By Lee Buchsbaum, Associate Editor & Photographer
In the last decade and a half, the Westmoreland Coal Co., the oldest publicly traded coal company in the United States, has transformed itself from a struggling eastern underground producer to a stable, large-scale western surface mine operator. With a fleet of draglines and mobile surface equipment, Westmoreland has changed its focus, restructured its debt, and today is ready to expand.
Westmoreland’s history dates back to 1854 when it was incorporated in Westmoreland County, Pa. Back then, it produced a large portion of the coal that was shipped to Boston, New York and Philadelphia—much of which was later gasified for street lighting. Through the 19th and most of the 20th centuries, the company was an underground eastern miner. Following a long and bitter strike and other events, Westmoreland shut down its last eastern Appalachian underground mine in 1995 and moved west to Colorado Springs where it is now headquartered. The company no longer has any mining permits east of the Mississippi. Later this year, Westmoreland will move the company offices to the southern suburbs of Denver.
As part of the company’s transformation to a western producer, Westmoreland purchased four mines in 2000 and 2001 from Montana Power, Western Energy, North-western Resources and Knife River Energy. “Though we’re not often considered to be a credible competitor, we managed to buy all four of those properties right out from under the noses of some of those big boys. We’d like to beat our chests about that, but being in the right place at the right time and having the right set of circumstances always helps,” said Tom Durham, vice president of planning and engineering.
Since then, Westmoreland’s management changed its focus and restructured its financing ahead of the market crash in 2008. “The financial crisis blew everything apart. The credit markets were dysfunctional for a year. We made it through, came out and did another restructuring this year that has helped the situation. It put cash in our bank account. We’re now sitting on millions of potential capital,” said Doug Kathol, executive vice president.
Kathol and others largely credit the turnaround to the efforts of Westmoreland’s new President and CEO Keith Alessi. “He had a vision to shrink the company until it was stable so we would be in a better position to look into the future and decide what kind of company we wanted to become. After some soul searching, we decided that we wanted to grow methodically with intelligence. There’s an opportunity for organic growth up in Montana. There’s also an opportunity for moving forward with acquisitions now that we have a better balance sheet. We can’t be a Peabody or an Arch, we’e just not big enough to do billion dollar acquisitions. But we can do more modest ones in the hundreds of millions. We can add a mine or two with very little overhead cost,” said Kathol.
Westmoreland’s senior management has decided that, although they are open to various growth strategies, what the company is really looking for is other surface mining opportunities. “You never say never, but basically we have become surface miners. Unless there was an excellent opportunity to go underground, we’ll likely stay as surface miners west of the Mississippi,” said Kathol.
For the foreseeable future, Westmore-land intends to also continue depending on draglines for primary stripping. “We’ve performed some feasibility studies on potential projects and compared dragline versus truck shovel mining. An 80-cubic yard (cu-yd) dragline could cost as much as $100 million. You also have to have equipment supporting that dragline. A 56-cu-yd shovel loading 400-ton haul trucks can compete economically with those draglines,” said Durham.
Westmoreland is keenly aware it only has roughly 10 years of reserves left at many operations. “We need to grow and find new reserve blocks that are contiguous or near our mines,” said Kathol. “We have a major push we’ve been working on for the last couple years to improve our reserve position. We’ve identified significant blocks of coal adjacent to existing operations. Right now we’re in negotiations with both private landowners and coal holders. We’re hoping to make announcements on some of these fronts any day now,” said Durham.
Westmoreland also plans to stay with the same long-term off-take contractual models it has now, many of which are mine-mouth power plant operators. “We use the term generational, which is generally somewhere between 10 and 25 years,” said Kathol. That long duration protects Westmoreland from quarter-to-quarter volatility. “We don’t face this constant pressure of contracts turning over. We trade stability for huge price swings created by volatility,” said Kathol.
While some investors scoff at that model, recent volatility has hurt some thermal producers. “If you were at the coal conferences four years ago, you would see a lot of people excited about their open sales positions because they felt there was a money-making upside. Now, on the downside, they got slammed,” Kathol said.
Opening Up at Absaloka as the Venerable Mine Peers West
Westmoreland mines from several large surface operations in Montana, the two largest of which are the Rosebud and Absaloka mines. The former is Westmoreland’s largest producer and the latter, Absaloka, may be one of the company’s best growth opportunities. Historically, all of the mine’s coal has travelled to customers east of Absaloka. This year, Westmoreland has installed a rail connection that will enable coal to travel west.
Though the Absaloka mine is technically owned and operated by Westmoreland Resources Inc., a subsidiary of Westmore-land Coal, the actual coal owner is the Crow Tribe. It is the title-holder to more than 77.8 million tons. The lease term is through exhaustion of economically recoverable reserves. The Absaloka mine is somewhat unique in that it’s one of the very few mines mining Native American coal. “We’re mining coal in trust with the Crow Tribe, which makes up almost three-quarters of Absaloka’s workforce. We probably have the longest standing business relationship with the Crow Tribe. Over the years, our partnership has produced a significant amount of revenue for the Tribe through royalty and Montana severance taxes,” said Kathol.
