Hanam Canada Corporation

Naskeena Anthracite Project

Terrace, British Columbia, Canada

Project Location

The project is located 50 kilometres north of Terrace, and 108 kilometres north of the Port of Kitimat and 182 km north east of the Port of Prince Rupert as shown in Exhibit 1.  Access is by paved highways number 16 and 279. There is an electric transmission line about 3 km from the project site. The project site is in the traditional territory of the Kitsumkalum First Nation and is subject to their approval.

Exhibit 1.         Project Location 

 Anthracite Market

Anthracite is a preferred energy source for the pulverized coal injection market in steel blast furnaces. Injection of finely powdered coal directly into the blast furnace reduces the consumption of coke by about 30%. Since invention of the technology about 10 years ago, In the most steel companies have installed such injection systems. Anthracite has a very low volatile content and a relatively high carbon content which allows for higher injection rates over other coals. The natural high carbon content of anthracite gives it a competitive advantage in the PCI market.

Anthracite is used in smelting and heating. It has a low volatile content and therefore burns with less smoke and other emissions than competitive coal. In smelting, the carbon in the anthracite strips oxygen from the minerals such as titanium oxide leaving the molten metal behind. One potential customer is nearby Alcan Aluminum, Kitimat, who currently buy 120,000 t/y petroleum coke to smelt aluminum oxide. In Japan, anthracite is used in some boilers, cement kilns, and as a replacement for coke breeze for direct injection in blast furnaces. In Korea, China, Japan, and Eastern Europe, anthracite is used in briquette form for home heating.

The overall ocean delivered anthracite market accessible to the project is about 5 million tonnes per year. Some of the previous customers for anthracite from the northwest continue to be potential customers for the project.  For example, Quebec Iron and Titanium currently buys 445,000 t/y from Pennsylvania suppliers. Anthracite sales were made by Gulf Canada in 1986 and 1987 from the Mount Klappan deposit to:

Delivery was via a circuitous 427 km road to the Port of Stewart and then by bulk ship loads of up to 50,000 tonnes. The high trucking cost of $35/ton has stalled the Klappan project for the past 20 years. However the cost of trucking from the Naskeena project to the existing coal terminal at Prince Rupert would be much less, only $12 per tonne.

An important market continues to be in Korea for yeongtan briquettes. About 5.4 million tonnes per year of anthracite is used in Korea. About 3.1 million tonnes of this anthracite is used for making yeontan briquettes for home and commercial heating.  A household typically uses one to three briquettes per day in the winter. Most of the balance is used for electric power generation and about 150,000 t/y is used by steel mills. The demand for briquettes has been increasing recently as oil prices increase. 

There are five standard sizes of yeontan and the second standard is widely used in households. It is cylindrical about 20 cm in height and 15 cm in diameter. The briquettes weigh about 3.5 kg each and have 22 holes drilled through for air circulation. The holes facilitate steady efficient burning. A new yeontan can be placed on top of the current one when it halfway burned so as to continuously maintain the fire. The yeontan have a high ash content of about 35% and therefore retain their shape even as the coal is burned.

Yeontan are made at three Korean mines Hwaasun, Jangsong, and Dogye for the government owned Korea Coal Corporation. Attempts to blend imported Australian coal into the briquettes have been unsuccessful. Some imported anthracite is used mostly from Vietnam.

Another large market is in China. The use of pillow shaped anthracite briquettes for home, commercial and industrial heating is very common in China. There are many suppliers of briquettes in bulk, one tonne bags and smaller size bags.

Coal Licences

Hanam Canada’s has applied to the BC Ministry of Energy & Miners for 300 hectares coal licences in the area of coal outcrops and the most recent exploratory drilling as shown in Exhibit 2. The licenses are described as 103I15K Units 28, 29, 38 and 39. The BC Mines Map number is 103I096 in the Cassiar and Range 5 Coast Land District, Skeena Mining division. The application must go through a review process and may take up to a year to be issued. This applied for area previously had a coal license from August 31, 2006 until August 31, 2009. Therefore there should be no significant issues that would prevent the license from being granted.

