John T. Boyd Co. recently collaborated with an operator that acquired underground NAPP mines to realistically assess risks and potentials of the operation including alternative mining plans and operating schedules, strategic plans and revised capital budgets. John T. Boyd Co. recently collaborated with an operator that acquired underground NAPP mines to realistically assess risks and potentials of the operation including alternative mining plans and operating schedules, strategic plans and revised capital budgets.

Consultancy firms outline progress at two North American coal properties

By Donna Schmidt, Field Editor

Desmond Tutu said, “Hope is being able to see that there is light despite all of the darkness.” And seldom has that been more accurate in coal mining than right now.

Yes, everyone is painfully aware that the market has seen better days. From personal conversations at the office to industry event mixers, it is a topic of conversation that never seems to go away. Let’s be truthful, though: this isn’t the first time it has happened, and opportunity — as always — is what you make of it.

There is good news out there, and some of it stems from the hard work of mining consultancy firms that are helping those forward-thinking miners take advantage of a period of relative quiet and greater cost efficiency. When the market returns to its former condition, which is just a matter of time in this cyclical industry, two operations will be ready thanks to the assistance of their respective consultants.

Permitting & Feasibility

The Grassy Mountain coking coal property is located north of Blairmore, a Rocky Mountain town of about 3,000 located 160 kilometers southwest of Calgary near the British Columbia border in southern Alberta, Canada. Riversdale Resources, an Australian junior mining company, acquired the property in 2013, on the heels of extremely successful mining ventures in Mozambique and South Africa.

The site features significant historic and recent exploration, close access to the Canadian Pacific rail line (just 2 km away) and a mining-friendly location less than 40 km from the Elk Valley, home to Canada’s largest coking coal operations. Riversdale is in the process of a staged project development including exploration, feasibility analysis, environmental assessment, and project construction and commissioning of a 4-million-metric-ton-per-year (mtpy) coking coal mining, processing and rail loading complex.

The Grassy Mountain project features multiseam, moderately to steeply dipping, folded and faulted geology typical of Canadian Rocky Mountain coking coal deposits. The seams strike along a generally north-south direction for over 6 km in the 14,000-hectare lease boundary. The project is planned to include an open-pit mine, in-pit and ex-pit waste dumps, run-of-mine (ROM) coal dump and hopper facilities feeding a coal preparation plant, rail loop and rail loading facilities, and associated electrical distribution, maintenance and warehousing, and administrative facilities. The project area has been subject to extensive historical exploration, including more than 360 drill holes and a test pit.

Riversdale intended from the start to pursue a managed sequence of field studies, development of design criteria, studies, designs and approvals to speed the initial deliveries of coal. Toward this end, they selected professional service providers based on track records with successful mining ventures, direct experience in and around the project site, and ability to efficiently deliver value within a challenging development schedule. The project execution plan by nature includes concurrent production of regulatory applications and a feasibility study, which will start the process for mine permits and continue the engineering and design phases for project implementation.

Toward that end, Riversdale assembled a team of specialist professional services firms to complete the myriad of investigations, analyses, designs and estimates comprising the full development work plan. Leading the efforts in mine planning, mine and foundation geotechnical, and surface and groundwater management services are teams from Golder Associates.

“Golder’s mine engineering and geology (MEG) professionals bring more than 35 years of corporate experience in geologic and mine modeling, design, engineering and management experience, much of it in western Canadian surface coal mines,” said Golder’s Rebecca Hengehold. “[Our] geotechnical, hydrogeology and hydrology experts have an extensive history working in the nearby Elk Valley, having completed or contributed to Environmental Impact Assessments on all the Teck Coal properties.”

The project is currently on track with planned schedules for government applications and feasibility analysis. Additional field programs are ongoing for geotechnical and monitoring purposes, and characterization of water and waste management strategies.

Improving Operational Efficiency

At a time of continuing stagnation, prosperity for a mining company can be secondary to survival. Mine operators, faced with finite demand and cost pressures, rarely have the ability to “produce their way” out of financial difficulty by ramping up output and using economies of scale to reduce unit costs (dollar-per-ton basis).

The high-volume mines (longwalls, large Illinois Basin room-and-pillar mines, Powder River surface mines) will generally have a competitive edge over smaller mines. However, no mine operator can afford complacency, as smaller continuous miner and surface mines will fight desperately to gain market share.

Historically, the most significant improvements in operational efficiency were achieved through combinations of operational and technological improvements designed to expand capacity, such as scheduling, changing at the face, longwall technology, and the development of sophisticated trucks/earth-moving equipment. Today, the depressed pricing due to coal oversupply has constrained margins, and mine operators are therefore reluctant to invest heavily in new technology and incur possible operational inefficiencies during implementation.

Further, total system compatibility must be engineered into any change (e.g., doubling face production capacity serves little purpose if the outby conveyance systems cannot handle the higher output).

Any mining organization can re-evaluate its ability to reduce costs by restructuring their organization and internal business operating procedures, which, in practicality, should be done as a normal course of proactive management. These are normally refinements to existing processes, and such modifications, if made hastily, can result in short-term cost reductions at the expense of longer-term operational issues. However, consolidation and acquisitions over the past decade have contributed to sustainable general and administrative cost benefits in the form of synergies and/or elimination of excess bureaucracy.

While there is no “magic bullet” to reinvent the U.S. coal industry, there are often opportunities to think outside the box to enhance operational and financial performance. Putting aside cases where mining companies continue to operate mines in order to avoid the cost of closure, the pragmatic solution begins with a realistic assessment of a mining company’s portfolio of assets, with further evaluation of each mine’s inherent capability to be profitable in the market it serves.

A decreasing number of mines have the benefit of selling their output under legacy above-market coal supply agreements. Even in these cases, the operator should be informed about the break-even profit point of its mines, and determine if the operation could remain viable under prevailing market prices.

Boyd recently collaborated with a mining company that acquired underground room-and-pillar mining operations located in Northern Appalachia (NAPP). The prior owner enjoyed the benefit of an above-market, long-term coal supply agreement; this revenue platform allowed the former owner to invest in state-of-the-art coal handling and processing facilities and operate profitably despite average to below-average levels of operational performance with above-average unit operating costs.

Prior to the sale, the coal supply agreement was restructured where price was materially reduced, but coal sourcing options were expanded. The new owner faced the reality of a marginal to uneconomic mining operation, with the option to procure coal from alternative sources if the existing operations could not be improved.

With the experience of the Boyd team assigned to the project, they were quickly able to collaborate with the client to realistically assess the risks and potential of each component of the operation. Within one month, the restructuring of the overall mining complex was completed through systematic closure/recovery efforts, consolidation of equipment, streamlining operation activities and implementing more austere policies.

During this process, Boyd also worked with the client and successfully implemented alternative mining plans and operating schedules, developed short- and long-term strategic plans, and developed revised capital budgets.

Since that time, the mine’s workforce has responded. “Monthly clean coal output has exceeded projections and unit cash costs have been materially reduced,” according to John T. Boyd’s Ronald Lewis. “The streamlined operation is profitable, despite the material reduction in coal price, and many high-paying jobs were preserved.”

The firm has remained involved, coordinating permitting, production, coal preparation, refuse handling, and engineering efficiencies aimed at reducing operating costs and ensuring continued operation.

“The key is recognizing the geological and inherent operating constraints, and then realistically assessing each mine’s capability,” Lewis said. “Identify opportunities for improvement, close the losers, and focus on maximizing the performance of the winners.”