By Lee Buchsbaum, Associate Editor & Photographer

As a series of increasingly draconian EPA regulations begin to take effect in the midst of a stalled U.S. economic recovery—placing long-term domestic thermal coal use in a questionable position—coal producers are funding more projects geared toward export markets, particularly for the highly-valued metallurgical coal. Several coal companies have recently bought existing assets to enhance met positions.

Patriot Coal sees the opportunities abroad and has decided on a different approach. Rather than buying its way into the market, it is going to build its way to further expand into the market. The plan is to increase its met production organically. The company’s “Met Build-Out program” will increase production by developing seven new met mines over the next two years from reserves the company already owns or controls. It anticipates the majority of the new mines will each produce around 500,000 tons per year (tpy) of met coal and have enough reserves to sustain production for between 10 and 15 years. Combined with other changes, the company is gearing up to produce more than 11 million tons of high-grade met coal by 2013—a 60% increase over 2010 figures.

Flush with extensive thermal and metallurgical holdings throughout West Virginia, Patriot’s met production and expansion is anchored around four existing complexes in southern West Virginia: the Panther longwall mine; the Kanawha Eagle complex; the Rocklick complex and the Wells complex, this is in addition to the company’s existing met producing Paint Creek-Winchester complex.

The Met Build-Out program involves actively evaluating, engineering and planning each mine, securing the necessary equipment, submitting permits with ample lead time, identifying supervisory management as well as attracting, training and hiring new employees to staff these new operations.

As of the end of the second quarter, Patriot anticipated selling 31-32 million tons throughout 2011, fully 25% or 8 million tons of which will be met coal. During the year, Patriot’s capital expenditures will be approximately $175 million, much of which is centered on the met build out. In 2012, Patriot’s cap-ex will rise to more than $200 million, again targeted toward increasing met capacity. Based upon current market conditions, Patriot’s net return over the next two to three years could well pay for most of that expansion.

The whole project “is manageable both in terms of the execution of putting the mines in and also on the financial side. If inevitably there are some temporary or even longer-term downturns, we have the ability to dial back development or production in increments as opposed to embracing an all or nothing type approach. Also, the 500,000-ton mines are only costing us roughly $30 to $50 million each. The 1-million-ton mines maybe double that. While still a large figure, comparatively it is a palatable sized investment. Better still, for all of these mines, we’ll be able to use the same infrastructure, refuse areas, and many of the same permits that we already have in place. This gives us a real advantage from a permitting and from a capital cost point of view,” said Rick Whiting, president and CEO, Patriot Coal.

About 75% of Patriot’s current met coal production is already being exported and that figure will only increase as production expands. As the world’s need for met coal continues to grow, Whiting anticipates global seaborne demand for metallurgical coal will increase more than 50% from about 250 million metric tons (mt) in 2010 to nearly 400 million mt by 2020. On the thermal side, he expects seaborne demand to increase more than 30% from 2010 to almost 1 billion mt by 2020. “With supply constraints worldwide, we believe U.S. metallurgical and thermal coal will increasingly be shipped overseas to satisfy the robust and growing international demand,” Whiting said. “From our perspective, the U.S. metallurgical and eastern thermal coals are well positioned to participate in these export opportunities, and Patriot, in particular, is set up to be a major player in serving these markets.”

However, there is a danger that as a host of American producers increase met production, the entire met market will become saturated, particularly for the more prevalent high-volatile metallurgical coals. With Australian producers seeming to suffer seasonal setbacks annually, the need for coal buyers to diversify, and the unlikelihood of the U.S. dollar strengthening anytime soon, the export market for America has further strengthened. Patriot currently ships met coal to customers in Europe, Japan, South Korea and Brazil, and it is taking a long position on the business growing abroad.

Patriot’s Met Build Out

Central to Patriot’s metallurgical push is the coal already coming from the Panther longwall mine. Producing almost 2.5 million tpy, Panther is Patriot’s largest single metallurgical mine—and one of its most cost effective. Originally commissioned by Speed Mining Co., Panther was sold to Magnum Coal. After Patriot acquired the mine, it was upgraded, rehabbed and outfitted with new equipment. Currently, the Panther longwall employs a Joy 7LS1a shearer with Bucyrus shields, armored face conveyor and stageloader.

