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Operations at Western Coal's Dillon mine in B.C.
Operations at Western Coal's Dillon mine in B.C.

Western Coal keen to bulk up Add to ...

Western Coal Corp. said Tuesday it is "aggressively" seeking to expand the company through acquisitions, while at the same time continuing to sell non-core assets.

John Byrne, chairman of the company, formerly known as Western Canadian Coal Corp., said there are buying opportunities close to its current operations in British Columbia and West Virginia.

"There are companies near us that are hoping to get into production, but the barriers to entry are huge," Mr. Byrne said in an interview after the company's annual shareholders meeting in Vancouver.

"Most of the companies that have tried to start in northeast B.C. have hit the wall or gone under ... We think in the end those people will see the light and come to us."

Mr. Byrne said there are "stranded and isolated deposits," owned by private and public companies, that fit into the company's long-term coal development plans.

"They aren't going anywhere without massive amounts of cash," Mr. Byrne said.

He said the company has the money to develop more projects. In August, Western Coal raised nearly $60-million in a bought deal financing.

Western Coal president and chief executive officer John Hogg told shareholders Tuesday the coal developer "will aggressively seek to grow the company through acquisitions."

In July, Western Coal closed its deal to buy U.K.-based Cambrian Mining PLC, its largest shareholder, in a transaction valued at about $120-million.

The deal boosted the company's reserves by 39 per cent and its resource base by 50 per cent and doubled its production.

Western Coal is currently operating just above 50 per cent of its capacity of seven million tonnes of metallurgical coal, which is used in steelmaking.

The company has a goal, even before potential acquisitions, to increase that capacity to 10 million tonnes annually by about 2013.

The company is also reviewing the sale of assets that don't fit its goal to be a mid-tier pure coal company.

Last week, Western Coal signed a deal to sell its AGD Mining Pty. Ltd. subsidiary, which operates a gold and antimony operation in Australia, to Mandalay Resources Corp. . As part of the deal, Western Coal will receive a 46.5 per cent stake in Mandalay.

Mr. Byrne called the Mandalay stake a "passive investment," but said the company has some "attractive" operations, including its copper assets in Chile.

"We don't intend to be there for the long term," said Mr. Byrne, but added Western Coal could still see a gain from its investment in the shorter term.

Western Coal's other non-core assets include its 45 per cent of Xtract Energy PLC, which invests in energy sector projects.

Mr. Byrne said the company wants to sell its Xtract stake, but is waiting to find the value of the company after it recently announced an oil discovery in Turkey.

As for its coal business, the company said it signed a contract for the April-March coal year at $126 (U.S.) per tonne. That's its second-highest rate on record. Coal prices, which had tripled to about $300 on the spot market before the recession, fell to below $100 earlier this year, before recovering again in the summer.

In November, in response to plunging coal prices, Western Coal slashed production, cut jobs and expenses at its operations.

The company is now ramping up production as demand returns, particularly in countries such as China and India.

"There seems to be a steady climb back to normal driven by Chinese demand," Mr. Hogg said in an interview.

"I think we cut back at an appropriate level and I think we are ramping up at the same level as well ... Many people out there are concerned this [economic downturn]isn't over. We are being very cautious as we ramp up."

As part of its plans to increase production, Western Coal said Tuesday it will expand its B.C. operations including hiking production at the Brule mine, expanding Wolverine by developing an underground mine at Perry Creek and restarting Willow Creek at the end of fiscal 2010.

"This allows Western to take advantage of the recovery in world metallurgical coal markets, with spot prices for coking coal now over $170 per tonne," the company said Tuesday.

"Assuming the continued recovery in steel demand, the company expects next year contract coal prices to be significantly higher."

Also Tuesday, shareholders approved changing the company name to Western Coal Corp., taking out the "Canadian" in the past title, a move the company said better reflects its growing international business.

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