains and oceans provide scenic backdrops for two of Canada’s prime coal regions.

COAL MINE REHABILITATION;

IT’S SERIOUS BUSINESS

Historically the Dominion Coal Blocks were acquired by the Government of Canada in 1905 in exchange for financial support for railway construction through the Crow’s Nest Pass and if the sale proceeds, it will open 20,235 hectares of land that has been off limits for coal mining for well over a century.

That’s another sure sign that coal mining in British Columbia is still a hot topic and when the Federal government shows interest, the prospects for the future of the industry looks even more promising.

Even despite a recent headline in The Globe and Mail’s ‘Report on Business’ saying; “Price slump hits B.C. coal miners,” the coal sector still remains reasonably strong thanks to the companies that have helped keep the province’s coal production between 22 and over 30 million tonnes for the past 20 years.

As mentioned earlier, easy access to the various sites makes the province’s coal deposits attractive to mining companies but the province’s export infrastructure is what has helped put B.C. on the world map insofar as delivery is concerned.

Coal produced in much of the southeastern region is transported by rail to Westshore and Neptune terminals in the

Vancouver area for export while coal from mines in the northwest part of the province is transported by rail to the Ridley Terminals near Prince Rupert (see photos on Pages 16-17).

Thermal coal from the Quinsam mine on Vancouver Island and from the Basin mine midway in the province near the U.S. border, is shipped to international markets from facilities on Texada Island in the Strait of Georgia, and Neptune Bulk Terminals in North Vancouver. Domestic markets are supplied by truck and barge.

Similarly on the East Coast, Nova Scotia’s two main coal mines in the Cape Breton and Pictou County regions are

Mine site rehabilitation, particularly with coal mining where it’s often misperceived as being ‘dirty’ simply because of the dark and ominous colour of the product, is an area where most mining companies make a concentrated effort to be a good neighbour by cleaning up after themselves.

In today’s society, however, it’s not a matter of volunteering to rehabilitate a site upon completion of mining; it’s required by many mining jurisdictions through bonds to ensure that costs associated with reclamation are covered.

And, as mine operators will attest, those bonds are substantial. In fact, securing bonds for mine reclamation can amount to millions and millions of ‘upfront’ dollars that are often difficult to secure but in the end are critical to the successful and profitable operation of the mine.

Transforming a spent mine back into a site with an ‘alternative’ use is no easy task but through imagination and community involvement, many mines have been restored for innovative recreational purposes that provide many tangible and intangible benefits to communities.

Reclaimed mined lands include wildlife habitat, forestry, farming, residential and/or other industrial developments but regardless of their use, mine operators from coast to coast know that reclamation is an integral part of mining and they’re taking that responsibility seriously.

A perfect example of mine-site rehabilitation.

May 2014 • Canadian Mining Journal |

19

| Coal in Canada

Two views clearly show the care and attention some coal miners go to when they’ve completed their site rehabilitation responsibilities.

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also serviced by an infrastructure system that enables them to deliver coal by ship, rail and truck to offshore and domestic customers.

From the province’s main producers, Nova Scotia’s existing surface coal operations produce in the range of 250,000 to 500,000 tonnes a year. Provincial thermal coal generation consumes about two million tonnes of coal per year, much of which is now mostly imported.

Plans for more domestic coal production include the Donkin Mine Project, a submarine coal resource block with an annual underground production potential of three to four million tonnes per year.

The project is one of the larger standalone undeveloped coking and thermal coal opportunities in North America and is expected to be among the lowest cost coking coal mines in the world.

From Vancouver Island to the Eastern-most shore of Cape Breton Island, Canada is home to some of the more abundant sources of coal in the world and that’s why its “Coastal Coal” mines are such an asset to the coal mining industry in Canada.

And they’re located in two of the more beautiful parts of the country too! CMJ www.canadianminingjournal.com

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| Coal in Canada

TOUGH GOING Miners and machines face rough conditions as they push forward

By Correspondent David Godkin

L

ast year Teck, American Anglo and Walter Energy Inc. announced ambitious plans to expand their coal operations in British Columbia and then, nearly as quickly, all three began stepping back and keeping quiet.

What happened and why aren’t they talking now?

Well, Tom Hoffman, Vice-president of Communications for Walter Energy, Inc. perhaps puts it best. “New, lower-posted prices for met coal have created a need to review and possibly revamp our plans for the year given the continued weakness in the market.”

Very simply, weak prices and a glut in coal supply have effectively taken the legs out from the industry. Add to this increasing competition from natural gas and as well as stiffer environmental checks in the U.S., and elsewhere, and some believe it may get worse before it gets better.

22 | Canadian Mining Journal • May 2014

But fortunately there are still some others who remain buoyant about coal’s prospects.

Joy Global’s Director of Product Marketing and Application Engineering Brian Thompson is one who says equipment manufacturers continue developing technologies coal companies will need that day when prices rise and expansion plans re-boot. They can’t afford to slow down.

“Very rarely do we have time to adjust or do long-range planning then. “It’s a matter of flipping a switch and you’ve gotta be ready to go.”

Finding that cutting edge…

Coal mining equipment has come a long way in the past few decades, especially in full-face mining. Most continuous miners can easily cut a coal face in a single pass and excavate right angle turns with a minimum radius. However, not too long ago it was a major impediment to long

wall development. More recent advances are continuous miners equipped with roof and rib bolters for installing supports as close to the cut face as possible without having to move the machine.

Joy Global’s pride and joy is the higher seam 12ED25 and its lower seam cousin the 14ED25 CM continuous miner - consisting of a sliding frame which extends forward into the face while the body’s main portion remains fixed and still for bolting purposes.

“Overlapping those two processes obviously gets you to a more efficient process,” says Thompson, “allowing you to mine at a faster rate than what independent cut and bolt processes have historically allowed.”