Though its coal is met quality, the mine was committed under thermal contracts when it was owned by Magnum and was selling 100% of its production into the thermal markets as late as 2008. Beginning in 2009, Panther sold about a fourth of its tonnage as met coal. In 2010, Panther changed the way it washed the coal, and now all of the mine’s production is and will continue to be sold into the met markets.

Panther is contiguous to Patriot’s Kanawha Eagle complex and both are mining from the same Eagle seam. Having already established the Kanawha Eagle product as a met coal, Panther has a readymade market to sell into. To enable the transformation, Patriot now processes Panther’s coal to a lower ash content at the on-site preparation plant. After it goes through the prep plant, all of Panther’s coal is transported via truck to barges on the Kanawha River or via CSX rail. Panther’s coal is often sold as a true single seam unblended product.

Nearby, Patriot’s Rocklick mining complex is sourced by the expanding Black Oak mine, the new Gateway Eagle mine and one other contractor-operated underground mine. Rocklick also processes coal from Patriot’s Joint Venture (JV) met mine with Rhino Energy. All continuous miner operations, in 2011, the coals produced at Black Oak and the contractor mine are being sold into the met market. Rocklick has the capability to transport coal to both the CSX and the Norfolk Southern (NS) Railroads. Although development operations at the Black Oak mine were initially suspended in January 2009, Patriot returned to the mine in September 2010 as demand for met coal increased. Black Oak’s coal is extracted from the No. 2 Gas seam.

Due to the reflectance and volatility level, Rocklick produces Patriot’s highest quality coking coal. A blend of Black Oak and three Eagle seam products, Rocklick’s top quality coal has a reflectance of up to 1.07. “Several high grade met mines in the region have experienced problems and there’s simply not very much remaining in this country,” said Jim Magro, senior vice president of underground operations, Patriot Coal.

Shipping roughly 3 million tpy of clean coal, Patriot’s Wells mining complex is sourced by a number of room-and-pillar mines, both company-operated and contractor-operated. Coal produced at the Wells mining complex is sold on the met market and is transported to customers via CSX. Contract mines produce coal from the Eagle, No. 2 Gas, Powellton and Lower Chilton seams.

Both the Wells and Rocklick prep plants are ISO 9001 certified, state-of-the-art facilities. Advanced PLC controls allow the plants to adjust quickly to a variety of coals and blend them properly. Either from the raw or clean side, each facility has separate points where quality engineers perform a multitude of tests to ensure proper customer specifications are being met to within two standard deviations.

Finally, the contractor-operated Kanawha Eagle complex is sourced by three room-and-pillar mines. During the second quarter of 2011, Patriot made significant progress constructing the entry slope at the new Peerless mine—now under development at the complex. “We expect to begin production at this mine late this year. The Peerless mine is expected to yield total production of around 1 million tpy, including both met and high-quality thermal coal,” Whiting said. Processed coal is transported via CSX directly to customers or by a private railroad to the Kanawha River to be placed on barges. Met coal is also produced from the Eagle seam.

As part of the company’s Met Build-Out, in recent months, Patriot began production at two other new mines: Gateway Eagle in the Rocklick complex and Workman Branch in the Wells complex. The first section at Workman Branch was put into production in second quarter of 2011 with a Joy 14CM15 continuous miner, a Fletcher CHDDR bolter, and Joy 10SC32ab shuttle cars. The mine is scheduled to expand to a second section starting in the fourth quarter.

Rail or River, Patriot Has Options

Projected to be a record year for coal exports, most of the main port terminals on the East Coast are plugged. Excess capacity is hard to come by. Though Patriot has contracted throughput at DTA, the new tonnage the company is bringing on will have to find another way out of the country. Some of it will go through the Gulf using transloaders to place the coal into the holds of larger Panamax vessels. But transloading metallurgical coal is more challenging than thermal because accurate blending facilities similar to those on the East Coast are less available. Patriot has found ways to mitigate that challenge by blending at the prep plant or river dock before coal is loaded into barges.

The Rocklick complex has direct access to both CSX and NS. The Wells complex ships coal on the CSX. The Kanawha Eagle complex has direct access to CSX or to the Kanawha River through a private railroad—one of the oldest shortlines in the U.S.

Sitting almost on the Kanawha, both Kanawha Eagle and Panther coal can be shipped by barge. By accessing a new stacker/reclaimer and rail loadout being constructed by NS at an existing barge facility, Patriot is also in the process of adding the physical capability to load coal on the NS within Kanawha River valley. So where ever that coal needs to go, it can find a home.

