North of 60 Mining News - The mining newspaper for Alaska and Canada's North

The state of Alaska's attempts to export coal to Taiwan have become bogged down in a political scandal, with a prosecutor investigating Attorney General Gregg Renkes' role in the negotiations. The Anchorage Daily News alleged that Renkes owned stock and traded shares in KFx, the Denver-based company that is developing technology to remove moisture from sub-bituminous coal. Documents show that Renkes and Gov. Frank Murkowski pushed the participation of KFx to the Taiwanese government.

Murkowski has appointed former federal prosecutor Robert Bundy to investigate whether Renkes violated state ethics rules. Renkes was the state of Alaska's trade promoter in discussions with Taiwan, but after the allegations became public, he recused himself and in November was replaced by Mike Barry, chairman of the board of directors for the Alaska Industrial Development and Export Authority and the Alaska Energy Authority.

MOU signed in September

The Taiwanese government did not make a firm commitment to purchase coal from the undeveloped Beluga deposit on the west side of Cook Inlet, near Anchorage. Instead, in a memorandum of understanding signed on Sept. 18, Taiwan's Ministry of Economic Affairs agreed "that it will in good faith use its best effort to facilitate state utility companies of the Republic of China having a need to secure the supply of steaming coal in large quantities on a long-term basis to consider the purchase of the Processed Coal from the Processed Coal Supplier."

Taiwan's national electric utility, TaiPower, will need up to 4 million tons of coal a year. The Beluga field holds more than 1 billion tons of proven reserves. But the sub-bituminous coal is 25 percent moisture, and it would be uneconomical to ship coal with this level of moisture to Taiwan. KFx has been working on its experimental K-Fuel coal-drying for more than two decades, but has not yet built a successful processing plant or made any money from K-Fuel.

"The MOU clearly states that it's the user of the coal, TaiPower, that will make the decision," Barry told Mining News. "The Taiwanese government and the state of Alaska believe that the K-Fuel technology has promise. TaiPower will trust their own recognizance, not the Anchorage Daily News or some state official, but what they can see with their own eyes." The next step will be for TaiPower to look at the processing plant KFx is building in Gillette, Wyo., Barry added.

Kanturk would build processing plant

According to Ted Venners, chairman and CEO of KFx, the Hong Kong-Washington merchant bank Kanturk would be responsible for building a K-fuel processing plant in Alaska, if TaiPower agreed to buy the coal. Kanturk is purchasing a license from KFx, with a fee of $7.2 million due by Christmas and subsequently another $32.5 million to be paid. "We're not involved in the business development side, we're just providing the technology," Venners told Mining News. "The Taiwanese have checked the due diligence on our technology." The process has only recently become economically viable with the price of coal rising to $50 and $60 per tonne on international markets, Venners said.

Ted Venners' brother John is a consultant to KFx in Washington, D.C., and is also managing director of Kanturk. John Venners has known Gregg Renkes for around 16 years. "When the facts really come out they'll speak for themselves and it won't be as big of an issue as it's been made out to be," John Venners said of the investigation into Renkes. "I hope that for everyone's benefit there is some patience to wait for Bundy's report. This has been an ugly political witch-hunt. It's very unfortunate that it has taken the focus away from the benefits of K-fuel."

Kanturk is very confident that it will enter into a formal agreement with the Taiwanese, Venners said. "I am convinced that the processing plant will be built in Alaska," he told Mining News. "The time is right. The market is right. The Pacific Rim basin is starving for premium bituminous coal. KFx technology is the only upgrading process that's being built on a commercial scale." Kanturk Partners has been in existence since 2001, but its U.S. branch was only formed officially in February 2004.

Placer Dome not a party

Vancouver-based mining company Placer Dome is one of the leaseholders of the Beluga deposit. "We're not a party to what's going on in Taiwan. We're not at the table," Jim Chavis, Placer Dome's vice president for government relations, told Mining News. However, Kanturk has published documents on its website showing that Gregg Bush of Placer Dome's Alaska operation has been in touch with Kanturk about developing the Beluga coal. In response to an inquiry about this from Mining News, James Fueg, a geologist with Placer Dome in Anchorage said the company had no comment.

"Beluga is not a priority of ours, we're primarily a gold company," Chavis said. "People out there are trying to develop methodologies to dry the coal, and their efforts are probably commendable. But the Taiwan discussion is government-to-government. We don't want to be involved in this mess." Placer Dome is the majority owner of the Donlin Creek project, developing Alaska's largest known gold deposit.

KFx needs to prove technology works

If the Renkes investigation doesn't derail the negotiations with Taiwan, KFx still has to prove that its technology works and that the amount of energy consumed in the processing of the coal will not outweigh the benefits gained from reducing the moisture level. KFx had to close its previous Gillette plant in 1999, and the current plant is being built nearly a year behind schedule.

KFx "is a somewhat controversial investment due primarily to its past failures to commercialize its K-fuel concept," a research report by Andreas Vietor of Stifel, Nicolaus & Co. stated on Nov. 29. "Nevertheless, in anticipation of management's ability to execute on its near-term production goals and ability to ultimately mass produce and market K-Fuel at a profit, the time is right for investors to consider taking positions in KFx," Vietor wrote.

The hiring of Karel Vlok on Nov. 15 as KFx's managing director is a positive development, according to Vietor's report. Vlok is the former managing director of Lurgi South Africa, which has more than 50 years' commercial experience in designing and building coal gasification plants. Even the resignation of Mark Sexton, the former chairman and CEO of Evergreen Resources, from the KFx board of directors on Nov. 16 is not necessarily a setback, Vietor wrote, as Sexton intends to form a joint venture with KFx to develop and finance several new plants for the production of K-Fuel. How the Taiwanese will interpret all this remains to be seen.