White Oak Resources works on permit for new Illinois mine

White Oak Resources LLC, which has Alliance Resource Partners LP (NASDAQ:ARLP) as an investor, is getting close to a National Pollutant Discharge Elimination System (NPDES) water permit for the newest Illinois longwall mine, the White Oak Mine No. 1 in Hamilton County, Ill.

The Illinois Environmental Protection Agency is taking public comment until April 16 on a draft NPDES permit for this mine, located 6.6 miles northwest of McLeansboro. The mine would also be covered by mine permit No. 409 from the Illinois Offices of Mines and Minerals.

“The surface facilities at this underground mine contains the incline slope to reach the coal seam, vertical shafts, coal preparation plant, coal storage areas, coal feeders, reclaim tunnels, rail loading loop, rail loadout, parking lots, access roads, drainage control structures, office buildings, change rooms, assembly rooms, warehousing facilities, administration building, storage facilities, elevator facilities, ventilation facilities, refuse disposal areas, overland belt line, screens, crusher, power distribution facilities, power lines, water lines, topsoil and subsoil stockpile areas,” said an IEPA public notice.

“In September 2011, we completed a series of transactions with White Oak related to the development of White Oak Mine No. 1, which will be an underground longwall mining operation producing high-sulfur coal from the Herrin No. 6 seam,” said the Feb. 28 annual Form 10-K report of Alliance Resource Partners. “Initial production from the continuous miner development units is expected to begin in 2013, and longwall mining is expected to begin in 2014. As part of the White Oak transaction, our subsidiary, Alliance WOR Processing, LLC (‘WOR Processing’), contracted with White Oak to construct, own, and operate the coal handling and processing facilities associated with the Mine No. 1 mine, which will have the capacity to process 2,000 tons of raw coal per hour. White Oak will have the ability to ship production from the Mine No. 1 mine via rail directly to customers or to various transloading facilities, including our Mt. Vernon transloading facility, for sale to customers capable of receiving barge deliveries.”

Alliance’s WOR Properties acquired from White Oak the rights to approximately 204.9 million tons of proven and probable high-sulfur coal reserves, of which 105.2 million tons are currently being developed for future mining by White Oak and certain surface properties and rights in Hamilton County, which is adjacent to White County, Ill., where Alliance’s Pattiki mine is located. White Oak Mine No. 1 is projected to produce up to 6.5 million tons per year.

High-sulfur coal heading to scrubbed power plants

White Oak Resources has the potential, like Foresight Energy Partners LP before it, to develop multiple longwall mines to serve a growing market for high-sulfur coal at newly-scrubbed power plants in the eastern U.S. Foresight Energy, founded by coal operator Chris Cline and headed for an IPO, has three new longwall mine complexes in Illinois that will be capable of hosting a total of eight longwalls between them.

The Illinois coal business, located within the Illinois Basin coal production region, had taken a huge hit in the 1990s due to the 1990 Clean Air Act, since many power generators chose to switch their plants to low-sulfur coal instead of installing expensive scrubbers. Ever-tighter air emissions standards mean that scrubbers, in many cases, are now the only compliance option.

“Many domestic utilities have installed or are planning to install scrubbers, which is expanding the market for high sulfur coal from the Illinois Basin and the Northern Appalachian region,” said a Foresight Energy Form S-1 filing from Feb. 2. “According to Wood Mackenzie estimates, 198 GWs, or 63% of total capacity, of electric generating units in the United States was scrubbed in 2011. Wood Mackenzie expects scrubbed capacity to increase to 268 GWs, or 100% of total capacity, by 2025. In addition, Wood Mackenzie forecasts domestic Illinois Basin demand increasing by over 75 million tons within the next 15 years, with much of the demand deriving from the southeastern and midwest regions. Shortages and decreases in supply in the eastern United States continue to affect pricing in the entire United States market.”

The four Foresight mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin) are designed to support up to eight longwalls, giving them a combined productive capacity of up to 65 million tons of high-Btu, high-sulfur coal per year. Foresight currently operates one longwall system at Williamson and plans to commence one longwall at each of the Sugar Camp and Hillsboro operations in the first nine months of 2012, having already invested most of the expansion capital necessary to develop these mines.

By operation, the number of potential longwalls and potential peak production levels for Foresight Energy are: Williamson (known in U.S. Mine Safety and Health Administration data as Mach No. 1), one longwall, 7 million tons per year; Sugar Camp, four longwalls, 28 million tons per year; and Hillsboro, three longwalls, 27 million tons per year.

The Macoupin complex, also known as Shay No. 1, is shown as just a room-and-pillar mine with up to 3 million tons per year of production, though this operation did have a longwall in a prior life under a different owner. Shay No. 1 is the only one of these mines that Foresight hasn’t built from scratch, though Shay No. 1 did get a total revamp after Cline bought it. These four operations produced a combined 7.9 million tons in the first nine months of 2011, with Sugar Camp and Hillsboro producing minimal pre-longwall coal.

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.