Ramping Up: Ordering Equipment, Planning, Recruitment and Retention

In his three-decade long career with some of the largest producers of steam and metallurgical coal, Magro says he has never participated in a large-scale complex expansion like this one. “You have to strategically put together a sourcing plan and figure out which coals you need to mine, where you need to open up, and then you’ve got to put a plan in place to make that happen,” Magro said. “Once you have an internal plan in place, you have to start dealing with regulating authorities. You have to get MSHA’s paperwork submitted properly months before you need the permit.”

Just as importantly, as equipment manufacturers have consolidated and shifted much of their focus to expanding overseas markets, ordering early has become vital because “manufacturers are swamped with orders,” Magro said.

Even with the economy in the doldrums, available labor in the coalfields remains scarce. To attract new workers and mitigate Patriot’s hiring challenge, the company has developed an advanced training facility in southern West Virginia to groom a new crop of “red hats” and teach them how to operate mining machinery, work in an underground environment and to fully familiarize them with Patriot’s safety culture and policies.

“We’re looking for a whole new generation that can make it a 35- or 40-year career for themselves doing something that’s key to the economy,” Whiting said. “In all, we plan to train between 150 and 200 new miners over the next 18 months. We also offer extensive classes to train and develop supervisors, electricians and other specialists we’ll need for our expansion. These newly trained miners will join our experienced miners at existing operations, as well as the new mines we are opening.”

With so many miners now or soon eligible for retirement, successful recruitment, training and retention is a vital component of the company’s expansion plans. Patriot, however, is not alone. Several other large mining companies are aggressively seeking new employees. How does Patriot hope to stand out from its peers? By developing attractive workplaces with an in-place safety culture that ensures Patriot’s mines will run in compliance with MSHA rules and regulations.

“The people who work for you are your best advertisement. If you’re in compliance and trying to maintain a compliant workplace all the time, that makes mining easier. It means the mine and its equipment are in good shape. If you’re operating illegally or simply ignoring the law, and MSHA knows, it’s hard to run that way and you’ll be less attractive to other new hires,” Magro said.

In the midst of a regional hiring competition, Magro and senior management have been very pleased with their success in staffing the new and expanding Black Oak mine. “Often when we take prospective experienced miners for a tour of that mine, they quit their other job and come to work for us here. They come because it’s safer and easier to mine coal at Black Oak. If a coal miner discovers a mine that’s set up right in a good coal seam, that’s where they will want to work,” Magro said.

Transforming the Safety Culture

As Patriot works to develop new mines and recruit new employees, they are also working to improve their safety culture. In the first half of 2011, Patriot achieved an accident incidence rate of 2.86 per 200,000 hours worked, which is nearly a 20% improvement compared with 2010’s record. Nowhere has this transformation been more dramatic than at the Panther longwall complex.

Greg Boggs, operations manager at Panther, was brought in by the company to make changes. “The accident frequency when I got here in 2008 was +6. It was as high as 8 in 2007. Now we’re operating at 2.4. The ship’s still not where I want it to be, but it’s heading in the right direction,” Boggs said.

Crews at Panther start off every day with a safety meeting. “Communication is the key in everything we do. We do a lot more administrative safety meetings where I’m involved in front of the crews and we do safety meetings and contacts when I get off the mantrip in the morning. Before they go under, we have another safety talk and I visit with each section during the shift,” Boggs said.

Additionally, Patriot’s employees are now directly involved in inspecting the mine as they’re walking up to their sections. “We assigned an individual to look at the roof and ribs as they’re going up into the section. We are trying to build a team culture because it doesn’t matter how many supervisors are participating, if you don’t have the whole mine involved, you will never succeed,” Boggs said.

Communication is a two way street. Part of Patriot’s safety philosophy is to train from the lowest level up, if something is not right, miners are encouraged to speak up. Employees are trained to inform supervisors when they have questions or concerns about both conditions and procedures. If that leads to a unit or mine slowing or stopping production, so be it. To maintain that philosophy company wide takes support from the CEO down. “Repeatedly Rick Whiting has told us ‘if it’s not right, we’re going to shut it down.’ Patriot COO Chuck Ebetino feels the same way. When our miners see they have that kind of support coming from the top—from the board of directors even—you really see results,” Magro said.