“We meet with them regularly and Crow representatives visit us along with state and federal inspectors for monthly and quarterly inspections. We talk with them regularly about future plans. We have 156 Crow or Crow-related workers. Over the years, Absaloka has been a significant pipeline of employment for them,” said Jerry Gillespie, vice president and mine manager.
Westmoreland took over full operations and production of Absaloka in March 2007. The mine was originally a contract operation but in late 2007 Westmoreland bought the contractor out. “We took over the operation in 2008. Today it’s wholly owned by Westmoreland,” said Durham.
That year Absaloka mined more than 7.3 million tons. Since then, production has fallen. Last year, the mine produced just under 5.5 million tons. Coal customers include Xcel Energy, Midwest Energy Resources, Western Fuels Association and Rocky Mountain Power COOP. Current production capacity is 7.5 million tpy. Coal quality on a received basis in 2010 was 0.66% sulfur, 0.52% sodium, 8,571 Btu/lb and 9.54% ash.
In general, the overburden at Absaloka averages 100 ft. It is mined from two seams: the Rosebud coal seam which averages 16 ft in thickness and the McKay seam, intersected at roughly 109 ft. It averages 11 ft in thickness. “To give our customers the best product we possibly can, we blend for calorific value, ash and sulfur,” said Gillespie. The McKay is generally a little bit lower in calorific value and higher in ash than the Rosebud seam, both seams have roughly the same sodium quality.
Absaloka uses a variety of stripping equipment. Primary overburden removal is done by a Bucyrus 2570. It has a 115 cu-yd bucket and a boom length of 335 ft. Its digging radius is roughly 300 ft and it is able to dig to a depth of 150 ft, though it averages roughly half that. The dragline is capable of stripping roughly 3,700 cu-yd/hr. Absaloka also uses two D75 overburden drills, several Cat D11Rs and D10T dozers.
Absaloka’s longest coal haul is just under 5 miles. Coal haulage is performed by seven Cat 150-ton coal haulers, three new Cat 100-ton 777F haul trucks, and three Cat 992G loaders. With haul trucks approaching 30 mph, “we work everyday to keep our roads maintained,” said Gillespie.
The mine’s load-out can send 3,000 tons per hour (tph) from the large covered coal storage barn. From the pit or the stockpile, it can increase loading to up to 4,000 tph. “We can dual load trains from the barn and the pit simultaneously for blending purposes. In the barn we stockpile up to about 40,000 tons or almost three full trains,” said Gillespie.
After decades of involvement with Absaloka, Westmoreland still feels the mine has a bright future. It has some limited opportunities to gain further market share west of the mine, in addition to its upper Midwest customers. Should export markets develop, at 8,600 Btu/lb, “Absaloka’s coal is in the ballpark of what buyers are looking for as well,” said Kathol. Westmoreland is also exploring markets for Absaloka’s product.
Westmoreland’s Largest Dragline Operation
The Rosebud mine in Colstrip, Mont., is Westmoreland’s largest mine in terms of production. Named after the seam being mined, Rosebud supplies the four-unit PP&L Colstrip generating station with all of the coal it requires, which averages a little more than 10 million tpy. Rosebud currently has 370 employees many of whom are Native Americans and members of the Northern Cheyenne tribe.
Depending on where Rosebud is mining, the calorific value ranges from 8,450 to 8,750 Btu/lb. Sulfur ranges from 0.6% to 0.7%. The Rosebud seam is consistently between 23- and 24-ft thick and currently there is no parting. The top and bottom 8 inches of the seam are high in both sulfur and ash. Overburden depths range from 40 ft to 180 ft, due to the undulating nature of the surface terrain.
Rosebud uses four Marion draglines for primary overburden removal. Three are 8050 Marion draglines each outfitted with 60-cu-yd buckets. The fourth is an 8200 Marion with an 80-cu-yd bucket. The 8050 draglines arrived on site in 1975, 1976 and 1982. The 8200 was commissioned in 1983. The first two draglines were commissioned to supply the first two Colstrip generating units and the open market. The next two draglines were acquired to supply the next two Colstrip generating units. All four have a maximum digging depth of 180 ft. The 8050 draglines have a 286 ft operating radius. The 8200 has a slightly wider 295 ft operating radius.
Currently, Rosebud is operating three of the mine’s draglines. One 8050 is idle due to a reduction in outside coal sales and lower demand from Colstrip Units No. 1 and No. 2. Westmoreland believes it will resume operation in 2012.
Colstrip itself was a company town built in the 1920s with coal being mined for the railroads. After pulling out more than 44 million tons, in the 1950s as the railroads shifted to diesel power, it shut down the mine. Eventually, Montana Power purchased the coal reserves from the railroad. In the 1970s, construction on the Colstrip power campus commenced. The two larger units went into production in the early 1980s. Together Colstrip generates more than 2,100 mw from all four units. The Rosebud mine is the sole coal source for these units. “Since they have no other coal sources, we have a large pit inventory from which to service them,” said Kent Salitros, president and general manager, Western Energy, the mine operator and a subsidiary of Westmoreland.