Exhibit 2.         Coal License Location & Coal Showings 

The historic coal showing was discovered in 1913 by G.F. Monckton and P. Chesley. The showing consists of surface exposures of six beds of coal ranging from 0.3 meters to 1.5 metres in thickness. At that time the Cedar River at this showing was called the Little Cedar River. The location of the outcrop was lost for some years because a tributary to the south was renamed the Little Cedar River. In addition to the main showing on the Cedar River, Monckton reported coal showings on the walls of the tributary canyons. His mining syndicate filed claims for an area 4 kilometres wide and 19 kilometres long along the entire lower Cedar River Valley to its entry into Kitsumkalum Lake.

In 1985 Bob McKinstry, Geologist, of Shell Canada subsidiary, Crows Nest Resources, obtained coal licenses for a 6 kilometre wide by 9 kilometre area along the west side of the Cedar River south of the property. McKinstry prospected along the east west trending ridge of the Little Cedar River. Thin, up to 0.5 meter, coal bands were found in the Little Cedar River canyon 2.5 kilometres west of its confluence with the Cedar River. Coal float was observed in the bottom of a small tributary creek entering the Little Cedar River near the coal showing. However, insufficient occurrences of coal were found and the licenses were dropped.

In 2005 Bill and Doug McRae of Terrace rediscovered the coal showings along the Cedar River. Coal licenses were applied for and granted to Alex Burton, Black Diamond Prospecting Syndicate, New Westminster, BC. The syndicate optioned the property to Jet Gold Corp., Vancouver, BC.

Jet Gold spent a total of $ 858,238 on the property in the past three years. The company drilled 16 holes totalling 1,215 meters in 2007 and 9 holes for a total of 1,310 meters in 2008. The drilling encountered several beds of variable thickness but the area of the deposit is less than they had anticipated. The company also became busy with a molybdenum mining project and on September 24, 2009, the company decided not to renew their coal licenses.

Hanam Canada has applied for the most promising 300 hectare area as determined by previous drilling.

Coal Resources

This coal resource estimate is based on thirteen drill holes and 800 meters of trenches excavated on the property in 2007 and 2008.  The coal resource explored consists of two seams. The upper seam includes multiple thin layers of coal interspersed with shale and clay. The target zone is seam 2 which is about 3 meters thick and outcrops on the west side of the Cedar River.  

The location of the drill holes and trenches is show in a plan view of the property, Exhibit 3. The work was carried out in a grid starting at the Cedar River and moving about 300 westward. The resource is located west of the river and south of Sterling Mountain. The property rises steeply on the east side of the river and to the north. Drilling has determined that the seams extend towards the valley and not under this mountainous terrain.

 Exhibit 3.         Plan of Resource Area

Coal is visible on the banks of Haddenschild Creek, about 2 kilometres west of the property, along Clear Creek, 1.5 kilometres south of the property, and on the Little Cedar River 3 kilometres south west of the property.  A single hole, number 16, was drilled in 2008 about 500 meters west of the Clear Creek showing and passed through a 1.7 meter thick seam of coal at a depth of 31 meters.

G.F Monckton, the discoverer of the coal showings estimated that the coal extends along the entire lower Cedar River Valley an area of 4 X 19 kilometres. He estimated there are two workable seams with a combined thickness of 3 meters. He estimated the overall resource at 190 million tonnes. Subsequent exploration indicates the workable resource is less extensive than Monckton estimated.

The license area has been extensively logged.  The clear cuts extend right to the north bend of the Cedar River. However there is a 300 meter wide band of trees directly west of the outcrop area. There is a 100 meters X 200 meter pond in the centre of area.

The target seam outcrops on the Cedar River but most of it is covered with 43 to 73 meters of overburden including a 10 to 20 meter thick layer of surface gravel. The two seams dips gently to the west towards the center of the broad Cedar River valley as shown in the Section View Exhibit 4.

Exhibit 4.         Section of Resource Area

The seam 2 coal resource extends over an area of about 800 meters by 800 meters on the license area. Taking into account that partings in the seam reduce the amount of coal available significantly and taking into account the drill core results, the approximate marketable coal thickness is one meter. At a density of 1.5 t/m³ the coal resource on the property is estimated at 960,000 tonnes. Taking into account the showings and drill test south of the property, a conservative estimate of the extent of the seam 2 deposit is 800 meters by 2000 meters by one meter thick.  This results in an inferred resource of 2.4 million tonnes.