What hasn’t changed at the company is its “multi-motor” design concept in continuous miners. Equipping the cutter, traction, gathering and hydraulic systems with individual motors – in effect isolatwww.canadianminingjournal.com

Underground mining equipment is designed to handle the toughest of conditions while at the same time, provide operators with remote devices to operate the equipment safely.

ing them from one another – provides maintenance staff easier access to repair or service a component. That “robust core” has to be your foundation,” says Thompson, both to reduce downtime and save on maintenance costs. This in turn has an impact on “person-to-machine” interface. “When you look at refinements now in the mechanical and electrical systems, the focus now shifts to a renewed emphasis on safety,” says Thompson Cutting and loading systems have seen advances too, but it’s the advent of remote controls where the greatest gains have occurred, both in productivity and safety.

“Allowing an operator to back away from a machine and actually get better visibility on section, that’s perhaps one of the bigger shifts,” Thompson maintains.

In fact, he says his company will implement remote controls at a low-seam longwall operation later this year in Norway.

“We don’t have people chasing machines up and down the entry any longer; we’ll have people setting in the head gate monitoring systems that are doing the actual cutting,” says Thompson.

Another important area in remote control for the company is remote-control communications. Later this year it will release a new two-way radio remote to provide staff standing 10 to 15 metres behind the miner information they’d normally view on a control screen while standing on the back of the machine.

“They’ll get production information; they’ll get machine health information, and they will have that at their fingertips. It allows operators better visibility and has

fingertip control that changes things drastically from the very mechanical/hydraulic type system operators would typically run.”

How prevalent are remote-control systems in continuous mining? “Not much,” says Thompson. “We do have a few instances around the globe where we’re operating from a distance away from the machine but as far as surface monitoring goes, that level has not been achieved.”

Paul Mulley, Caterpillar’s Room-andPillar Products Line Manager, says while there is a strong desire to automate the cutting and loading cycles underground to remove operators from harm’s way, the remote systems currently available to the industry won’t entirely replace people working underground any time soon, even in longwall operations; mining systems will still have to be regularly maintained and repaired.

“I don’t see complete automation from the surface in an underground coal mine for many years to come.”

Finding those “trigger points”…

As a rule, room-and-pillar is simpler than longwall mining because it requires less investment, smaller, more manoeuverable equipment and a lot less of it. Mulley says there have been many advances in con-

tinuous miners, i.e. in cutting power, durability, safety, proximity detection systems and the change over time from DC to AC traction systems, “to make for a safer more reliable machine.”

Despite the financial challenges Caterpillar has experienced in the past year, it continues to invest in R & D; notably, in the development of its new continuous miner, the CM235 series.

At 61 tonnes and aimed specifically at low to mid-seam operations, the CM235’s compact design is still as tough as Cat’s previous series. One of the newer features, however, is the shortened mainframe (by 762mm) for greater machine manoeuverability. Cat will shortly launch a brand new roof bolter as well, but it won’t end there, says Mulley.

“We’re still developing; we’re still designing for the market, knowing what customers want and need. A coal mine can’t continue forever on old equipment.

You have to replace it at some point.”

Underground mining by its very nature is dangerous. Like Joy Global, Caterpillar is also putting remote controls into the hands of operators (see photo on page 12) so that they stand at a distance behind the machine while it’s cutting. Complementing this, says Mulley, are new systems for monitoring May 2014 • Canadian Mining Journal |

23

| Coal in Canada machines and machine operators “so that they’re never allowed to enter particular zones around the machine.”

Phillips Machine Service, Inc. in Beckley, West Virginia has caught the remote controls bug too, taking delight in placing diagnostic capabilities directly into the hands of its shuttle car operators.

Among those are temperature, fluid

capacity and payload functions monitored in real time and fed back to the operator from the command centre.

“We have the capacity to supply all of those functions for monitoring tonnage, staff, trips and maintenance of the car,” says Phillips’ International Sales Coordinator Todd Cushman. “And it can all be done by wireless communications.”

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Unlike standardized cutter heads and loading systems, remote controls and automated monitoring systems also lend themselves to greater customization in underground mining machinery. For the time being, however, Phillips’ new remote control systems will continue to rely on operators to run the shuttle car.

“It wouldn’t be something that would be remote where guys above ground run it; it’s still line-of-sight where you’ll still be in contact with the machine, says Cushman.

Yet another shift has been away from batch haulage to continuous haulage – taking staff out of shuttle cars, reducing the movement of workers and mobile equipment at the face.

Once again, Thompson calls advances like these “trigger points” that are not only safer but can also significantly reduce production delays and maximize productivity. “Things like flexible conveyor trains (FCTs) which allow belts to be moved right up behind a machine to allow continuous operation. Not just the machine, but also supporting equipment makes continuous cutting a possibility.”

Just get me home at the end of the day…

You can’t talk coal mining without talking about the dangers posed by gas and dust.

Many factors go into determining a coal’s mines ventilation requirements, says Paul Mulley, including the number of roadways, cross section of roadways, the type of mining to be carried out , the depth of the mine and proximity of equipment to the surface.

“On a longwall, typically the operators are always on the in-take side of the air so they always get the clean air. We simply avoid having an operator working equipment on the return side of the ventilation,” says Mulley.

Moving air through ventilation tubes up to and sweeping the cut face to get full dilution is still seen as a challenge, says Brian Thompson, particularly in those mines running single and double entry longwall developments systems where space is limited.

Making changes to equipment to remove dust and gas is something all manufacturers are continually working on because safety is everyone’s first priority.

CMJ www.canadianminingjournal.com

| Coal in Canada

MINE WATER Is it an obstacle or an opportunity?

Special Report*

W

ater plays an essential role in many of the industries Canadians depend on for economic and social prosperity, including coal mining, but in recent years there has been growing concern about the long-term impacts of coal mining activities on water quality.

Of primary concern is small (but significant) quantities of selenium that can be released from coal mines into groundwater or surface waters when precipitation percolates through waste rock or runs through mining operations.

Selenium is sometimes referred to as the “essential toxin.” According to David Kratochvil, President of BioteQ Environmental Technologies, Vancouver, selenium is toxic but it is also a micronutrient that our bodies require. “If we don’t have enough selenium in our bodies we suffer, and if we have too much, it’s toxic.

The range between not enough and too much is extremely narrow, and that is very unique to selenium compared to other substances,” says Kratochvil.

26 | Canadian Mining Journal • May 2014

Modern technology and new devices are now providing possible solutions to water challenges associated with mine water.

