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Financial uncertainty surrounds year-old B.C. coal deal

VICTORIA -- A year after the British Columbia government signed a $2.5-billion deal to sell northeast coal to Japanese steel mills, the project is surrounded with financial uncertainty.

The biggest question was whether Denison Mines Ltd. of Toronto and Teck Corp. of Vancouver would secure some $1 billion they had been seeking to develop their mines in the Peace River wilderness.

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Senior officials at the two companies were unavailable for comment, but B.C. Industry Minister Donald Phillips said Monday that although they were still trying to raise the cash, they should have 'no problem' getting it.

Perhaps more critical, Denison reportedly had not completed its mine plan and industry officials said it was unlikely either of the two companies could meet the schedule to begin shipments by October 1983.

The agreement with seven Japanese steel mills called for annual shipments of 6.7 million tons of metallurgic coal and one million tons of thermal coal for 15 years, with a renewal option for another five years.

Industry skeptics believed that if the project goes ahead, it would be at least two years late bringing the mines into production.

'From what I have seen of the situation, I think it would be very difficult to meet the schedule unless they have some secret formula in their hip pocket,' said Robert Brady, president of B.C. Coal International Ltd.

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'It takes a minimum two years to bring a mine on stream if you've already got a well-maintained infrastructure of railways, roads, towns and energy sources. But all that has to be built in the northeast.'

Industry sources also worry about the long-term outlook for coal markets. While the Japanese would continue to be heavy users of metallurgical coal -- the Japanese steel industry met 60 percent of its energy needs with coal last year -- they were well positioned to resist price increases.

In fact, a week after signing the northeast coal deal with B.C., Japan made a pact to buy another five million tons from Australia, its major supplier.

'The Japanese must take some Canadian coal because they don't want to tie their supplies to any single company,' said independent coal consultant John Southworth. But the fact is the Japanese have more metallurgical coal under contract than they need for the next 10 years.'

Compounding concern was the fact the Japanese had revised estimates for 1985 steel production downward to 115 million tons from 150 million tons. Official Japanese steel estimates foresaw output of about 102 million tons this year, against 110 million in 1981.

Industry sources fear Denison, which needs about $700 million to bring its Quintet mine into production, and Peck, which needs some $300 million for Bullmoose, were in no hurry to borrow funds now that interest rates are roughly 300 basis points higher than when the deal was inked 14 months ago.

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But Phillips, whose constituency encompasses the northeast coal field, remained confident the deal would go through on time.

'I really didn't anticipate the companies would get their financing before June anyways,' the industry minister said. 'And I still think we can meet the goal to begin shipments by October 1983.'

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