By Lee Buchsbaum, Associate Editor & Photographer
Western bituminous coal producers are once again trying to navigate through changing markets, political challenges and the financial downturn that is gripping the nation.
Western coal mines were once sole or major suppliers of fuel to steam locomotives moving freight and passengers across the nation. Later many of these mines produced coal suitable for coking and were used to make steel in blast furnaces in Colorado, Utah and California.
Throughout the 1970s and 1980s, as steel production began to wane, many western producers sold increasingly larger volumes of coal to a fleet of new power plants being built throughout the nation. As stricter environmental laws were adopted, utilities increasingly turned to the cleaner burning Rocky Mountain and Powder River Basin coal even though shipping costs were higher.
In the 1980s, as the global economy expanded, Asian steel mills and electrical producers began to beckon. As mills closed in California and Utah, a group of international investors, mostly Japanese steel producers, constructed the huge Los Angeles Export Terminal to trans-ship millions of tons of Utah coking coals. But those markets never really materialized and with high volumes of Canadian coking coal now filling ships heading to Asian ports, western producers seemed likely to miss the boat to the lucrative export markets. But not so fast.
Steel producers worldwide are still eager to lock up supplies of good Utah and Colorado coking coals if they can just find a way to get them. And though domestic electrical generators, facing a raft of confusing environmental laws, are re-evaluating costs as they chart their own futures, global coal users are fast stepping up to the plate, striking deals to bring coal produced in the Rocky Mountains to their own shores through any port that can serve them.
Producers Looking to Export Coal
The two largest producers of western bituminous coal, Peabody Energy and Arch Coal, are shipping increasing amounts of coal through the Gulf of Mexico and smaller west coast ports to a variety of foreign customers. “Further underscoring that the U.S. is becoming a strategic supplier in the seaborne market, in western bituminous we continue to move coal offshore to customers in South America, Europe and Asia. We expect to move 1.5 million tons for export from the region in 2011 and are targeting at least 2 million tons for export in 2012,” said John Eaves, president and COO, during the company’s second quarter earnings call. According to the company’s second quarter report, western bituminous coal is also becoming increasingly profitable for Arch with margins for this sector rising “nearly 45% versus the first quarter to reach $9.16/ton. Second quarter average sales price increased slightly compared with the first quarter, reflecting a more favorable mix of customer shipments, including volumes destined for the eastern U.S. and for export out of the West Elk mine in Colorado.”
With the majors leading the charge, other smaller producers are working swiftly to compete in the international market or to move in to fill the gaps as domestic coal is displaced by the more lucrative export market. Rhino Energy is currently redeveloping the company’s recently acquired Castle Valley mine in near Huntington, Utah. According to Rhino, the company has successfully increased production by adding a second continuous miner section and preliminary agreements have been reached on long term sales contracts. Rhino is also continuing with plans to permit a rail loadout for the McClane Canyon mine west of Grand Junction, Colo., while seeking customer orders to reopen the mine. Long term plans call for the introduction of longwall mining into an adjacent reserve.
Across the state, on August 9, Cline Energy’s New Elk mine shipped the mine’s first high-vol, high fluidity metallurgical coal to the company’s rail loadout west of Trinidad, Colo. At the end of the month the company reported that they are continuing to ramp up met production “to reach the initial level of 3 million tons annually in the first quarter 2012.”
On August 24, Cline started to drive three new rock slopes from the surface near New Elk down 500 feet to access the Blue coal seam that lies 50 vertical feet below the level of the coal plant site. The slopes are scheduled to be completed within 60 days and mining in the seam will begin with the introduction of four continuous miners beginning in October through December of this year. Cline plans to add two more continuous miner units in the first quarter of 2012. The six continuous miners, organized as three super sections, will have the production capacity of 1.8 million tons of clean coal annually.
Concurrently, mining will continue in the Allen mine, progressing into the Apache and Allen seams with four additional continuous miners organized into two super sections with a combined additional production capacity of 1.2 million tons of clean coal annually. The continuous miner operating in the Apache seam has now reached the ventilation shaft as scheduled enabling the mine ventilation system to be fully conformed to the mine plan. Three additional continuous miners will be gradually mobilized to complete the implementation of the two super sections and continue mining at the full rate according to plan.
