Lipari Energy, which produces coal out of eastern Kentucky for the power generation market through subsidiary B&W Resources, has cut its planned 2012 coal production back to about 1.2 million tons from a prior forecast of about 1.65 million tons, the company said in a March 30 financial report filed in Canada.
The company expects its annual production for 2012 to continue at 2011 levels of about 1.2 million tons, which is a reduction from about 1.65 million tons projected back in November 2011. In response to a decline in market prices the company has determined it will constrain production to match contracted sales for 2012.
Lipari leases the coal mineral rights to approximately 13,700 acres of land. Lipari began its mining operations when it purchased all the issued and outstanding common stock of B&W Resources in September 2008. As of the end of 2011, the company’s mining complexes included four surface mines and one highwall mine. In addition, it has one preparation plant and one unit train loading facility served by the CSX Transportation.
During 2011, the company generated total revenues of approximately $84.6m on coal sales and production of about of 1.2 million tons. As of March 30, Lipari had fixed price sales commitments in place for 100% of its planned 2012 production of 1.2 million tons and about 75% of its planned 2013 production.
Lipari plans to continue to capitalize on any increase in coal pricing by pursuing additional long‐term contracts and opportunistically selling coal on the spot market if coal prices increase in 2012. Lipari’s long‐term agreements for 2012 and 2013 require its customers to buy coal at prices averaging about $72 and $78 for each year, per ton, subject to customary quality adjustment provisions.
Lipari currently holds 22 permits and operates four surface mines and one highwall mine. In addition, Lipari has either applied for additional or incremental permits that are in various stages of processing that should enable it to continue production at approximately 1.2 million tons per year for the next 11 years. The company’s mines are:
- Chavies – The company conducts surface, contour and auger operations at this mine in Leslie and Perry counties. Chavies had estimated reserves of 5 million tons and resources of 11 million tons as of May 2010. Lipari trucks coal from this mine to its loadout. Chavies has about 1,000 permitted acres, with mining conducted in four coal seams (Hazard 5A, 7, 8 and 9) with an average seam height for all seams of about 24 inches. Typical coal quality for this surface mine is 12,200 Btu/lb and 1% sulfur. Lipari is expanding its lease position here and amending existing permits to increase the life of mine plan. In 2011 and 2010, the company produced 460,500 tons and 401,240 tons, respectively, at Chavies.
- Owls Nest – The company conducts surface and contour mining at Owls Nest in Leslie County. Owls Nest had estimated reserves of 2.3 million tons and resources of 7.6 million tons as of May 2010. Lipari trucks coal from this mine to its loadout. Owls Nest has about 660 permitted acres and mining is conducted in two seams (Hazard 7 and 9) with an average seam height for all seams of about 50 inches. Lipari is amending permits associated with this lease to allow for highwall mining and additional contour mining. This permitting will further diversify the product offerings of Lipari, extend the life of mine plan and provide for additional lease acquisition. In 2011 and 2010, Lipari produced 192,940 tons and 303,340 tons, respectively, at Owls Nest.
- Aces Branch (Detherage) – The company conducts surface and contour mining at this Leslie County job. Aces Branch had estimated reserves of 1.3 million tons and resources of 1.8 million tons as of May 2010. Lipari began extracting coal here in September 2010. Lipari trucks coal from this mine to its loadout. Aces Branch has about 600 permitted acres and mining is conducted in three seams (Hazard 7, 8 and 9) with an average seam height for all seams of around 36 inches. Typical coal quality is 12,200 Btu/lb and 1.5% sulfur. Lipari has identified and secured additional acreage that is contiguous to this operation which will allow for the expansion of production, reserves and life of mine. In 2011 and 2010, this operation produced 285,054 tons and 52,930 tons, respectively.
- Tanyard – The company conducts surface, contour and auger mining at Tanyard in Clay County. Tanyard had estimated reserves of 800,000 tons with resources in excess of 2 million tons as of May 2010. Lipari began extracting coal from this mine in July 2010. Lipari trucks coal from this mine to its loadout. Tanyard has around 285 acres with mining conducted in the Horse Creek seam with an average seam height of 19 inches. Typical coal quality is 13,500 Btu/lb, 0.8% sulfur and 4% ash, all qualities needed to enter the higher-priced pulverized coal injection (PCI) market. Lipari controls about 1,500 acres here and is amending existing permits to provide for an extension of the mine plan. In 2011 and 2010, the company produced 35,460 tons and 26,825 tons, respectively, at Tanyard. The initial phase of mining from Tanyard was completed during the third quarter of 2011. Management idled production from this reserve in August 2011 until the PCI specialty market gains strength and reallocated the capital resources from this mine to the Bingham project.
- Bingham – Lipari began the development of this Owsley County mine during the third quarter of 2011, utilizing contour and auger mining. Bingham has estimated recoverable reserves of 885,000 tons with resources in excess of 2.2 million tons based on a May 2010 reserve study. Bingham has about 186 permitted acres, with mining activities initially conducted in the Amburgy seam with an average seam height of about 32 inches. Typical coal quality for this mine will be 12,400 Btu/lb with 1.3% sulfur. Lipari is expanding its lease position and amending the existing permit to increase the mine life. The company produced 11,130 tons in the fourth quarter of 2011 at Bingham.
- Mitco/Big Valley – Lipari conducts highwall and contour mining at Mitco/Big Valley in Clay County. This job had estimated reserves of 650,000 tons with resources in excess of 1.9 million tons as of May 2010. Lipari began extracting coal from this mine in September 2010. Lipari trucks coal from this mine to its prep plant. Mitco/Big Valley has about 485 permitted acres and mining activities are in the Hazard 4 seam with an average seam height of about 28 inches. Typical coal quality includes 12,800 Btu/lb with sulfur around 0.8%. This project provides Lipari with reduced cost of production due to the use of highwall mining. Lipari is amending existing permits to extend the operation. In 2011 and 2010, the company produced 217,175 tons and 85,053 tons, respectively, at this mine. Due to the timing of permit issuance, management has shifted the resources from this job to begin development of the Barger Branch project.
- Barger Branch – The company began development of this project in Clay County during the first quarter of 2012, utilizing contour and highwall mining. Barger has estimated recoverable reserves of about 750,000 tons based on internal engineering studies. This project was not included in the May 2010 reserve study. Lipari leases a Bucyrus Superior Highwall Miner to operate on this property and other highwall properties. This project will be about 488 permitted acres, with mining in the Hazard 4 seam with an average seam height of about 40 inches. Typical coal quality is expected to be 12,800 Btu/lb and 0.8% sulfur.
The company noted how the U.S. Army Corps of Engineers, weighed down by environmental group lawsuits and new valley fill restrictions from the U.S. Environmental Protection Agency, is having problems issuing new Section 404 Clean Water Act permits for mining projects in Central Appalachia. “As a preemptive measure, the company is actively seeking properties to lease with ‘pre law’ benches and areas that do not require §404 permits,” Lipari added. “The company has the ability to meet all sales commitments from currently permitted projects.”