Sherritt International at Eighty – Marching to a Different Drum – by Jane Werniuk (Part 2 of 2)

The Canadian Mining Journal is Canada’s first mining publication.

This article was originally published – February/2008

Coal division

Coal contributed 7% of Sherritt’s revenue in the first nine months of 2007.

2003 was a pivotal year for the coal industry in western Canada, when the two major ownership groups exchanged thermal and metallurgical coal assets. Through its ownership of Luscar Coal Income Fund, Sherritt consolidated its holdings in thermal coal, while metallurgical coal was consolidated in the Elk Valley Coal Partnership.

Sherritt International and the Ontario Teachers’Pension Plan each own 41.2% interest in the Royal Utilities Income Fund, which controls Prairie Mines & Royalty Ltd. Sherritt manages the operations at PMRL’s eight surface mines in Alberta and Saskatchewan. The production from these mines is almost all sold to nearby coal-fired electrical generating plants. As well, Sherritt and the Ontario Teachers’ each own half of the Coal Valley export thermal coal mine in Alberta, which is operated by Sherritt.

While coal was not initially one of Sherritt’s traditional core businesses, it is now a substantial part of the Sherritt puzzle. The company moves 500 million tonnes (t) of material each year to mine 40 million t of coal, making Sherritt the largest surface miner in Canada.

The statistics are evidence of the safety culture at the coal division, with no lost time accidents at PMRL in the six months leading up to February 2008, and more than 19 years at the Genesee mine without a lost-time accident. Likewise, environmental care is key, with the strip mines being completely reclaimed over a seven-year cycle time, and the company promising to catch up its pre-2003 reclamation backlog before 2013.

The introduction of automation, electronic communications and GPS-guidance have made coal mining much more exact. The mobile equipment is leased and is now all relatively new, reducing operating costs; planned maintenance has improved equipment availability to 86%.

Sherritt and the Ontario Teachers’ Pension Plan created the Carbon Development Partnership to control their approximately 12 billion t of near-surface thermal coal reserves in western Canada, over and above the reserves dedicated to its operating mines.

But generating plants burning fossil fuels, particularly coal, are being branded today as “dirty”, due to their large carbon footprint and other associated emissions. Sherritt’s Technology group has been investigating clean coal technologies since 2004, and has recently opened a clean coal research centre in Fort Saskatchewan.

The group’s first step was to make a registry of key coal quality parameters (carbon content, mercury, ash, sulphur content, etc.) of the various sub-bituminous coals in Alberta. Research began into ways to beneficiate the coal. The eventual aim is to achieve a 99%- pure coal product that can be processed into a range of niche high-value products. Technologies like using activated carbon to remove mercury from flue emissions are also being developed.

A parallel activity, which began in 2005 using funding from the parent companies and the Alberta Energy Research Institute, was to investigate chemical conversion of coal to high-value gasses, with minimal emissions. This is called “coal gasification”, and is currently being used commercially in countries such as the United States, South Africa and Germany using higher-ranked coal.

Gasification of coal occurs at high temperature in the presence of oxygen and steam to convert coal to “synthesis gas” or “syngas” (a mixture of hydrogen gas and carbon monoxide) and small quantities of carbon dioxide. After removal of trace components, the synthesis gas can be combusted in gas turbines as a fuel gas with minimal deleterious off-gasses, or can be further processed into higher value products, such as hydrogen or methane. It is these latter products that allow for a natural integration of coal into the overall energy mix in the province; for example, hydrogen is used in large volumes for upgrading bitumen from the oil sands.

A gasification plant is very efficient in converting the energy in solid coal to a gas form, capturing 75-80% of the energy in coal as a high-value, clean gas product. This compares with 30-40% efficiency for power generation from a conventional thermal coal plant, or 45% for power generation from a natural gas combined cycle power facility. The volatile hydrocarbon impurities that would have been released as stack gasses in a thermal coal plant are also converted to syngas, due to the higher temperatures used in the gasification process selected by Sherritt, thus eliminating this potential source of emissions.

Location is important in the economics of a gasification operation. The elements needed are a large coal source, and pipelines to bring make-up water in and to take the gaseous products out. The Carbon Development Partnership has identified four such locations in Alberta containing a total of 1.7 billion tonnes of coal. The first to be developed will be the DODDS-ROUNDHILL PROJECT, 80 km southeast of Edmonton, with a 500-million-t reserve of sub-bituminous coal.

The final products from Dodds-Roundhill will be refinery-grade hydrogen gas as well as high purity carbon dioxide. Hydrogen gas is expected to be sold to the bitumen upgraders proposed for construction in Sturgeon County 80-90 km away, which will serve Fort McMurray’s ever-growing oil sands operations. As well, high purity CO2 gas is needed for enhanced oil recovery in local oil reservoirs. A typical field yields 20-40% of its oil through conventional techniques. A further 10-20% can be recovered by pumping CO2 into the oilfield to extract additional oil. The CO2 is recovered on surface and pumped back into the reservoir continuously until the additional oil potential is recovered, and then the CO2 is permanently stored (sequestered) in the sealed reservoir. This minimizes CO2 escape to the atmosphere, while the oil resource is better utilized. Within 200 km of Dodds-Roundhill are many large oilfields that are in decline and would benefit from this enhanced recovery option.

Dodds-Roundhill is still on the drawing board. Prefeasibility and feasibility studies are complete. The front-end engineering, if the project moves forward, is currently scheduled to proceed later this year. One of the key deliverables of the next phase is a bankable feasibility study, which will form the basis of the go/no-go decision. Current plans for Phase I are to build a mine that can produce up to 3.4 million t of coal annually, and a multi-billion-dollar gasification complex to convert this coal into about 10 million m3 of syngas and 14,000 t of CO2 per day. If all goes according to plans, the plant will produce its first hydrogen gas in late 2012.