The concern is the accumulation of selenium in the food chain, which has been directly linked to reproductive issues in fish species, and impacts on ungulates like cattle and horses.

According to Tom Sandy, the Denverbased Technical Director of CH2M HILL’s Industrial Water Group, the impacts of selenium were first noticed in the late 1970s in California and Idaho, and traced back to phosphorous mines, and have since been found in a range of industries including mining, downstream oil and gas refining, and power generation.

“Over the past 30 years, scientists and toxicologists have been looking at this issue to determine appropriate selenium limits. The challenge is that toxicity is very site specific. It depends on the site geology, the background water quality, and the type of species that are impacted,” says Sandy.

It can take a miniscule amount of selenium (as low as 5-10 ppb) to have an impact – levels that have previously been difficult to measure.

Robin Parker, Mine Water Engineer at

Kerr Wood Leidal Associates, Burnaby, attributes this recognition to advancements in measurement technology. “Twenty years ago it was a challenge to even know selenium was an issue. There wasn’t recognition that there was a water quality problem until we actually started to see some effects, and this was possible because we began to measure water quality.”

Selenium from mining appears most commonly in two forms: Selenium (IV) and Selenium (VI). With current technology, Selenium (IV) is easily removed using a combination of lime and ferric co-precipitation, a common treatment method for the mining industry. The Selenium (VI) is much harder to remove, and is the primary threat to water quality in the coal mining industry today.

Today’s Treatment Technology According to Jacques Groenewald, Senior Geoscientist with Summit Environmental, Vancouver, one of the most effective ways to mitigate the effects of coal mining is to avoid creating the problem in the first www.canadianminingjournal.com

place. “There is a lot of effort going into managing the leachate before it goes into the environment. Monitoring surface water and groundwater downstream also helps us to understand the impacts.”

The emphasis on managing selenium before it becomes a problem is echoed by Parker. “A lot more effort is going into water management now than in the past.

Today, mining companies are doing what they can to avoid contamination, and to keep clean water clean.” One way to achieve this is by creating diversions and interceptions that direct water away from spoil piles.

Of course, mitigation is not always possible, so various treatment technologies are available. One of the most prominent of these technologies is biological selenium reduction. Various products using this technology are currently on the market, including those from GE and Envirogen. Biological selenium reduction involves using bacteria to reduce Selenium (VI) to elemental selenium (a

solid). The bacteria do this by accumulating selenium in their cells until they become laden with it. Selenium is then bled from the system in the form of biological sludge, which is stored in dedicated facilities or special landfills.

While biological selenium reduction is a sound process that has been proven on a large commercial scale, it is not perfect.

Implementation costs can be high, and currently little is known about the longterm stability of the waste by-product it generates, leaving uncertainty for the industry about its long-term impacts.

This uncertainty is what makes experts like Kratochvil uneasy. “Nobody knows if producing this solid waste is the right way to go. It seems to be the only way to go, but the industry doesn’t know if this will cut it in the long-term.”

According to CH2M HILL’s Tom Sandy, “There isn’t a one-size fits all treatment method.” High costs are a concern, because of the lengthy time horizon for treatment. Coal mining companies must

pay to maintain compliance with selenium regulations, and the net present value of the cost of water treatment can be an alarming figure for many. When reviewed over a project’s life cycle, these costs can be a hindrance to mining projects going ahead, or even staying open.

Drivers for Change The industry is beginning to see changes with regards to how coal mining contaminants are handled. According to Groenewald, companies are looking at the full life cycle of a project before it progresses to production, including the longterm site remediation costs. “If you have a small project that has a number of risks that outweigh the financial value compared to remediation, it’s probably a good idea to not progress to another stage,” says Groenewald. Pressure from investors has also played a role in changing practices.

“Investors nowadays are much more clued in to a company’s impacts to the environment. To a certain extent, people don’t

May 2014 • Canadian Mining Journal |

27

| Coal in Canada want to invest in corporations that are going to leave a bad legacy behind.”

But perhaps the greatest driver of change has been selenium guidelines moving to regulation. “The enforcement of selenium regulations created an opportunity because there is a big gap between achieving compliance and doing so, cost effectively,” says Kratochvil. It is this regulation, and the gap in the market for costeffective solutions, that has driven innovation in the sector.

The Way Forward…

At the cutting edge of new technology for selenium removal is the process of ion exchange. Ion exchange is currently used in hydrometallurgy, and is well-proven commercially – but its application to selenium removal from water is novel. During ion exchange, a resin selectively scavenges Selenium (VI), while leaving other constituents alone. When the resin becomes fully loaded with selenium, it is regenerated with a salt solution. Selenium is then removed from the solution as an iron-

selenium solid, and the salt solution is recycled. This iron-selenium byproduct is more stable than the sludge created by biological selenium removal, and can be used in the metals processing industry.

Ion exchange also allows for a greater reduction in selenium concentrations, as it can remove virtually all selenium from a system. The overall cost savings that are possible with ion exchange are impressive.

Systems can be modularized and deployed at multiple sites, and the water does not need to be heated. Kratochvil estimates that, depending on the wastewater flow and composition, “an ion exchange system could reduce the life cycle cost of water treatment by 50% to 80% compared to biological systems.” It is these figures that are making mining companies pay attention.

Ion exchange represents a shift in thinking. Companies are no longer viewing water as a nuisance, but as an opportunity. Today, we are seeing growing environmental departments within mining companies, and a greater integration into their overall operations. Parker says,

“Before, miners were miners. Now, you see the people who manage water operations working with their environmental departments, and making real-time decisions about the effects of what they’re doing.” He adds, “Water was treated as a problem. Now it’s planned up front. It is treated as an important resource with important effects.”

The demand for metallurgical coal for steel production and thermal coal for power generation won’t be going away any time soon – you only need to look around at the modern conveniences we depend on to confirm this. But the need for clean water is here to stay. As long as water continues to play a large role in the mining process, we need to be responsible stewards of this precious resource, now and in the future.

CMJ *Information for this Special Report provided by Alana Tees, a freelance writer and former Communications Coordinator with the B.C. Water & Waste Association (BCWWA), a professional association of operators, engineers and suppliers who are responsible for ensuring safe, secure, and sustainable water and wastewater systems in British Columbia.