In Utah and Colorado two other producers have joined and re-entered the marketplace: newcomer AmericaWest’s new Horizon room-and-pillar mine near Price, Utah, and Cedar Energy Holding’s rebuilt Bowie No. 2 longwall mine in western Colorado.
After Months of Downtime, Bowie Comes Back
After a down year in 2010 in which the mine only produced 1.33 million tons and following almost 15 months of development work, the Bowie No. 2 mine has returned to near full production levels.
While redeveloping the mine and stabilizing its finances, the mine’s longwall sat idle for more than a year and a half. Initially developed in the mid-1990s in the productive North Fork of the Gunnison River Valley to access the D seam, the mine moved the longwall to access the high quality B seam in 2004. Mining continued until crews encountered higher levels of water and gas than management had been expecting. Unable to overcome these challenges, Bowie changed direction and developed more than 100,000 linear feet into their current western location. With a calorific vaule of more than 12,000 Btu/lb, 9% moisture and 7% ash, it was only a matter of time before that coal would start flowing again.
Bowie’s longwall was once again fired up in June. Over the course of the month, the mine loaded 13 unit coal trains. It nearly doubled the next month, ramping up to 22 in July. In August, Bowie loaded 25 more. Beginning in September, it expects to load an average of 28-30 trains monthly while producing 3 million tons by the end of 2011. Going forward, Bowie hopes to reach a nominal production rate of 5 million tons per year (tpy) throughout 2012.
“We have a core group of very dedicated employees who during that down time managed to scrape together enough equipment to still mine coal,” said Dewey Tanner, vice president and general manager, Bowie Resources. “To run without a longwall for 15 months, our ownership deserves a tremendous amount of credit. Bowie’s miners cannibalized equipment. Our vendors were very patient while we received a lot of assistance from TVA as well as local officials to ensure that these 300 high-paying jobs did not go away,” said Tanner. Overall, there are more than 1,000 direct mining jobs and three operating longwalls in the North Fork of the Gunnison valley.
At the moment, Bowie is developing through a new area even as they have fired up the mine’s longwall. “We’re currently in excellent shape and on track to produce roughly 450,000 tons per month or 5 million tpy. We’re about 90% there in terms of normal productivity. With all the fault crossings and roof changes, the B seam is very challenging. We have some water but thankfully very little gas. We develop at 9 feet, but the longwall retreats at about 10 feet. Average mining height on the longwall is between 11 to 12 feet,” said Tanner.
An older longwall, some of Bowie’s shields were first deployed in 1989 and 1990. Like much of the longwall system, these shields were all rebuilt in 2006. They use a 1-m wide MTA/DBT (now Caterpillar) AFC and an Anderson shearer. “It’s an Electra 2000 with 76-inch drums,” said Tanner.
The Bowie No. 1 mine began limited coal production in 1995. Mining transitioned to the new Bowie No. 2 mine in 1997. Since then Bowie has had several owners including Westmoreland Coal, the Coors Energy Co., and most recently the Addington brothers. In 2009, Bowie Resources became a wholly-owned subsidiary of Cedars Energy, LLC, a privately held energy investment company. Earlier this year, Bowie completed a loan and Asian marketing agreement with Seattle-based L&L Resources. L&L’s loan provided some liquidity for the struggling operation while helping facilitate potential export opportunities into Asian markets.
Bowie followed this up on July 25 with a new financing and partnership arrangement with subsidiaries of international coal marketer, trader and handler Mercuria Energy Group Ltd. By taking over a long held line of credit Bowie had with GE Capital, “Mercuria has now become both our lender and agent. In the process, not only have they provided us with additional capital and equity, Mercuria has extensive marketing, trading and coal blending expertise. They bring to the table existing customer relations, an outstanding logistics group and other tools. This allows me to focus on mining coal,” said Tanner. Among those tools, Mercuria also has port capacity in the Gulf of Mexico.
Like several western Colorado producers, Bowie was developed to supply coal to the Tennessee Valley Authority (TVA). Though it remains Bowie’s largest customer, recently Bowie has been exporting coal to Mexico and the company is looking to increase its exports worldwide. A hot coal with low levels of sulfur, Bowie’s coal is outstanding for the thermal market but “just bottom end of what might be considered PCI product. It is, however, super-compliant coal and is great for blending with Illinois Basin or various PRB products,” said Tanner.
