An operator trams a continuous miner toward the face.

Following a period where demand destruction forced several CAPP operators out of business, the region sees some positive signs

by steve fiscor, editor-in-chief

What sets the Central Appalachian (CAPP) region apart from other coal basins is reserves of high-quality, low-sulfur coal. The region, which consists of West Virginia, eastern Kentucky and Virginia, suffered when overall thermal coal demand declined similar to other coal-producing regions. When metallurgical coal demand and prices began to climb, it breathed new life into the region. Last year, the region produced about 131 million tons or 17% of total U.S. production.

Today, West Virginia operates about 140 mines and employs more than 12,000 miners, and nearly 10,000 of them work underground. Together, they produced 100 million tons of bituminous coal last year, three quarters of which was produced from underground mines. In 2008, West Virginia produced 158 million tons per year (tpy) from 300 mines.

Eastern Kentucky has suffered the biggest drop in coal production. Finding stats on the region is difficult because the mines in the western part of the state would be classified as Illinois Basin operations. According to government information, eastern Kentucky had 138 mines that produced 18.1 million tons last year. Looking at the situation county by county (Pike, Perry, Harlan, Knott, Floyd, Martin and Letcher), coal production dropped from 76 million tons in 2008 to 14 million tons in 2018.

Virginia has a little more than 50 mines and employs more than 2,400 miners, who produced 13 million tons last year (9.4 million tons from underground mines). In 2008, Virginia produced 25 million tpy from 114 mines.

Looking at the top 30 CAPP mines, today several companies (Alliance Resource Partners, Arch Coal, Blackhawk Mining, Contura Energy, Coronado Coal, Murray Energy Corp. and Rhino Resource Partners) control multiple mines. Most of these mines are located in West Virginia and about one-third of them are surface mining operations. The mines at the top of the list are highly productive longwall mining operations. The total production from these 30 mines grew by 1.2 million tons to more than 64 million tons in 2018. As can be seen in the data, that growth figure glosses over big production swings for some mines.

Beyond this group of mines producing about 1 million tpy each, there are another 100 mines producing the remaining 67 million tons. Many of these mines are held by smaller companies. Some of them have been making investments in the region as well.

Mixed Messages

Every bit of good news from the CAPP region seems to be followed by bad news these days, but at least there is some good news. Three large coal operators announced new met projects for West Virginia. Arch Coal plans to invest in another longwall mining operation (Leer South), Contura Energy’s board approved the Lynn Branch project and CONSOL Energy said it would begin developing the Itmann mine. That was followed by the Blackjewel bankruptcy, which included the Revelation mines in this district, and the Blackhawk financial reorganization.

Arch Coal is investing $360 million to $390 million to develop the Leer South mine ($100 million in 2019). Development is progressing well and the company now expects longwall mining to commence in the third quarter of 2021.

“While it’s still early in the development process, we are encouraged by the significant progress and positive momentum our team has exhibited,” Arch Coal President and COO Paul Lang said. “Leer South is expected to be among the lowest-cost, highest-margin coking coal mines in the U.S. As such, we are sharply focused on getting the longwall online as quickly as possible, and will be looking for every opportunity to accelerate the development process.”

The company has completed the slope and started development work. Arch expects to produce 1.3 million tons of premium, High-Vol A coking coal with continuous miner units prior to the startup of the longwall mine. Based on today’s prices, those development tons could generate EBITDA of roughly $100 million — or more than 25% of the total projected capital needed to develop the mine — prior to the longwall’s startup.

With the addition of Leer South, Arch expects to exp