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| Coal in Canada

DANGER! Miners & tools at work are a serious mix

By Iain Thompson Natural Resources.

Solutions Executive, IBM

Photo provided by Hard-Line Solutions.

30 | Canadian Mining Journal • May 2014

www.canadianminingjournal.com

I

t goes without saying, every employee should feel safe in the workplace.

Though ideal, this concept is not always realized given that breaches in safety still transpire, directly affecting business revenue. Yet for mining companies, the “cost” of incidents goes well beyond the bottom line. It can negatively influence ecosystems, project productions and most importantly, staff security.

For coal mining, precautionary operations are integral due to heavy and dangerous equipment used to excavate coal.

Underground coal mining is especially hazardous since risks like mine ventilation, collapse and explosions can occur.

Avoiding these dangers and preventing injuries are a must.

The industry certainly recognizes employee well-being comes first. A recent Ventyx Mining Executive Insights survey reports that most mining executives identify workplace safety as their most important concern.

Despite its significance, approaches to safety within the industry have remained the same for decades: keeping track of a worker’s whereabouts could mean hanging an ID tag on a pegboard; unless a new regulation is put in place, response plans may be irregularly updated; training videos may substitute hands-on learning, and though some corporations control risk data, all too often this information is used for historical reporting rather than predictive assessment.

The good news is process improvements and breakthrough technologies such as analytics and location awareness, visualization, and gaming simulation are altering safety measures to help enterprises reach a world of zero incidents.

SMARTER SAFETY Innovations are changing how coal mining companies worldwide can explore, excavate, produce, refine and distribute resources in a more sustainable way. More tools like intrinsically safe (IS) power supply cables, which inhibit methane gas from mixing with air should an electrical spark occur; and automation systems like programmable logic controllers (PLCs), which send and receive information from

By their design and nature, underground mining equipment is aggressive and potentially dangerous and miners must respect them for these characteristics.

control panels to direct equipment, are implemented to better handle machinery during surface and underground coal mining operations.

But mining safety requires more than just technology. Improvements in processes, skill development and acquisition of knowledge are also required.

For instance in Canada, coal mining receives some of the highest standards for health and safety compared to the rest of the world due to technological advances that work in tandem with rigorous training and operating practices Integrating valuable data assets with a formal plan that modifies worker behaviour, provides incentives for the right action, and redesigns processes to accommodate greater safety can help organizations better understand potential perils while reducing mining mishaps. As a whole, the coal mining industry can benefit from the following safety practices: Knowing precisely where people and assets are located: To deter potential safety incidents from occurring, organizations should identify where employees and machinery are physically positioned. Location information is essential for coal mining - it ensures unapproved recruits are restricted from unsafe areas and helps find individuals trapped

from a mine explosion. Traditionally, location technology involved kiosks and gates, alerting staff if authorized individuals passed a certain checkpoint. But this information is no longer enough.

Today, location awareness technologies use tracking and sensor tags to help detect people within metres of their positions.

Combined with smarter visualization analytic tools, these technologies can work with the reams of data that come from safety systems to remotely locate employees while tracking authorization levels and their proximity to dangerous areas. Location awareness technology allows operators to better analyze behavioural patterns in real time and spot safety risks before an incident occurs.

Keeping an eye on operations: Visual and video technologies present new ways for organizations to observe, process, analyze and take action. Applying analytics to visualization tools can further uncover information to enhance safety practices. Technical advances like visual analytics provide real-time data, helping staff observe trends and analyze events captured by security systems; videos turn environmental awareness into intelligence for jobsite monitoring, and visualization can integrate with location tracking devices to provide graphical May 2014 • Canadian Mining Journal |

31

| Coal in Canada views of where employees are situated. If potential issues arise, visualization can flag safety personnel.

Analyzing safety and acting on events: Analytical devices, techniques and models provide a systemic approach into how companies can manage these large quantities of datasets. Safety analytics provides greater access to the instrumentation of assets, machines, people and inventories, helping organizations understand which decisions will generate safer or less safe operations. Proactive, analytical-driven computing enables staff to respond to events instantaneously, avoid incidents before they occur, and automate smart actions for a harm-free workday.

New technologies can offer improved opportunities for incident avoidance like proactive, event-driven computing systems. In the oil and gas industry, an important component to safety is the

Supervisory Control and Data Acquisition (SCADA) systems. Combined with data acquisition tools, SCADA gathers and analyzes real-time data to monitor and control oil and gas refining. These systems are able to feedback information on temperature, pressure and rotating equipment in pipelines, and signal workers if circumstances become insecure.

Understanding how people interact with each other: In the heat of a crisis, people within an organization need to effectively and efficiently take action. Recognizing employee networks and seamlessly corresponding with different levels of hierarchies are the stepping stones for creating proficient collaboration which lead to successful emergency solutions.

Advances in tools and techniques can enable organizations to analyze details of human relationships on many levels.

Through process data mining and social

SRK

network analysis, workers can examine basic performance metrics and incorporate this knowledge into understanding the relations between various staff - how work is handed over, when teams work effectively together, where duplication of activity occurs and how external workers enter the mix. Variances in employee procedures that may cause future safety failures can be identified ahead of time. This insight allows management to invest in training that is consistent and effective among multiple groups.

Training people to adopt safer practices: No matter how much technology is utilized or how innovative it may be, there is no greater risk in the coal mine than lack of knowledge and skills. Workers have to manage equipment, heavy machinery and sometimes hazardous materials each and every day. Knowledge in proper machine handling will affect whether or not these tools are used safely. For seasoned workers, this may not be an issue; however, new employees may be untrained, inexperienced or careless – all factors for increasing safety risks.

The challenge for companies here is to create programs that offer experience without putting employees in danger. In this case, serious gaming should be considered. Compared to other forms of interactive educational methods like videos or webcasts, games are a highly interactive medium held within a safe, simulated environment. Game-based learning technology enables organizations to deliver sophisticated business and technical education to employees while encouraging cooperative team learning.

A NEW ERA OF SAFETY As technology continues to evolve, so too should safety practices. New tools and techniques give organizations the foundation to progress initiatives that consciously fine-tunes job processes and employee behaviour, leading to smarter safety procedures. Continuous innovation is key to eliminating risk. With analytics and related technologies and practices, pursuing a world of zero incidents is not just a lofty dream, but an obtainable goal.

