Thermal coal policy throws wrench in U.S. miner's plan
The past few months haven't been kind to Coalspur Mines Ltd., the miner behind the controversial Vista thermal coal mine near Hinton, Alta.
The federal government's policy statement on thermal coal earlier this month, saying any new or expanded projects would cause “unacceptable environmental impacts,” all but sent its two-phase expansion plans up in smoke.
“We use the words `unacceptable environmental impacts' to indicate how high the bar would be for any project to get through,” Minister of Environment and Climate Change Jonathan Wilkinson told the Financial Post.
“This is essentially intended to provide certainty and clarity for investors and others who may be looking at these types of projects — the bar would be exceedingly high. We cannot prevent them from bringing forward projects into the system, but the bar in terms of approval is very high.”
Even before that, Coalspur was facing troubles. It filed for Companies' Creditors Arrangement Act protection in late April, roughly four months after putting Vista on care and maintenance and laying off roughly 300 workers.
The company was forced to shutter the mine due to delays obtaining a permit amendment from the Alberta Energy Regulator (AER) for additional tailings cells, which would allow it to process more material from its operations.
According to an affidavit filed with the Alberta Court of Queen's Bench from Michael Beyer, the chief executive of Coalspur's Snohomish, Wash.-based parent company Vista Energy Holdings LLC, the company received a Us$26-million interim lending facility in April to recall about 250 employees, purchase supplies and equipment and restart the mine while it works through restructuring the company. The AER said operations had resumed at Vista during the first week of May.
The company filed for CCAA protection when the mine shut down, which cut off the miner's only source of revenue and coincided with a multi-million dollar hedge obligation to Singaporean commodity trading firm Trafigura Lte. Ltd.
“At the same time that Coalspur was facing a potential shutdown of the project because of the foregoing permit issues with the AER, the global market price of coal was rapidly increasing,” Beyer said in the affidavit.
Coalspur had previously signed fixed-priced forward coal sales deals with Trafigura, and the sudden run-up in the price of thermal coal from less than US$50 per tonne in August 2020 to just over US$85 per tonne at the end of December obligated the miner to pay the company US$59.9 million. When it was unable to post sufficient cash or letters of credit, it triggered a “cross default,” leaving Coalspur owing more than US$72 million.
The companies had successfully negotiated a new term sheet that would have given Coalspur two years to repay its debts, but Vista's shutdown changed that. As of midapril, Trafigura had sold approximately US$51.1 million worth of the company's inventory, according to a late April court filing.
“The result … was to leave Coalspur with no inventory capable of monetization, little liquidity and no ability to generate new coal production or revenue streams because of (the) project shutdown,” Beyer's April affidavit said.
While it ultimately received approvals from the AER for its tailings cell application and licences to resume operations, the company “lacked sufficient funding” at the time to restart the mine.
Coalspur did not respond to several requests for comment.
Even as Vista ramps up again, the mine's two-phase expansion plan is likely shelved. The expansion, submitted to the Impact Assessment Agency of Canada, would increase the mine's output capacity from 6.5 million tonnes per year to between 10 to 15 million tonnes annually. In a June 11 letter to Simon Stepp, Coalspur's vice-president of engineering, Wilkinson said he believed the projects “would cause unacceptable environmental effects within federal jurisdiction.”
Coalspur has argued in federal court that Wilkinson's decision to submit the projects to the environmental review process should be quashed. The company has not said publicly whether it intends to continue with the review process.
Wilkinson said the policy statement was a continuation of Canada's decision to phase out domestic thermal coal use by 2030.
Coal Association of Canada president Robin Campbell said in a statement the association “fully support(s) sustainable climate change goals” but was concerned the policy didn't take into account progress on carbon capture, storage and use technologies. He noted coal still plays a significant role in the global energy mix.
“The loss of coal from Canada will likely be replaced by production from other countries that do not have the same commitment to our high standards,” Campbell said.