With stable financing for the mine, Bowie announced it would spend several million dollars this year to upgrade existing equipment and explore for additional reserves. Tanner and senior management believe there may be up to 35-40 million tons in recoverable coal in those reserves. “We’ve notified the U.S. Bureau of Land Management [BLM] and Oxbow [Mining] that we want to participate in [the Oak Mesa] exploration. The extent of that exploration has not yet been determined,” Tanner said. In order to have access to the data, Bowie will share in the cost of the Oak Mesa exploration with Oxbow and other producers
America West is on the Horizon
Farther west in Utah as producers try to take advantage of the beckoning export market, overall production has been on the decline. But newcomer America West Resources, led by industry veteran Dan Baker, looks forward to filling in some gaps. “Whether it’s a problem with increasing cover, mine liquidations, or just a lack of planning, there’s a looming shortfall of 6 to 8 million tons for the historical marketplace of Utah coal,” said Baker. With a shortage of available reserves, unless a producer is going to buy an active mine, greenfield operations are very difficult to permit. Companies are trying to capitalize on existing operations as mining conditions throughout the region become more difficult under increasing cover. “Our average depth is around 1,400 ft. Our maximum depth is 1,600 ft. When you compare that with other operations like Murray Energy’s West Ridge mine that is pushing 3,000 ft, we are much more fortunate,” said Baker.
If the Asian market is able to start taking some of this region’s coal, “that is going to further threaten the existing and historical market even more as producers take advantage of those higher yields and price margins,” said Baker discussing how Utah’s current coal consumers are beginning to worry. Historically, some of Utah’s coal has also been sold as high vol coking coal and that may yet happen again. Interest in remaining coking reserves is high.
Where does America West fit in to this scenario? Baker describes the new company “as a diamond in the rough. We sit on a permitted reserve that has adjacent reserves available for the future. So as the other permitted reserves are exhausted or come off, we hope to be able to increase our mine’s production to fill in those gaps,” said Baker.
The company’s first mine, the Horizon room-and-pillar operation, has averaged more than 260,000 tpy for the last four years from the Hiawatha seam and has recently ramped up a production rate of 500,000 tpy. Average mining height is approximately 7 ft and the coal generally has a calorific value ranging from 11,500 to 12,300 Btu/lb. “We have been in the development phase for a long time. In the recent past, we were sealing old works while developing further into our reserve. Though we have more to do, we have a second production unit now on-line and we’re performing some limited pillar extraction. That just started in the last few months. Our plans are to add a third continuous miner and in 2012, begin longwall mining,” said Baker.
“When I first looked at this project, I realized that one could build a company around it,” said Baker, who was born and raised in Price, and has a long history with this reserve. Not only has he worked in this same coal seam before, his grandfather worked in the seam above it through the early 1950s and his mother was raised in the Consumers coal camp—the ruins of which sit just outside the current mine access road.
As it has moved forward, Horizon has changed its overall mine plan and orientation to prevent roof falls. It is also using a combination of resin and high-tensile bolts. As it accesses deeper reserves, America West’s plan is to try to secure or acquire a used longwall that will fit the company’s working conditions and rebuild it.
At the moment, the Horizon mine has approximately 15-16 million remaining mineable tons under lease. The majority of this tonnage is part of federal lease given by the BLM while approximately 220,000 tons of the remaining coal mining territory is fee coal owned by the America West Resources’ subsidiary, Hidden Splendor. Management predicts the current leased reserves will take roughly six to eight years to mine through with longwall mining technology. Currently, America West has almost 150 employees at the mine and 20 more personnel working in various support capacities.
America West and its subsidiaries are owned by some of the principal backers of the former Lodestar Mining Co. During that company’s reorganization, “a plan was agreed upon and at the end of this year that plan will be complete. It’s been a struggle for capital but we’ve had other investors come in and give us the ability to get to where we are today. We are still looking for additional investment opportunities,” said Baker.
At the end of August, America West quietly acquired a lease to purchase the idled Wildcat rail load out. Originally owned by Andalex and later Murray Energy, the facility is served by the Utah Railway and has a 5,000-ton per hour (tph) loading capacity. As it fires up and handles more of America West’s coal, it will be instrumental in allowing that coal to reach more markets.