“Once this country has reached a consensus about how to deal with greenhouse gasses, coal gasification will become an important part of the mix,”says Sherritt president & CEO Jowdat Waheed. The ‘new green age’ in fact will be a new coal age. The coal can all be processed in complete compliance with greenhouse gas reductions. We want to be in the front row seat when coal gasification reaches its own.”

Oil and gas production, and power generation

Oil and gas contributed 21% of Sherritt’s revenue and its operating earnings, in the first nine months of 2007.The company’s net share of oil and gas production in this period averaged 18,565 bbl of oil equivalent per day.

Sherritt became involved in oil and gas in 1991 when it acquired Calgary-based Canada Northwest Energy Limited. Since then, the division has successfully built its Cuban operations from a modest improved oil recovery program in 1992 into an intermediate exploration and production business, and has become Cuba’s largest foreign producer.

Almost all production comes from nearshore fields off Yumuri, Varadero, Canasi, and Puerto Escondido in northern Cuba, a complex fold and thrust belt reservoir. Here, Sherritt holds 40-100% indirect working interest in 10 production-sharing contracts, operating almost 125 wells. The heavy oil produced is sold to the government of Cuba at market-related prices, and most is consumed in power plants. The company also has interests in Spain and Pakistan.

The power division of Sherritt had revenues and operating earnings forming 9% of Sherritt’s total, in the first nine months of 2007. The incentive for the company getting involved in power generation in Cuba was to make use of the raw natural gas associated with oil production, which was just being flared.

For this purpose, Sherritt took a one-third indirect interest in Energas S. A., with two Cuban partners. Energas currently operates three power plants, at Varadero, Boca de Jaruco and Puerto Escondido, which produce electricity to feed the national power grid. Last year, the company completed a 65-MW expansion project to bring the total capacity in Cuba to 376 MW. Energas has completed the negotiation of a 125-MW combined cycle expansion at the Boca de Jaruco generating facility that will bring the company’s total generating capacity to 526 MW by 2009.

Conclusion

Sherritt has chosen to march to a different drum than other Canadian miners.

Instead of selling its concentrates to a smelter, it built a cleaner refinery, half a century ago!

In 1990, the current executive chairman, Ian Delaney, and his colleagues took over Sherritt and turned it into a financial engineering company. It has since morphed into a company building major international projects.

Few western companies are willing to look at Cuba and Madagascar, much less to bet the farm on them, but Sherritt sees them as perfect opportunities. The company has a clear objective. “We want to be the world’s largest producer of laterite nickel and cobalt, with costs firmly in the lowest quartile, and that is within our grasp,” says Waheed.
And finally, by leading the charge to coal gasification technology in Canada, Sherritt may find itself sitting on a 12- billion-t pot of thermal gold.
———

Timeline for Sherritt

1927 Sherritt Gordon Mines Limited incorporated.

1947 Begins to fund research at University of British Columbia into hydrometallurgical ore processing through an ammonia leach process.
1954-1976 Company operates Lynn Lake nickel-copper-cobalt mine in northern Manitoba.

1954 Completes construction of hydromet refinery at Fort Saskatchewan, Alta., close to abundant natural gas supplies needed for the ammonia leach process. Processes concentrate from Lynn Lake and later on other feeds, including from Moa, Cuba, starting in 1991.

1954 Commissions nitrogen fertilizer plant in Alberta.

1990 Refinery closed because of lack of feed. Ian Delaney takes control of Sherritt through proxy contest.

1991 Sherritt acquires Calgary-based oil and natural gas producer Canada Northwest Energy.

1993 Changes name to Sherritt Inc. Completes refurbishment and expansion of Fort Saskatchewan refinery to process high cobalt content feeds from Moa.

1994 Acquires fertilizer assets from Imperial Oil. Metals Enterprise, a 50:50 joint venture with General Nickel S. A., is formed combining mining operations at Moa, Cuba, with refining operations at Fort Saskatchewan, Alta.

1995 Creation of Sherritt International Corp. with interests in the commodity nickel and cobalt business, international oil and gas assets, engineering and technology businesses and other assets in Cuba.

1996 Renames its fertilizer business, Canadian oil and gas properties, and specialty metals and technology businesses as Viridian Inc., which is then acquired by Agrium Inc.

1998 Creates Sherritt Power Corp. to construct gas-fired generation facilities in Cuba through its one-third interest in Energas S. A.

2001 Sherritt teams with the Ontario Teachers’ Pension Plan Board to form Luscar Energy Partnership, which acquires Luscar Ltd., Canada’s largest coal producer.

2003 Luscar Energy Partnership acquires the Canadian thermal coal assets of Fording Inc.

2004 Through minority interest in Energas, Sherritt begins construction on an 85-MW expansion in Cuba.

2005 Two-million-tonne Coal Valley thermal coal mine expansion announced. Sherritt Metals’ 16,000-tonne/y expansion of nickel-cobalt mining and refining operations announced.

2006 Coal Valley expansion completed. 85-MW power expansion in Cuba completed, and new 65-MW expansion underway. Metals Enterprise expansion initiated at Moa and Fort Saskachewan. Sherritt and Teachers’ launch IPO of mine-mouth thermal coal assets and royalty streams, creating the Royal Utilities Income Fund.

2007 65-MW power expansion in Cuba completed. Dynatec and the Ambatovy project acquired.

,

Comments are closed.