At the board’s request, Patriot has set up an audit team that travels to each mine and reviews the books, procedures and inspections logs. Auditors report their findings to the operations managers right on up through Magro and beyond to ensure everything is being done properly. “We tell our supervisors they have a moral obligation to make sure we do everything we can to make sure people don’t get hurt. We’re not going to load a pound of coal if it’s going to jeopardize anybody in our mines. When employees see management is willing to take something out of production to fix it, then the proof’s in the pudding,” said Magro.

Ensuring personal safety is one thing. Complying with ever-shifting MSHA and State rules and regulations is another. “On the compliance side, we’ve cut our violations. We have our safety team perform daily audits in various areas of the mine. They’re treated just like an MSHA or a state inspector. If they find something wrong, we shut down and we correct it. If we don’t have the parts or supplies on hand, then we immediately go out and get them. Since this policy has been implemented, we have resorted to shutting down sections several times. We’re serious about not taking any chances,” Boggs said.

Moving Forward from Harris, Black Oak Takes Off

In June 2010, Patriot closed the nearly 40-year old Harris No. 1 mine due to a roof fall and other adverse geologic challenges. Though Harris was nearing the end of its projected mining life and was scheduled for closure in 2011, the decision was difficult because within its reserves, the mine still has some high value coal that could be extracted. Patriot could have kept mining, but management realized it would have been taking a safety risk every day. “So we shut down, moved the equipment out ahead of schedule and started the Black Oak mine. We’ve been going like gangbusters there ever since,” Magro said.

With Harris’ closing, most of the employees and senior staff moved over to the new Black Oak mine, helping the new operation get off the ground and expand. “Effectively we have an all-star team at Black Oak made up of the best managers at Harris, and the older mine’s very experienced workforce. They know what they’re doing,” said Bruce Short, operations manager, Patriot Coal.

The new Black Oak mine produces very high quality high-vol met coal, with projected clean coal production rate of 800,000 tpy or more. Developed and initially idled due to the market conditions, with Harris’ imminent demise, Patriot decided to re-open Black Oak.

Since May, the new Black Oak mine now has grown to three continuous miner sections, two of which are super sections. Each uses Joy 12CM continuous miners, Fletcher CHDDR roofbolters, and Joy 10SC32ab shuttle cars spread between three sections. In September, Patriot plans to add another continuous miner and convert the third section to a walk-between super section.

“On these two super sections, usually you have split ventilation and separate air courses. You can only run one miner in each air course,” said Danny Davis, mine foreman, Patriot Coal-Black Oak mine. In Patriot’s nomenclature, a super section is a split air dual unit with both units operating at the same time. A walk between super section can be either split air or sweeped air. But only one miner is run at one time. The other one stands by ready to fire up when the other continuous miner finishes mining its place. Patriot’s workers do not have too much idle time.

Workman Branch Takes Shape at Wells

To obtain permission from the West Virginia Department of Environmental Protection (WVDEP) and the Army Corps of Engineers to start up the mine, Patriot had to initiate development in what they hope is the most challenging section of the reserve. When Coal Age visited in May, development workers were grinding through 3-5 ft of rock and yielding thin seems of coal as they moved to a better section. “As we go in further, core tests show us the rock gets thinner and the excellent quality, high value coal sitting in that reserve gets much thicker,” said Short.

As of May, the mine’s development crews were working two shifts per day on one unit with a third shift doing maintenance and clean up work. Less than 500 ft underground at the time, crews were just setting up main and secondary belt lines and running limited amounts of coal. Patriot plans to use Joy 1415CM miners with high 44-inch drums equipped with wet heads, Joy 10SC32ab shuttle cars and walk-through Fletcher roofbolters. Though the workers will all be contract employees, all the equipment will furnished by Patriot. The contractor, however, is tasked with performing all maintenance work on what the company provides.

Over the last 100 plus years, operators have actively mined the high grade met coal found in this part of southern West Virginia. Today, as Patriot’s workers go after the No. 2 Gas seam in this heavily mined region, the new Workman Branch mine will literally be sandwiched between two other mines, the now closed Harris mine beneath and another new mine above.

“They mined the best they had and then what they had left was the best they had. We’re mining what’s left today. And that’s the way it’s going to be. The remaining coal quality is good, but we’re down to the thinner coals and tougher mining conditions. That’s just part of mining in this area. It’s not low cost mining because the low cost coals are already gone,” Short said.