GCC Energy’s National King Coal
When last Coal Age visited in late 2007 (see the February 2008 issue), the new King Coal No. 2 mine was just being developed. Since then, operations have completely transitioned away from the original No. 1 mine that had been in operation for more than 70 years. Still owned by Grupo Cementos de Chihuahua (GCC), an international cement producer headquartered in Mexico, the new No. 2 mine has become a steady 600,000 tpy producer of high quality 13,200-500 Btu/lb coal containing only about 0.6% sulfur. The coal has an ash content of 6.5%-11% and the moisture ranges from 5.5%-8.5%. Using one super section with two Joy 1415 CM units, the No. 2 mine cuts coal from the Upper Menefee Seam. Also on the super section are two small Tennessee 22 Fletcher Roof bolters and three battery powered Freedom shuttle cars.
The No. 2 mine is rather shallow in terms of depth of cover, averaging only around 300 ft. Consequently, the vertical and horizontal stresses are a lot less than many other western mines. “We’ll put trusses in from time to time, but typically our miners employ a typical five foot centered bolting pattern,” said Kurt Poulson, mine manager. With just under 90 employees, at present production rates, the mine should have enough reserves to last another 25 years.
Located just west of Durango, Colo., in nearby Hesperus, the majority of GCC Energy’s coal is trucked 167 miles south to mine’s rail load out in Gallup, N.M. Once there, the coal is trans-shipped for delivery to a variety of cement producers—about half of the production is sold to the mine’s owner, GCC. “Gallup is our railhead. Much of our customer base is made up of smaller consumers that accept rail shipments in 10 to 25-car lots. We send out unit trains to our larger customers in the U.S. and in Mexico,” said Trent Peterson, vice president, GCC Energy, LLC.
Planning for the new mine began several years ago. And while much attention was paid to how to most efficiently access the coal reserve, Poulson and management were equally circumspect as to how the mine would appear above ground as well. “We decided from the beginning that we were going to really limit the amount of visible impact we were going to have. Though the contractor initially wanted to bulldoze the whole thing flat—which would have been easier—we were determined to keep as much of the surface area in as natural of a state as we could. We carefully mapped the existing trees and topography and saved as many as possible,” said Peterson. Hummingbirds fly around the mine’s offices and deer, elk and the occasional bear and bobcat roam the hills above and around the mine entrance.
To further preserve the natural state, “all the crushers, screens and stock tubes were built virtually dust tight,” said Peterson. Fugitive noise was another element it tried to prevent. “We erected a large sound barrier around the fan so it’s hard to hear. We also designed the mine’s load-out so trucks coming in the gate can leave again in about 6 minutes. Not only do we not want to create any impacts to local citizens on the county road, our load-out’s efficiencies allow trucks to rotate out of here quickly. This helps the trucking company reduce dwell time and overall costs,” said Poulson.
Though 97% of the mine’s output is used by the cement industry, almost 2% of production finds a once familiar home in the fireboxes of regional steam locomotives. Taking an anachronistic turn, the No. 2 mine supplies close to 10,000 tpy to several steam-powered western tourist railroads, in particular the world famous Durango and Silverton Narrow Gauge. Running almost year round along the spectacular Animas River, the railroad is justifiably rated as one of Colorado’s prime tourist attractions. In the decades that the two mines have operated, millions of vacationers have been taken on an unforgettably beautiful steam powered, coal-fired journey between the railroad’s namesake communities. Taking one step further back into the past, not only are the trains fueled by coal, all of the locomotives are hand fired: which means someone shovels that coal the whole way up and back. One wonders if in 2011, GCC King No. 2 has become America’s largest supplier of “real” railroad coal.
Peterson sees working with the railroad as part of the mine’s social license. “We look at it as providing a service to the community. By providing coal for the railroad, we help produce the nostalgic effect of the coal-fired locomotive. We go out of our way to produce a good product for the railroad,” said Peterson.
Though the mine does not wash coal. “We ship everything we mine. We have a triple deck screen that segregates the four inch plus lump coal that goes to the railroad. 98% of our coal is screened at 2 x 0 and is sent to Gallup. From 2.5 inch to right under 4 inch, that goes to the crusher, and then we screen off an inch and a half by 5/8. That coal goes into the stoker market,” said Poulson. To properly sort the railroad’s coal, King 2 employs a part time person who picks the rock out of the lump coal.
Ironically, it is because the railroad that used to serve Hesperus was torn up long ago that there is any coal left in the area to be mined. “To be honest, if that rail line was still intact, this coal is of such high quality it would have been long mined out by now,” said Poulson.