CMJ

32 | Canadian Mining Journal • May 2014

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| Coal Technology

MODELLING HELPS DETERMINE

QUALITY

NEW TOOLS MAKE SCANNING SEAMS MORE ACCURATE Special Report*

T

oday’s mining technology is a far cry from what it was less than an even a decade ago and while the basic premise remains the same, locating and extracting minerals has become far more effective thanks to new tools that enable geologists to create and update models.

Updating geological models for structurally complex or multi-seam deposits, particularly involving coal, can prove challenging but some new techniques will help create robust coal-quality models that stand up to review and regulatory audits.

34 | Canadian Mining Journal • May 2014

Validation Database validation is an essential stage and thanks to a system called Vulcan, developed by Maptek of Australia, there’s now an answer that includes comprehensive tools for collar and down hole checks, as well as coal quality variables.

Tools exist for checking individual fields, data ranges and outliers, as well as along record checks on the sum of multiple values.

Compositing Intuitive compositing tools can help stream-

line setup of structural and coal quality data. The first step is to define whether to look up intervals and match the quality by sample numbers or by depth. The sample numbers in the quality table may not always match those in the lithology record, for example if samples have been combined for analysis. Depth is then relied on, so the depths in the lithology sheet must be checked against the quality intervals.

Tolerances can be set for missing and mismatched data. A coal seam fully covered by multiple samples is easily composited, but when estimating part of a

www.canadianminingjournal.com

seam, creating an allowance for samples to overlap slightly ensures valid composites are calculated without bias.

When core loss results in missing data, rules can be set to ignore minor gaps. If new drilling data is available, but the depths do not match due to adjusted geophysics, it is tempting to just use data rules to allow tolerances. However, it is important to amend the data to ensure the core samples are reporting to the correct interval.

A critical aspect of compositing is to weight the samples - by length for raw data,

Computer modelling provides geologists and miners alike with detailed profiles of underground seams and other mineral configurations.

May 2014 • Canadian Mining Journal |

35

| Coal Technology by mass for raw qualities, and by mass and yield for washed product qualities.

Seam splitting Seam splitting poses compositing problems where drill hole data is scarce. A database constructed from the structural map files can capture all valid combinations and can be a better alternative than the original lithology database for compositing.

The Vulcan system will scan the parent seam as its child components, taking the true top and base of the seam while also estimating the location of the plies.

Taking the output as the reference for the quality model will bring in sampled drill hole data from all of the seams before and after splitting, resulting in better representation across the parent and child seams.

Merging grids The tools from the system are also useful for merging the thousands of grids generated in quality modelling. The ‘create multiple surfaces’ panel populates after the compositing run. Extents should equal the structural model and cell size should be a multiple of the model to avoid reserving problems.

In some cases it is necessary to include data from outside the final model extents.

The Vulcan Grid Calc replay files can be used to create a modelling macro, only setting the grid extents after all the data has been loaded. Resulting models more accurately honour the available data and better reflect the observed quality trends.

Trending Care must be taken when using trending tools. When there is not enough data to properly establish the trend of minor seams, the trend surface can be ‘borrowed’ from a major seam or seam group.

Noise in the data should first be removed.

The differences between the original data points and the trend surface, called residuals, are modelled to form a grid. The trend equation is then added to each node of the residuals grid to produce the final seam variable grid.

Some quality variables are best estimated by their correlation to other variables; for example where there is little data, bore core results are inaccurate, or there is inconsistent handling of the samples.

Trends in any of the input variables will usually be better reflected if the calculations are made from the component grids in Grid Calc rather than the base data. Grid Calc allows the use of complicated equations for derived quality variables.

Summary Due care at each step of the validation and modelling process results in better coal quality models. Vulcan has tools to quickly and easily generate the many grids involved in coal quality modelling and the Grid Calc menus allow advanced manipulation of the data and calculations between grids. Scripts make complex and repetitive tasks easy, repeatable and auditable. CMJ *Information for this Special Report provided by Adam Stewart, Integral Resource Consulting, Queensland, AU.

36 | Canadian Mining Journal • May 2014

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| Oil in Canada

Quest for Best Shell Canada’s Quest project ‘captures’ the world’s attention

By Eastern Correspondent D’Arcy Jenish

C

anada’s oilsands have become the cause of the moment for every celebrity activist looking to make a media splash and to shore up their credentials as good global citizens and saviours of the planet.

Former U.S. Vice-president Al Gore, Film Director James Cameron and most recently Singer-songwriter Neil Young have all taken turns denouncing oilsands extraction for allegedly destroying the boreal forests of northern Alberta, poisoning the lakes and rivers, and spewing tonnes of greenhouse gases into the atmosphere.

38 | Canadian Mining Journal • May 2014

However, they routinely overlook the fact that oilsands producers utilize worldclass technology, contribute billions of dollars annually to the Canadian economy and employ thousands of Canadians, including Aboriginals and many Maritimers who have stepped up to fill many employment opportunities.

Nor have they bothered to take note of Shell Canada’s $1.4-billion Quest carbon capture and storage (CCS) project, which is currently under construction at the company’s Scotford heavy oil upgrader, 50km northeast of Edmonton, which is scheduled to begin operating in 2015.

Quest will strip one million tonnes of CO2 annually from the emissions at Scotford, convert it from a gas to a liquid and move it by pipeline some 60km north where it will be injected into a basal cambrian sandstone formation two kilometres beneath the surface.

“It is a globally significant carbon capture and storage demonstration project,” says Chris Severson-Baker, managing director of the Pembina Institute, a Calgary-based energy and environment think tank.

“Quest won’t do much to reduce the overall amount of CO2 going into the www.canadianminingjournal.com

To say that Shell Canada’s Quest CCS facility near Edmonton is huge is an understatement as shown by just one piece of equipment being set up after delivery on a massive flat-bed tractor trailer.

atmosphere, but if we get to the point where the technology is proven and investors, regulators, other companies and the public see that this can be done safely. It could open a whole new approach to addressing climate change.”

