Grand Cache Coal aims to expand Smoky River

Vancouver — Despite some startup and transportation problems, Grand Cache Coal (GCE-T) is forging ahead with a feasibility study to expand operations at its Smoky River coal mine in west-central Alberta.

The Calgary-based company recently completed its first quarter of operations at the reactivated mine site and expects to sell 400,000 tonnes by the end of March. The cost of these sales is estimated at $115 per tonne, while capital expenditures for the 2005 fiscal year are pegged at $32 million.

President Robert Stan says the startup process has taken longer and cost more than anticipated, owing to rail transportation shortfalls, which led to a buildup of on-site inventories and delays in the delivery of coal to customers. Improvement to rail services will be critical to meeting sales targets, he adds.

The surface-mine contractor hired by Grand Cache reported rail and operational difficulties during the development phase, though these are expected to be resolved.

Grand Cache expects to be operating at an annualized production rate of 2 million tonnes in fiscal 2006 (ending March 31 of that year), with production coming from underground and surface operations. Capital expenditures totalling $10 million are earmarked for plant improvements, underground mining equipment, and definition drilling.

The company will examine the feasibility of doubling annual production to 4 million tonnes. This study will cost about $5 million and is scheduled for completion by the end of 2006.

The company estimates that its average cost of sales will be $65-70 per tonne next year. Higher costs are projected for the first two quarters, as a new surface mine is developed and the mill is upgraded.

Projected sales of 2 million tonnes for fiscal 2006 include 200,000 tonnes of metallurgical coal contracted at US$64 per tonne, 1.5 million tonnes of metallurgical coal at US$125 per tonne, and 300,000 tonnes of non-metallurgical coal at prices yet to be determined.

Along with most resource companies operating in booming Alberta, Grand Cache expects to face higher wages and energy costs, as well as increased competition for the services of contractors and consultants. Grand Cache has factored these items into its anticipated operating performance for fiscal 2006.