Patriot’s Eastern Associated Coal permits new mines

The Eastern Associated Coal LLC unit of Patriot Coal (NYSE:PCX) filed a Feb. 28 application with the West Virginia Department of Environmental Protection for a mine permit on a new deep mine, bringing to three the number of such applications it has pending with that agency as of March 6.

DEP records show the Feb. 28 application covers the Eagle 6 room-and-pillar mine, which would work the Eagle coal seam at a site near Oceana in Boone County. There was a Jan. 10 application filed for the Gateway No. 3 room-and-pillar mine, to work the No. 2 Gas coal seam near Kopperston in Boone County. And there is a still-pending September 2010 application on the Gateway No. 2 room-and-pillar mine, which would work the Matewan coal seam at a site near Kopperston in Boone County.

The newest mine permit issued to Eastern Associated came out on Jan. 3 and is for the 745-acre Huff Creek No. 1 strip mine. This operation would work several seams, including splits of the Chilton and Coalburg seams, at a site near Kopperston in Logan County. There had been no DEP inspections done at the site as of March 6, indicating that production hasn’t started yet.

There are six mines listed in the U.S. Mine Safety and Health Administration database under Eastern Associated as new mines with no recorded production through the end of 2011. They are: the Cazy Creek Portal, Winifrede 17, Winifrede 18, Campbell’s Creek No. 14 and Matewan No. 2 deep mines; and the Huff Creek surface mine.

Incidentally, on Jan. 13, Patriot announced that it will idle one contractor-operated mine and two subsidiary-operated production units in the Rocklick complex in this same region of southern West Virginia. Two contractor-operated mines in the Wells complex will also be idled. 

“Metallurgical coal demand has trended steadily downward in recent weeks, most notably in the export market,” stated Patriot President and CEO Richard Whiting on Jan. 13. “These production cuts, in conjunction with other cost-reduction measures being implemented concurrently, are aimed at lowering our mining costs, aligning production with identified sales, and preserving high-quality reserves for a stronger market.”

Whiting added: “During 2011 we increased metallurgical coal production to match the needs of the market. The modular nature of our Met Build-Out program allows flexibility to dial production up or down in line with market circumstances. These changes will trim output from our highest cost sources while the met market finds its balance. As world economies return to normal growth rates, we expect a resumption of the longer-term growth trend for metallurgical coal demand that should allow us to bring much of this production back on line.”

In its Feb. 23 annual Form 10-K filing, Patriot reiterated the mine cutback plan announced on Jan. 13. The company said it anticipates 2012 sales volume in the range of 27 million to 29 million tons, including met coal sales of 7 million to 7.8 million tons.

“Headwinds created by low natural gas prices, mild weather and weaker international and domestic economies impacted coal markets during the year, and market weakness continues as we enter 2012,” said the Form 10-K. “In early 2012, metallurgical coal demand trended downward, especially in export markets. At a time of weakness in international steel markets, buyers are seeking lower raw material costs. With more emphasis on cost and less emphasis on maximum production volume, coke makers can employ longer coking times, which enables them to use less premium-quality coking coal in their blends. In this operating environment, our Panther-type coals are enjoying increased domestic and international acceptance, given their attractive combination of quality and pricing characteristics. We have sold our Panther-type coals as metallurgical product in major quantities for more than ten years, and we have been successful in ramping up these metallurgical coal sales substantially over the last three years.” Panther is another Patriot operation in southern West Virginia.

In thermal coal markets, Patriot said in the Form 10-K that it anticipates that international markets will present profitable export opportunities in the future for eastern U.S. coals. “We aggressively sold thermal coal for 2012 delivery to European markets, and expect thermal exports in 2012 of approximately 6 [million] to 7 million tons, or nearly twice our thermal exports in 2011,” the company added. “Given the depressed domestic thermal coal market, we have conducted a rigorous review of our Central Appalachia thermal coal mine portfolio. As a result, we made the decision to close the Big Mountain mining complex effective February 2, 2012.” Big Mountain is another operation in southern West Virginia.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.