To address more difficult mining conditions, Patriot’s engineering group does extensive stress analysis and “we have people on staff who are on the cutting edge of being able to model the stresses from multiple seam mining. We’re in the process of developing precise maps showing where we think those stress zones will be,” Short said.

Short says that though they have not experienced any complications so far, they do expect additional amounts of horizontal stress. “We will have challenges when we go across a former longwall barrier pillar, for instance, because that block is still standing after the longwall is gone. To address this and stay ahead of other concerns, we’re using precise mapping to highlight areas we think we’re going to have problems going forward. So far we’ve been probably 95% on the money,” Short said.

To combat the greater horizontal stress, Patriot is employing more roof support, often in the form of angled bolts and by more rib bolting. It is also using extensive cable truss bolts.

Gateway Eagle Takes Flight

Like at Harris and Black Oak, as Patriot wound down operations at the now closed Rivers Edge mine, they asked employees to staff up the new Gateway Eagle mine. “In the same way, we were fortunate to have a place for Harris’ crews. This new mine is also starting off its life with a very experienced and competent management staff and a very experienced workforce from Rivers Edge,” Short said.

The new Gateway Eagle mine was started in January of this year, in the same area where the internationally acclaimed “Kopperston” mid-vol met coal originated. Initial production during the development phase first occurred on February 14 and continued throughout the Spring. Now in the second quarter, Gateway’s second miner initiated operations in the same section. Gateway uses Joy 14CM15 miners, Fletcher DDR bolters, and Bucyrus 816EAC coal haulers. The mine is currently running one super section with a second section scheduled to start up in first quarter of 2012.

During the early development stages management expected the coal seams to start out thin and expand as crews moved further into the reserve. “We’re trying to average 6-foot of height but we’re cutting anywhere from 30 to 34 inches of coal, so we’re cutting quite a bit of rock. We’ve got a couple of core holes that indicate the coal should start picking up in the next 800 to 1,000 ft,” said Bubby Kuhn, superintendant at Gateway Eagle.

Development work at Gateway Eagle started from a portal that Long Branch Energy had developed years before. “We went in through three entries, rehabilitating, re-bolting and cleaning up the old works. We also built three new seals as we went up along the side of Long Branch. The roof is made up of good solid slate and sandstone. The average mine height will be around 6 ft as well,” said Kuhn.

Based on Patriot’s experiences at Rivers Edge, Gateway Eagle will be all battery haulage. “As folks moved over to Gateway, their operating scenario moved with them.

At Rivers Edge, we used Bucyrus 816EAC coal haulers. They are 39-ft long and 11-ft wide. Very heavy and big, they haul a good load. I like the cars because they’re reversible. That allows you to reach places cable cars wouldn’t without a belt extension or a pony belt,” said Kuhn.

Currently, Gateway operates two Joy 1415 miners on the single section development unit along with two Fletcher Roofright bolters. “We’re treating that section like a walk between. We’re running one miner while the other one is being loaded. We have split ventilation in the face. With our second power center up and running, we are running both sides simultaneously,” said Kuhn.

Peerless

Patriot’s new 1 million tpy Peerless met mine being developed at the Kanawha Eagle complex is on schedule “to start having meaningful production in the first quarter of next year, right at the first of the year,” said Whiting. Patriot has already made significant progress constructing the entry slope at the Peerless mine in recent months.

2013 and Beyond

Like a major league baseball team with a wealth of starting pitchers, Patriot has the enviable challenge of deciding which capable hands will get to throw the next pitch. “We’re in a good place here in the Coal River and Kanawha River valleys. We’re set up for refuse permits through probably the late 2020s, and much of where we are planning on developing is in already-permitted areas. Depending on what the board and our customers decide, we have a great variety of options. Either way, we have lots of coal reserves and we’re just developing one after the other as the markets come to us,” Ebetino said.

As of the middle of 2011, the company has not yet provided full details of the next development steps as Patriot internally reviews which mines will be built from upward of a half dozen candidates. “I can look at a sheet here that shows at least six or seven different potential projects from which we’ll have four out of that. If you’ve got a choice of projects, as you get closer and finalize the engineering, obviously, you pick the ones that are most likely to succeed and have the best margins,” Whiting said. Either way, it’s early in the game and Patriot’s sitting on a comfortable lead.