Carbon capture and storage has been touted for over a quarter of a century as a method of reducing greenhouse gas emissions from a number of sources, including oil and gas production, coal-fired power plants, chemical and fertilizer plants and steel and cement plants. Government agencies in the U.S., Great Britain, Germany and Norway, as well as South

Africa, China and India have either studied the concept or worked with utilities and energy companies to develop CCS facilities, and four pilot projects, are in various stages of development in Australia.

To date, though, none of these initiatives have led to the construction and commissioning of commercial-scale CCS facilities, which has allowed Canada to assume a leadership role.

In 2011, the Saskatchewan government approved a $1.35-billion CCS project at SaskPower’s Boundary Dam coal-fired power plant, just outside the city of Estevan in the southeast corner of the province. It is

slated to begin operating this year and is described as the world’s first post-combustion, coal-fired CCS project.

It will strip one million tonnes of CO2 annually, which is equivalent to taking more than 250,000 cars off the road, from the emissions produced by one of the plant’s six generating units. The system will also capture sulphur dioxide (SO2 ), which will be converted to sulphuric acid for sale to industrial users, as well as fly ash, which can be used in ready-mix concrete and various other concrete products.

Meantime, most of the CO2 will be transported by pipeline to nearby oilfields May 2014 • Canadian Mining Journal |

39

| Oil in Canada Lengths of pipe are ready to be installed to transport CO2 from the Quest plant to nearby oilfields.

where it will be injected in order to boost production from aging wells.

Shell’s Quest facility appears certain to become the world’s first commercial-scale CCS facility in the oil and gas sector when it begins operating next year. It is being jointly funded by Shell, the Alberta government, which will contribute $745 million over 10 years, and Ottawa, which will kick in $120 million.

Tim Wiwchar, Shell’s Business Opportunity Manager in charge of engi-

neering, construction and commissioning of the project, says that it was conceived and developed largely in response to public and political pressure on oilsands producers to reduce their greenhouse gas emissions.

Quest will strip CO2 from the diluted bitumen arriving by pipeline at Scotford from Shell’s Muskeg River and Jackpine mines. The dilbit, as it is known in the industry, goes first to a separation unit where heat and pressure are applied in

order to release the diluents, which are captured and sent to another unit for further processing. The bitumen is moved to a vaccum tower and subjected to very high temperatures to separate as much light oil as possible, leaving behind a residue of heavy oil which, at room temperature, resembles asphalt or a hockey puck, says Wiwchar.

Meantime, in another part of the Scotford refinery called the hydrogen manufacturing unit, steam and methane gas are combined under extremely high tempertures. A solid metal catalyst consisting of cobalt and molybdenum is added to the mix to trigger a chemical reaction that yields pure hydrogen, which is then used to turn heavy oil into lighter crude. But CO2 is a byproduct and is currently allowed to go up a stack and into the atmosphere and the Scotford refinery emits enormous amounts of it--some three million tonnes annually.

Once the Quest facility is complete and fully commissioned, the CO2 and hydrogen will be piped to a capture vessel where a solution consisting of water and a proprietary chemical called amine is introduced. This solution absorbs the CO2 and

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| Oil in Canada is then sent to stripping tower where, under the right heat and pressure, the CO2 is released. From there it is moved to a compressor, which reduces the volume by a factor of four hundred and turns it from a gas to a liquid.

The liquid CO2 is then transported 60km north by pipeline to the injection wells and pumped into the basal cambrian sandstone formation that is satu-

rated with saltwater that is millions of years old, say Wiwchar. The CO2 dissolves and becomes trapped.

Shell has been using amine technology for several decades to strip hydrogen sulfide and CO2 from natural gas. The only really new part of the whole process is the storage of CO2 underground and the development of methods to measure the amounts being pumped down and to

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monitor the formation to ensure that there is no upward migration of CO2laden brine.

“The storage zone has enough capacity to go beyond 25 years at one million tonnes per year,” says Wiwchar. “We had to provide the government assurances that we are keeping track of the CO2 and making sure it stays underground.”

The Quest CCS facility will eliminate about 35 per cent of the three million or more tonnes of CO2 emitted annually at the Scotford upgrader. Shell’s Muskrat River and Jackpine mines also generate some three million tonnes of CO2 each year, largely from enormous excavators used to mine the bitumen and the huge trucks that haul it away.

Thus this carbon capture and storage project is only a first step, but it is an important one, says the Pembina Institute’s Severson-Baker. “There’s going to be a need for a process like this to capture CO2 from heavy industry,” he says. “We’ll be using fossil fuels for many, many years and without something like CCS it’s very difficult to see how we can reduce greenhouse gas emissions. That’s why our organization has been supportive.”

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4/16/14 3:47 PM

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| Company Profile: W.S. Tyler

GOOD GOOD PRODUCTS BY

PEOPLE Workers are still the basic ingredient for success

By Russell Noble

48 | Canadian Mining Journal • May 2014

www.canadianminingjournal.com

‘B

ack to basics’ is a business philosophy that more and more management teams are trying to bring back into their companies. It’s a strategy that many feel must be taken in an effort to refocus on what many company founders based their original business plan.

Canadian football legend Bernie Falonie, who owned and operated a Hamilton-based equipment dealership and later became the first non American to become President of the North American trade Association of Equipment Distributors (AED) in 1993, preached “Back to Basics” during his tenure as president to convince equipment makers that ‘basic quality and service’ are the keys to success.

Today, more than 20 year later, those three words are being heard again in boardrooms around the world as new generations of managers reflect on what made their companies what they are now.

One company that clearly understands the value of quality and service but has never wandered from those basics is W.S. Tyler of St. Catharines, ON; a place where the company has been manufacturing a broad range of processing technology for the mining industry for almost 100 years.

Since 1930, W.S. Tyler has been a mainstay to the economy of the city and its factory has grown to a sprawling 110,000 square foot manufacturing facility where more than 80 people work at producing customized screening, washing and pelletizing technology for the mining, aggregate and industrial minerals industries, to name a few From the company’s modest produc

A series of photos showing wire mesh being converted from steel coils to finished screens stacked and ready for delivery.

tion of screens and vibratory mining machines almost a century ago, to now with new and innovative products being shipped around the world, W.S. Tyler’s location in southern Ontario, only 15km from the United States border and less than a dozen kilometres from the ship-

ping lanes of the Great Lakes and the Welland Canal, is perfectly located to meet its customers’ needs.

