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A Chinese group is making a $1-billion bet on coal in British Columbia to secure a key raw material for its steel making industry, the latest in a series of moves this year by international companies to stake a claim on Canadian resources.

A consortium of Chinese companies, including Shougang Group, one of the country's top steel makers, plans to develop three underground coal mines in northeastern B.C., a region rich with coal that fell on hard times in the 1990s but is now booming again.

The goal is to start construction on the first mine late next year, with the companies "moving forward at a very rapid rate," said Pat Bell, B.C.'s jobs minister.

"They have the fiscal resources already in place to do it," said Mr. Bell, who met with executives at Shougang and other consortium partners in Beijing this week on a trade mission to the country. "It's a very big deal."

Shougang's move to take a direct position in Canadian mines represents a new chapter in the push among the world's steel makers to secure long-term supply of the commodities that go into making steel. The strategy is to lessen dependence on mining companies, especially as commodity prices rise.

Metallurical coal, the type found in the ground in rugged northeastern B.C., is one ingredient. Iron ore is another, one which has led India's Tata Steel Ltd. to proposed mines in Quebec and Labrador, while ArcelorMittal SA of Europe wants to build a mine in Nunavut, north of the Arctic Circle.

The Chinese consortium's domestic arm is Canadian Kailuan Dehua Mines Co. Ltd., officially formed in early 2010 when Shougang joined. The investors already included Kailuan, a mining company in China, and Dehua Group, which opened for business in Canada in 2003 with the aim of mining coal underground. It began an official process in 2006 but the global recession delayed the effort.

The backers put $120-million into Kailuan Dehua. The company wants to use a new regulatory review system in B.C. that allows proposed mines to obtain necessary permits and clear environment assessment requirements in one process.

Gething, the main project, could produce two million tonnes of metallurgical coal annually for 30 years, according to Kailuan Dehua's website.

Mr. Bell said the companies are looking to produce as much as eight million tonnes a year from three mines. That figure is equal to about one-quarter of all coal production in B.C., which is one of the leading producers in the world and generates most of Canada's coal for export.

To develop mines to unearth that much coal would take at least $1-billion in construction costs, based on an industry average development cost of $125-million to $175-million per annual tonne. The mines would employ 1,200 and generate about 5,000 more indirect jobs.

The first northeast B.C. coal boom came in the early 1980s, backed by demand from Japanese steel mills and underpinned by more than $1-billion in government funding to build the infrastructure necessary for mines in the region. Not long after, however, the high-cost coal was slammed by surging supply of cheaper coal from elsewhere in the world. By the early 2000s, every mine was shuttered.

But bolstered by higher coal prices, there are four operating mines – open-pit surface operations – in the region right now. China joins a crowded list of proposals for additional mines, including Teck Resources Ltd.'s plan to resurrect the Quintette mine, closed in 2000. Quintette could be once more producing three million tonnes of coal by 2013.

"It's definitely a boom time. The northeast is really going great guns right now," said Pierre Gratton, chief executive officer of the Mining Association of B.C. "There's potential for a lot more."

But there are potential snags in the Chinese proposal, including questions about labour, safety and export capacity.

On labour, when Dehua first proposed Gething in 2006, the company said it would likely bring in experienced underground coal miners from China. Kailuan Dehua this month posted job notices for the mine and the best paying jobs – as much as $45 an hour - require underground coal mining or related experience.

Most of Canada's coal mines are surface operations, though many other mines in the country are underground.

Kailuan Dehua said it may need workers from overseas.

"We will keep looking for the workers in Canada. We'll try our best here, but we are not sure about the results," said company administrator Peter Shao.

Safety is another question, as underground mining in China has killed several thousand people in each of the past several years. Mr. Bell said he was assured by the consortium that their safety record is on par with Western companies.

The last major question is export capacity, with Ridley Terminals Inc. at Prince Rupert in northwest B.C. near its limit. Ridley is owned by the federal government. In the Conservatives' dead-on-arrival federal budget, an allowance was made for Ridley to tap capital markets for cash to expand – and the terminal this week said it has received the official green light to go ahead.



The rising price of coking coal, used to make steel, has made the commodity the province's most important raw material for export, buoyed by continued demand in Japan and new demand in China.

$5.1-billion: Value of B.C. coal exports in 2010 (more than entire wood products industry)

86%: B.C.'s share of Canada's $6-billion of coal exports in 2010.

106%: Increase in value of B.C.'s exports since 2007 (underpinned by higher prices)

$804-million: B.C. coal exports to mainland China in 2010, (15 times more than $54-million annual average from 2003-07)

B.C. coal exports to China:

2010: $804-million

2009: $560-million

2008: $121-million

2007: $13-million

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