Warrior Met Coal Inc. is relaunching the development of its Blue Creek reserves into a new, world-class longwall mine located in Alabama near its existing mines. Once completed, the company said this transformational growth investment will reinforce Warrior’s position as a premier U.S. pure-play producer of premium metallurgical coal products.
Previously, the company said it delayed the development of the Blue Creek reserves due to the uncertainty of COVID-19, as well as market conditions and the labor strike. As market conditions have significantly improved and the company’s cash generation and cash on hand have significantly increased, the company decided now to move forward with development.
The total capital spending requirements of the project have increased. However, the company said it has identified potential production increases of approximately 10% and anticipates being able to accelerate the start of longwall production by approximately 15 months based on design modifications and projected stronger available liquidity to fund the project. Based on an assumed met coal price of $150 per metric ton (mt), the projected net present value (NPV) is approximately $1 billion over the life of the mine with a projected after-tax internal rate of return (IRR) of nearly 30% and an expected payback of approximately two years from initial longwall production.
“We are extremely excited about this organic growth project, which will transform Warrior and allow us to build upon our proven track record of creating value for stockholders,” Warrior CEO Walt Scheller said. “Blue Creek is truly a world-class asset and our commitment to this new initiative demonstrates our continued, highly focused business strategy as a premium pure-play met coal producer.”
The Blue Creek development will be a single longwall mine and is expected to have the capacity to produce an average of 4.8 million short tons per year of premium High-Vol A met coal over the first 10 years of production. It is one of the last remaining large-scale, untapped premium High Vol A met coal reserves in the U.S.
Once fully developed, the company expects Blue Creek to increase Warrior’s annual production capacity by 60% and expand its product portfolio to its global customers, by offering three premium hard coking coals that are expected to achieve the highest premium met coal prices in the seaborne markets. Warrior controls approximately 70 million short tons of recoverable reserves and 49 million short tons of resources at Blue Creek, which amounts to more than 119 million short tons. The inclusion of all coal reserves, resources, and adjacent properties would extend the life of mine reserves to approximately 170 million short tons. Under this expanded mine plan, Blue Creek is expected to have a mine life of approximately 50 years, assuming a single longwall operation.
Warrior expects to invest approximately $650 to $700 million over the next five years to develop Blue Creek with expected spending in 2022 of approximately $45 million to begin the project. Based on the current schedule, Warrior expects the first development tons from continuous miner units to occur in the third quarter of 2024 with the longwall scheduled to start up in the second quarter of 2026.
“We estimate Warrior will continue to generate robust free cash flows during the development of the project and we expect to fund the 2022 capital expenditure requirements of $45 million from internally generated cash flow and cash on hand,” CFO Dale W. Boyles said. “We plan to be opportunistic in evaluating funding alternatives for Blue Creek, which we view as very manageable given our current liquidity position and ability to utilize existing free cash flow and equipment financing.”