In fact, good products and good service are two of the ‘basics’ that President Karen Thompson says have helped keep the company going for so many years and May 2014 • Canadian Mining Journal |

49

| Company Profile: W.S. Tyler

Woven screens come through assembly while workers crimp a finished edge to one of the mats.

like residential real estate, ‘location’ plays a big part in the company’s success too!

“And let’s not forget the people who make our products. ‘Good products by good people’ could easily be our company’s motto because not only are they skilled, they’re also loyal to the company.

We are a fifth-generation company where fathers and sons have, and do, work shoulder to shoulder on the production floor and “family” is one of the ‘basic’ ingredients of doing good business.”

As Thompson says, the company manufactures good products and part of the reason they do is that they work with good and reliable suppliers of raw materials in order to meet customers’ demands for quality and delivery deadlines.

Unlike many manufacturers who rely on raw materials from offshore, W.S. Tyler is proud that it sources all of its wire for woven wire cloth screens from within Canada.

With a large variety of standard indusW.S. Tyler products can be found throughout complex mining systems.

50 | Canadian Mining Journal • May 2014

try woven specifications in stock, W.S. Tyler can deliver to its customers in a very short time. Custom specifications can be woven as required, and with thousands of crimping dies to draw from, it can offer an almost limitless number of options.

“Having a ready supply of raw material less than a day’s truck ride away makes our production very efficient, and helps us maintain our LEAN processes” says Lesley Pentland, W.S. Tyler’s Purchasing Manager.

Again, ‘as needed’ reflects back to the earlier days of ‘basics’ when manufacturers matched materials with orders so as not to spend money on ‘speculation.”

Because W.S. Tyler also provides repair and maintenance services to its customers, it also stocks inventory of OEM parts.

W.S. Tyler’s vibrating screens are not only manufactured right in St. Catharines, but many of the components that go into the machines are also fabricated right in the city.

It’s been a long journey but today, W.S. Tyler is a leader in designing and manufacturing a full range of screens, washing and pelletizing solutions encompassing the complete screening circle of particle analysis, screen media, vibrating screens www.canadianminingjournal.com

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and process equipment, as well as complete production analysis.

W.S. Tyler’s success is not only a result of its products, but primarily the relationships it has built with its customers after nearly a century in the mining business.

The company’s product catalogue, called “The Rock Book, is a 238-page resource guide that rivals any step-by-step guide by any manufacturer of any product designed for the mining industry.

President Karen Thompson says “we’re proud of every part of our company and the products we produce. “The Rock Book” is something we’re especially happy with because of the way it enables our customers to find exactly what they need at a glance in an easy-to-read format.

“Even in this day-and-age of the internet, we still find that our customers appreciate a printed copy of “The Rock Book” because it’s an easy-to-reach-for reference guide not only to the products of W.S. Tyler, but to many screening basics that everyone of our customers requires for their business.

“The Rock Book” is just one more example of how we’re still a “Back to Basics” kind of company.”

CMJ

engineering for a better world May 2014 • Canadian Mining Journal |

51

In My Mine(d)

Taking a firm stand against certain advances Annita McPhee is in her third term as President of the Tahltan Central Council, First Nations in Canada. @annitamcphee

By Annita McPhee

I

n a pristine corner of northwestern B.C. called the Klappan, a drama is unfolding that might seriously compromise the relationship between First Nations and the booming natural resource sector in B.C. The 4,000 square kilometre region southeast of Iskut is called the Sacred Headwaters by Tahltan people because it is the source of three wild salmon rivers - the Skeena, Nass and Stikine - and because it has been full of life for thousands of years.

Tahltan people consider the Klappan to be Earth’s birthplace and it’s a well-travelled, traditional hunting ground that carries significant cultural, spiritual and social values for the Tahltan Nation.

Our territory is also rich in mineral and energy resources and that has led to both success stories and conflict as the Province and private companies have sought to exploit the natural resources of our territory.

Our people support responsible development that protects the environment and respects Tahltan rights and traditional uses.

Companies that understand this, and that commit to working with us in deciding how to use the resources of our territory,

have thrived. We have partnerships with AltaGas on the Forrest Kerr, Volcano and McLymont power projects. We are working closely with Imperial Metals on its Red Chris copper mine, and we have supported the construction of the Northwest Transmission Line into our territory.

However, companies that do not respect our Nation’s stewardship responsibilities for the Klappan have faced conflict.

In 2012, Shell Canada gave up its gas tenures in the Sacred Headwaters after a seven-year fight with our Nation. Shell correctly understood that, without the support of our people, their project was not viable.

Now, Fortune Minerals is at risk of failing to learn the same lesson. Fortune is trying to push ahead with its Arctos Anthracite Coal Project, an open-pit coal mine at Mount Klappan.

To move the coal, Fortune also wants to rebuild an abandoned railway that will cut right through the heart of the Klappan and open up our territory to more development.

Our people are united in their desire to protect the Klappan from the impacts of Fortune’s proposed project. We have

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clearly communicated this to Fortune, and asked them to respect our Nation’s stewardship role and invest its resources elsewhere. Despite this, the company continues to try to promote Arctos in our communities, including the distribution of videos that suggest working together would be a “win-win for both sides.”

These efforts do not build support for their project. Rather, they strengthen our people’s resolve to save Mount Klappan from destruction.

We’re saying that Fortune’s actions pose risks for not only their project, but also for development elsewhere in our territory. If our values and rights aren’t protected and respected in critical areas such as the Sacred Headwaters, we will view the risks of development as far outweighing the benefits. Conflict could become the norm, not the exception.

The Province needs to understand that by pushing one project forward, it is risking a broader relationship that could provide immense benefits to all parties: the Tahltan, the mining industry, the Province, and the people of British Columbia. Fortune needs to learn what Shell finally acknowledged in 2012 – without the support of our Nation, their project will remain a dream on some office room drawing board.

