President and Director Charles Desjardins North American Gem at Cambridge House World Resource Investment Conference in June 2010
Despite its name, North American Gem’s main focus right now is coal, particularly Blue Gem coal. President and Director Charles Desjardins, who has been in the resource business since the early 1980s, describes how he got involved: “North American Gem was a company that our group took over from a Calgary group. It came to us because it needed somebody that could finance it properly.”
Gaining Permits
The company’s main activities are currently in Kentucky and West Virginia, where it is building a holding of properties by acquiring leases and gaining mining permits for them. Currently North American Gem has been able to get three permits approved for its first three mines. One permit is also pending.
Getting coal mining permits is crucial to the business and not easy to do, as Charles confirms: “The permitting that is the most important step because they are really difficult to get. The phrase in Kentucky is that 'it is easier to permit a nuclear reactor', and it’s pretty much true.”
The process to gain a coal mining permit in Kentucky is extensive and is designed to protect the public and the environment, and to ensure that operating standards are met. As such, it can take around twelve months to complete and involves various stages that cover property evaluation, coal quality evaluation, a title deed search, extensive rock and water study, an administrative review and a technical review.
“It’s obviously very political and we have some very good help on that front,” remarks Charles. “We have Bill Grable, who used to run the government department that does the permitting and reclamation down there. He’s there to help us streamline the process.”
The first mine at Demps Hollow has finished production and is now in reclamation stages. The second mine, located at Gilliam Hill North, was put into production for Jellico and Blue Gem Coal in July 2010 and is expected to produce approximately 8,000 to 10,000 tons per month. North American Gem's third mine at Swan Pond should achieve final acceptance by the end of August, at which point it is expected to start producing coal at a rate of up to 25,000 tons per month.
The latter two mines are of the most interest as North American Gem is intent on making Blue Gem Coal the main feature of its long-term business strategy. “Blue Gem has a very specific target market,” says Charles. “It’s used in the manufacturing of silicon - and silicon demand is increasing every year. It went up 15% last year.”
Silicon Manufacture
Manufacturing silicon metal requires a special grade of coal that yields low ash at a particular level of hardness. Only three types of high-carbon coal are suitable, with Blue Gem the most sought after. Silicon metal is used for aluminum, solar energy, steel and semi-conductor products, and rising demand is likely to cause the market to grow substantially.
Charles comments: “The coal that is used in the manufacturing of silicon is only found in three areas in the world. This area in Kentucky is one and it stretches into Tennessee and to some degree into West Virginia. It’s also found in South Africa and South America. What we’re trying to do is tie up as much Blue Gem as we can. The market is not that big at this point but it’s big enough for a small company to get a good piece of the market share and grow from it, especially with the pricing that the Blue Gem receives.”
Blue Gem coal does attract a premium price; with $310 a ton quoted for washed and prepared coal. This compares to $50-60 for thermal coal, or $70-90 for the best grades.
As well as getting a high price for the product, North American Gem is able to extract the coal relatively cheaply. This is partly due to favorable strip ratios and mining conditions, but also because it is undertaking contract mining and avoids the cost of buying the equipment. Charles says: “We get a contractor in there and we know our specific costs. Right now, it’s around $40 a ton. Sometimes it’s $40 a ton plus shipping, which could be $2-6, depending on how far from the buyer it is.”
Aside from the problem of getting mining permits, the company has also had the challenge of learning who it wanted to work with on the new properties. “It’s been a bit of an education on our first mine, which is the smallest one,” remarks Charles.
“I think that’s going to be an ongoing process. We’re going to find people that offer more in different areas to the company and we’re definitely looking at that all the time. We’ve ended some relationships and started some new ones. It doesn’t mean it still won’t change; it’s a moving target.”
North American Gem has ended up with what Charles calls “good people on the ground”. From a technical point of view, the coal operations in Kentucky are overseen by Debbie Moses of Engineering Consulting Services Inc, a well-known engineering team in West Virginia and Kentucky.
The mines currently on the books have life expectancies of around 5-7 years, although others are in the 6-10 years range. North American Gem has managed to tie up a lot of reserves already and is targeting others.
Rising Prices
Charles says: “The leases acquired by North American Gem are not National Instrument 43-101 compliant, so I can’t estimate what the total reserves are. Overall, there is a lot of upside in the coal business and a lot of pressure on the electrical generation system on the eastern seaboard. Many mines have shut down and there is not a lot being permitted. I think North American Gem has an opportunity to do well as we expect the price of coal to trend upwards.”
“People like our approach, the fact that we’re contract mining and we’re focusing on permitting. I want to get two or three of these properties in production over the next twelve months and then start building the permits.”
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