To minimize disturbance to the surface, underground mining is proposed. The seam can be conveniently entered from the surface. Standard continuous mining equipment would be used. A room and pillar mining operation is proposed.

Coal Quality

Coal samples from outcrops and from trenches were received on December 14, 2006, and analyzed by Loring Laboratory, Calgary. The coal is a low volatile anthracite as shown in Exhibit 5. The coal beds are interspersed with clay and shale layers, therefore a representative cross section of the coal or a drill core composite sample has an ash content that would not meet market requirements. A dense media wash plant is required to separate the coal from the partings.

Exhibit 5.         Unwashed Coal Quality Cedar River & nearby projects

The coal samples from diamond drilling had a lower fixed carbon content and higher ash content than the surface coal samples. This is attributed to the poor coal recovery of the diamond drill where coal was washed out of the core barrel with the return water. The observed coal recovery in the core boxes was about 50%.  

Jet Gold also analysed samples from nearby coal outcrops on Hadenschild Creek, Clear Creek and on the side of Stirling Mountain. The Haddenschild Creek outcrop is 4.8 kilometres west of the main showing. The Clear Creek outcrop is 5.1 southeast of the main showing. The creek outcrop samples had significantly higher ash content but the Sterling Mountain outcrop, 4.2 kilometres north of the main showing, is similar in quality to the Cedar River outcrops.

Briquette Manufacturing

Briquettes are made by cleaning the anthracite, pulverizing it, mixing in additives, pressing, drying, cooling and bagging. Package plants are available from several Chinese suppliers. A typical briquette plant line can produce 20,000 t/y on one shift. The briquettes are dried so they contain less than 4% moisture. The most usual packaging is in 1 and 3 kg bags packed in cartons or 5 and 10 kg paper bags all packed on pallets.

The most expensive additive is a binder that holds the briquettes together. At a plant in Terrace, petroleum wax from Esso’s Edmonton oil refinery would be the most likely binder. Starch or other agricultural products could be used as alternative binders. Small amounts of sodium nitrite may be added as an ignition aid. Powdered limestone is also added to make the briquettes whiten within 6 minutes after lighting.

Capital Cost Estimate

The estimated capital investment to develop a 120,000 tonne-per-year mine at this location is $19 million as shown in Exhibit 6.  About $7 million would be spent in the local community. The main cost items are for mining equipment, and a cleaning plant. Depending on financing, some equipment could be leased or used. As much as possible, local contractors would construct the mine and process plant.

In addition to direct investment for the mine there would be indirect investment by mine personnel in property, housing, and amenities in the communities where they choose to live.

 Exhibit 6         Capital Investment Estimate

Income Forecast

The total delivered cost on board a ship is $65 per tonne as shown in Exhibit 6.  At a selling price of $85 per tonne the annual revenue before interest and taxes would be $2.4 million per year. This selling price seems sustainable because it is equivalent to $3.40 per gigajoule of energy, half the natural gas price of $6/GJ and oil at $15/GJ. The most important factors affecting income is achieving reliable consistent quality product coal at a wash plant recovery of 50%. Taxes are levied on the mining industry by the British Columbia provincial government under the Mineral Tax Act in two stages.  Until the producer has recovered its initial investment and return based on long term interest rates, the operating cash flow is taxed at 2% then increases to 13% of the annual operating cash flow after deducting capital expenditures.

The following income estimate is based on a very conservative price of $85/tonne. Prices for briquettes are about triple this base price. Although the price of yeongtan has been subsidized by the Korean government, these subsidies are ending in 2011. The retail price in 2009 was 500 won per briquette, equivalent to $125 per tonne. This price is increasing to 1000 won per briquette, or $250/t when the subsidy is removed. The price at the Korean mines is about 2/3 of the retail price. The price in one tonne bags in a container ranges from $200 to $300/t at a Chinese port.  The price depends on the quality of the briquettes, mainly the ash content. The lower price is for briquettes with 22% ash and the higher price is for 14% maximum ash.

Exhibit 6         Income Estimate