We all need to work together to protect our values in critical areas while building a sustainable economic future. This is a balanced and reasonable approach to expansion of the mining industry in northwest British Columbia. We have demonstrated our willingness, readiness and capacity to move forward with companies and the Province on projects that respect that vision. That is the blueprint for the future, and our people will continue to resist companies and projects that don’t truly embrace this vision.

CMJ www.canadianminingjournal.com

PROFESSIONAL DIRECTORY

Advertisers Index Andritz Separation Inc.........................36.........................................www.andritz.com ASI Water...............................................37....................................www.asi-group.com BBA Inc..................................................43................................................. www.bba.ca Brandt Tractors.....................................29............................................ www.brandt.ca Carlo Gavazzi.........................................52............................www.GavazziOnline.com CGIS.........................................................4..................................................www.cgis.ca DMC Mining Services..........................53................................. www.dmcmining.com Dundee Capital Markets4.....................3..............www.dundeecapitalmarkets.com Eco Waste Solutions............................53..............................www.ecosolutions.com EDC..........................................................41........................... www.edc.ca/responsible Eimco KCP Ltd.......................................44............................................ www.ekcp.com GEA Westfalia Separator....................51.............................................. www.gea.com Golder Associates Ltd..........................20..........................................www.golder.com Graham...................................................35.......................................... www.graham.ca Hard-Line Solutions..............................21...................................... www.hardline.com Hayward Baker Inc...............................25.......................... www.HaywardBaker.com Henkel Canada Corporation Hitachi Mining.......................................10.............................www.hitachimining.com Industrial Equipment Mfg. Ltd.............6...................................................www.iem.ca Italvabras USA......................................53................................... www.italvabras.com JOY Global...............................................2....................................www.JoyGlobal.com Liebherr Canada....................................15...........................................www.liebherr.ca Luff Industries........................................46............................. www.luffindustries.com Martin Engineering...............................42................................. www.martin-eng.com Mechanix Wear Canada......................55...........................www.mechanixwear.com Metso Minerals......................................9...........................................www.metso.com Norwest Corporation............................28..............................www.norwestcorp.com NUNA Innovations................................40...................... www.NunaInnovations.com Nuna Logistics Limited.........................27.............................www.nunalogistics.com Rousseau Metal Inc.............................24.......................... www.rousseaumetal.com Schneider Electric Canada Inc...........7................ www.Sereply.com/Key Code i365 SRK Consulting (Canada) Inc..............32............................................... www.srk.com Stoody Company...................................45.........................................www.Stoody.com Target Logistics.....................................56............................www.TargetLogistics.net TCL Asset Group Inc............................46............... www.managingyourassets.com Tervita Corporation...............................33............................. www.tervita.com/waste Zee Best T-Shirts..................................34................................ www.zeebestshirts.ca

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May 2014 • Canadian Mining Journal |

53

Unearthing Trends

Cash flow modelling is really important Michael Samis, Ph.D., P.Eng., is an Associate Partner in EY’s Valuation and Business Modelling, Transaction Advisory Services practice. He is based in Toronto.

By Michael Samis

I

54 | Canadian Mining Journal • May 2014

Figure 1. Historic real gold prices and future price scenarios.

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dentifying risk and recognizing the ability to respond to uncertainty is an important priority for mining and metals companies across Canada and beyond — especially given ongoing metal price volatility. Taking the necessary steps to recognize metal price volatility and the possibility of price declines in investment decision making has never been more important. Industry players cannot afford to ignore the investment effects of uncertainty.

Much of the industry relies on static cash flow (“Static CF”) models for investment analysis and portfolio reviews. These models estimate investment or portfolio cash flows by representing uncertain variables such as metal price or grade as a forecast. The risk exposure generated by these uncertainties may then be explored with a limited number of scenarios and other risk modelling techniques. Unfortunately, while making the cash flow modelling process easier, a forecast can be problematic as it is only a summary representation of an uncertain variable’s future possibilities.

This limitation associated with a forecast is particularly detrimental in today’s mining and metals environment. “All forecasts are ultimately wrong” is often heard when trying to explain away differences between actual metal prices and their corporate forecasts. However, it’s rare to hear this deviation considered to be a reflection of metal price behaviour rather than an embarrassing forecast error. A better approach, rather than relying on a single price forecast for investment decision-making, is to explicitly recognize uncertainty by pairing the forecast with a statistical description of possible price behaviour. Companies can better prepare for uncertainty by replacing a single forecast with a large number of simulated scenarios that describe possible movements around the original forecast Figure 1 illustrates why simulated price scenarios can provide a better overall description of future price behaviour than a single forecast. In this graph, historic real gold prices are plotted from January 1975 to 31 December 2013. One method of projecting future gold prices from this date for investment analysis is to use a flat forecast based on the final known spot price (grey line). Alternatively, a large number of scenarios can be generated to represent future price possibilities through simulation and an updating uncertainty model that is statistically consistent with historic prices. These simulated price scenarios are exemplified by the five price scenarios (coloured lines) in Figure 1 describing possible gold price behaviour around the original forecast. These simulated scenarios each exhibit the erratic price movements that are consistent with historic gold price behaviour but, when

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considered in aggregate, have an expectation equal to the original forecast.

The choice between using a single price forecast and simulated price scenarios is important if we wish to continually improve the representation of the business environment in investment models. A Static CF model can be transformed to better reflect the business environment by using simulation to replace a single forecast scenario with a large number of price scenarios. This transformation is important for two reasons: • The Static CF model and its reliance on a single forecast scenario may provide an erroneous cash flow estimate due to the presence of management flexibility or non-linear financing/taxation cash flow structures. Simulation and other numerical methods can reduce this estimation bias.

• The standard sensitivity or scenario analysis often performed with a Static CF model provides an incomplete description of cash flow uncertainty and investment risk exposures. Understanding potential risk exposures can be improved with numerical methods.

Explicitly recognizing metal price uncertainty with numerical methods such as simulation is not a needless complication for investment decision-making, though this extension should be used selectively. The purpose of techniques such as simulation is to improve the description of future cash flow variability in investment analysis and to ultimately provide management with insight into a proposed investment’s risk exposure that would not otherwise be gained with a Static CF model.

CMJ www.canadianminingjournal.com

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