Survant, located at the company’s Parkway underground mine complex near Central City, will produce coal from the West Kentucky No. 8 seam. The new mine will be operated by the company’s Armstrong Coal subsidiary and will draw upon a 60-million-ton reserve base. Its coal will be processed at the nearby Parkway prep plant.
Marty Wilson, president and CEO of St. Louis-based Armstrong Energy, told analysts on May 14 that the company already had shipped about 50,000 tons of development coal from Survant to an unidentified utility customer.
The mine is expected to produce approximately 450,000 tons this year, increasing to about 1.3 million tons in 2016, according to Hord Armstrong, the company’s executive chairman. From then on, he said, “it’s a 2-million-tons-a-year mine.”
Hord Armstrong added that another unidentified customer was planning to buy an unspecified amount of Survant’s coal in June for a test burn that could lead to a longer-term sales agreement.
Despite Survant’s opening, Armstrong expects to produce and sell less coal in 2015 than last year, when it produced and sold a record 9.4 million tons.
The premature closing earlier this year of the Lewis Creek underground mine in Ohio County, Kentucky, because of continuing operating difficulties, coupled with lower output at its surface mines, means Armstrong expects to produce and sell between 8.4 million and 8.6 million tons in 2015. As of May 1, the company had 8.4 million tons committed for 2015 at an average selling price of $47.67/ton.
Lower sales are anticipated, the company said, because of reduced U.S. electric utility demand resulting from lower natural gas prices and utilities retiring coal-fired power plant capacity due to new federal Environmental Protection Agency regulations.
“We currently have about 30% of our planned production unpriced for 2016, which is close to 3 million tons,” Hord Armstrong said. “We are in discussions for all of those tons right now and way more than that.”
Because of low gas prices and uncertainty over environmental rules, utility buyers are “leaving larger open positions than they have historically and are contracting for the minimum amount they need,” he added. “Whether that works or not, we will see. We hope it doesn’t.”
Despite the industry’s continued headwinds, he said smaller producers like Armstrong Coal are able to survive because they have “built up a history and credibility with our customers, and even customers we don’t currently sell to.”
Armstrong, he added, “does not ship coal that has been rejected and tends to be above minimum quality specs in our contracts. I think Armstrong is looked upon favorably and that should help us in the times we’re in currently.”