When Westmoreland acquired the operation in 2001, much of the original drilling, coal haulage and coal loading equipment was 30 years old. “During the last decade we have replaced this equipment with bigger, faster and generally more productive equipment,” said Salitros. Rosebud continues to upgrade to state-of-the-art practices throughout the operation. It now has complete GPS controls on all their dozers and overburden drills. To haul coal, Rosebud has a fleet of six Dart 180T Tractor/Trailers, three 200T and three 240T Kress trucks. These trucks are loaded by a fleet of two Cat 992G front-end loaders, one 993K front-end loader and one Hitachi 1800 hydraulic excavator. “Combined, the new GPS controls, our instituting cast blasting and spoil side stripping has allowed us to greatly enhance productivity, which compensates for the increasing stripping ratios. We have also been very successful in using our draglines in final pit reclamation scenarios,” said Salitros.
A typical mining cycle at Rosebud begins with topsoil and subsoil removal by the Volvo A40F articulated trucks and the Hitachi 1200 Excavator. Generally the draglines follow, but when overburden removal exceeds 155 ft, the Cat 777D haul trucks and 993K front-end loader are used instead. Cast blasting is generally used to begin the mining process for the minus 155 ft overburden. After the cast blast, the dragline uncovers the coal seam using a spoil side stripping technique.
The top 8 inches of the coal seam are removed using a road reclaimer and is either shipped to a waste burning power plant or buried. The coal seam is then blasted and loaded into haul trucks using one of the 30-cu-yd front-end loaders. In wet conditions, the lowest portion of the seam is loaded using a 20-cu-yd excavator.
Haul distances range from 1 to 9.6 miles. On the longer hauls, the 200T and 240T Kress coal haulers are used to take advantage of higher top speeds. Loaded, they can cruise up to 48 mph. “As the haul distances have increased, we have moved to these larger, higher speed haulage units,” said Salitros. Rosebud’s fleet of 180T Dart haulers are generally dispatched to the area of the mine where haul distances are between 4 to 4.5 miles.
Coal destined for the two large Colstrip units is delivered to a two stage crushing facility using McLanahan roll crushers. After the coal is reduced to a nominal 2.5 inches, it is transported by a 4.2 mile overland conveyor to the power plant. Coal being dispatched to the two smaller Colstrip units is delivered to a two stage crushing facility using a McNally single roll primary crusher and then an American Pulverizer ring mill. After the coal is reduced to a nominal 2.5 inch top size, it is transported by a short conveyor to the customer’s stockpile.
A Longitudal Relationship with the Land and Safety for Its Employees
At the time of Coal Age’s visit in June, Absaloka had gone more than 380 days without a lost time accident. “We start off every day talking about safety. The shift supervisor gives a day to day update of what’s going on, what’s new, what’s changed, and a safety talk. In early January, we started doing a weekly safety audit. Essentially the superintendent for the area responsible, the supervisor on shift, the safety manager, and a couple of our crew members will do a mock MSHA inspection. We’ll pick the dragline one day, the plant the next and so on. We also have various incentives for maintaining our safety goals,” said Gillespie.
If safety is number one at both Rosebud and Absaloka, then maintaining high reclamation standards is number two. Rosebud has won numerous reclamation awards. In 2005 and 2006, Rosebud won an “Excellence in Surface Coal Mining & Reclamation Award” for the mine’s Area A final reclamation design, and it won a Good Neighbor Award in 2006.
“We work with our environmental engineers at all times. We have three different types of soil. All the timbered areas are scoria knobs. We’ll have to rebuild these and re-vegetate. But when we’re done, for the average person, they wouldn’t even know that some of this area has been mined,” said Gillespie
As part of the mine’s commitment to the history and heritage of the area and its peoples, Rosebud is “currently restoring two log buildings that were removed from the C-North mining area prior to mining and have now been moved back as mining in that area has been completed. One of these buildings housed the first postal delivery point in the Colstrip area. We also used selective mining in this area to preserve sandstone formations that contained prehistoric petroglyphs as well as carvings from early homesteaders,” said Salitros.
Westmoreland incorporates all reclamation plans in with production plans. “That allows reclamation to be done much more economically and you eliminate much of the need for cleaning things up afterward. During the mine planning process, our engineers develop a plan in conjunction with production people,” said Durham. Westmoreland takes it one step further since all but one of its mine managers are also mine engineers. “We cycle engineers. We’re getting engineers with four or five years in the engineering world, and we put them in the field as a production supervisor in some capacity. Then we rotate those people back and forth. Gillespie was the first guy we plugged into that cycle. We want the people running the show to understand the whole show, not just the production end of it. The better we do in design and planning and executing, the better the whole process is going to be. It reduces cost, simplifies our world, keeps the regulatory agencies happy, and since most management has experience in all phases, management works better as a team,” said Durham.