Demand for coking coal is high and so are government demands

Prices for B.C.’s second most valuable export expected to remain high

'The regulatory landscape is changing' -- Nadia Haider, Conuma Coal. | Nelson Bennett

Steelmaking coal producers in B.C. are facing some challenges right now, including logistical ones in the form of a strike at the Westshore coal terminal at Roberts Bank in Delta.

Teck Resources (TSX:TECK.B) was also hit this week with a major equipment failure at its Elkview mine that the company expects will reduce its third quarter sales.

Longer term, however, the prospects for metallurgical coal producers like Teck and Conuma Resources seem fairly bullish, according to analysts speaking at the Coal Association of Canada conference in Vancouver yesterday and today.

Unlike thermal coal, which is burned to produce power, metallurgical coal (also called coking or steelmaking coal) is used to make steel.

Currently, seaborne coking coal is fetching about US$258 per tonne. With so much volatility and global economic uncertainty, it’s hard to forecast what prices will be six months, a year or two years from now.

Prices could dip if there is a global recession, but generally, Neil Bristow, managing director of H&W Worldwide Consulting, expects the demand for steel and coking coal to remain strong.

“I think, clearly, longer term we still see a growing steel industry,” Bristow said. “We see it in Asia, emerging countries, and we therefore still have a market for…coke plants, metallurgical coal.”

One reason prices for steel making coal are expected to continue to be strong is a lack of new supply.

“Frankly, the Canadian met coal pipeline is essentially flat,” said Anthony Knutson, coal analyst for Wood Mackenzie.

Metallurgical coal is B.C.’s second most valuable export, after lumber. Whether Western Canadian metallurgical coal miners and developers will be able to capitalize on what could be a long bull market for metallurgical coal is in some doubt, however.

The zeal that federal and provincial governments have suddenly found for critical minerals apparently doesn’t extend to metallurgical coal, despite the fact it is critical for making steel, which is about as important as copper in the making of electric vehicles, wind turbines and transmission lines.

While hydrogen could eventually supplant coking coal in the making of “green” steel, that is something that is expected to take decades.

There are several new mine proposals or expansions in the queue in Western Canada. But Alberta has slammed the door shut on new met coal mines with a moratorium on coal exploration for the Eastern Slope of Rockies – something that just this week triggered a $3.8 billion lawsuit against the Alberta government by Atrum Coal (ASX:ATU).

“I cannot find enough coking coal for the world’s steel industry after the next few years,” Bristow said. “And I’m disappointed that the powers that be…in Alberta are so negative, when the world needs coal. Canada has got fantastic resources, which is going to be more obvious, as time goes by, is desperately needed by the global steel industry.”

In B.C., meanwhile, new mines or expansions could be mired in regulatory red tape for so long that Canadians producers miss the boat on any met coal bull market that might occur.

Rob Booker, CEO of Trigon Pacific Terminals (the new owners of the former Ridley Terminals in Prince Rupert), told the conference Thursday that the Trudeau government made it clear to him that it plans to ban thermal coal exports from Canadian ports by 2030, and as early as 2026.

As for metallurgical coal, Booker expects B.C.’s existing mines will keep his terminal busy for many years to come. He just wonders if any new met coal mines will ever be built.

“The only challenge in met coal is whether you can get something permitted,” Booker said.

Teck has four operating metallurgical coal mines in the Elk Valley of south-eastern B.C., and Conuma Coal has three in the Peace River region.

Conuma has plans to expand its Willow Creek mine. Teck wants to expand its Fording River coal mine, though the federal government decided in 2020 to treat its Castle project as a greenfield project, which means it must go through a full federal environmental review under the new Impact Assessment Act. This can be expected to take much longer than if it were treated as a brownfield expansion.

Near Teck’s coal mines in the Elk Valley, a newcomer, NWP Coal Canada, is pushing ahead with plans to build a new high-grade metallurgical coal mine – the Crown Mountain project near Sparwood.

A private company owned by Australia’s Jameson Resources Limited (ASX:JAL) and New Zealand’s Bathurst Resources Limited (ASX:BRL), NWP has had its Crown Mountain project in federal and provincial regulatory processes since 2014.

Dave Baines, manager of environment and engagement for NWP, told the conference Friday that the company hopes to be in production as early as 2026.

Some of the environmental concerns around impacts on water are limited, Baines said, by the fact the project is in a single watershed. Moreover, it isn’t planning to have to treat water for selenium, because the plan is to not let any get into local waters in the first place. The mine plan calls for drystack tailings storage, instead of a “wet” tailings pond, to prevent selenium from waste rock from getting into local waters.

“It could be a real game-changer,” Baines said. “If we just don’t let any selenium into the environment, then I don’t have to collect it, I don’t have to manage it. We don’t believe it’s going to need any treatment.”

The project’s biggest hurdle is regulatory. Baines said the regulatory regime is “constantly changing” and “shifting under our feet.”

Since the project was first proposed, both the B.C. and federal governments have brought in new environmental acts, as well as indigenous rights acts, like the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), adding additional complexity to the regulatory process.

“COVID caused us a two-year delay, and in that delay (period) the legislation was shifting,” Baines said. “This need for additional indigenous work increased.”

The Elk Valley in the southeast Kootenay region has a problem with selenium levels in the watershed from current and historic coal mining.

Baines said the Ktunaxa First Nation has asked the federal government to stop all environmental assessments for all new coal mines or expansions in southeastern B.C. until historical environmental impacts are addressed.

Baines said the provincial and federal governments responded by saying their legislation doesn’t allow them to arbitrarily stop all mine proposals.  But opposition by First Nations can be a huge problem for new mine developers.

“The Ktunaxa remain adamant that they think they want to have everything stopped…until existing cumulative effects can be resolved,” Baines said.

Nadia Haider, vice president of regulatory strategy, innovation and environment for Conuma Coal, said Conuma also faces problems with day-to-day routine permitting.

Conuma’s three mines produce about 4 million tonnes of metallurgical coal a year. The company wants to expand it Willow Creek mine near Chetwynd.

Even after a mine manages to make it through environmental reviews and get approved, the day-to-day permitting required as part of ongoing operations at the provincial level can be onerous.

Haider said there is inconsistency in decision-making, duplication among multiple provincial agencies, and onerous permitting conditions that the company sometimes simply can’t meet.

“The regulatory landscape is changing,” said Haider, who formerly worked as a regulator herself with the Alberta Energy Regulator. “It’s getting to be more difficult. And that certainly impacts the current development, as well as future development.”