Rhino Resource Partners (NYSE:RNO) and Patriot Coal (NYSE:PCX) plan to open the Eagle #3 deep mine in southern West Virginia late in the second quarter, following a start of production at the Eagle #2 deep mine in the third quarter of last year, said Rhino in a March 29 conference presentation.
Rhino holds 51% and Patriot owns 49% of a joint venture company called Rhino Eastern LLC, which operates small deep mines on a 30,000-acre tract of low- to mid-vol metallurgical coal reserves in southern West Virginia. Rhino said this operation has 43 million tons of reserves, allowing for future expansion of both underground and surface mining.
The estimated current production at Rhino Eastern is 470,000 tons per year. The estimated sales price for this coal is $199/ton, with an estimated cost of production of $150/ton. That production cost is pretty high when compared to steam coals produced in the same region, but the high prices seen in the met coal market can cover that kind of extra cost.
Within the next two years, Rhino Eastern plans to start a Sewell-seam deep mine that would produce a mid-vol coal for the met market. This mine will need a new prep plant to be built. Rhino Eastern is also evaluating other highwall miner, surface and underground options for 2014 and beyond. A highwall miner is inserted into an exposed highwall along the side of a mountain, produces coal as it works its way back into the seam to a pre-determined depth, then is pulled back out of the hole and re-inserted in a new place further down the highwall.
The U.S. Mine Safety and Health Administration database shows four mines, all underground operations, listed under Rhino Eastern. Among them is the “nonproducing” Sewell No. 1 mine in Raleigh County, which last produced coal in 2005. Then there are the “active” Eagle #1 and Eagle #2 mines, and also Eagle #3, which is listed as a new mine with no recorded production yet.
Another growth project in the met coal area is at the Tug River operation, which spans the West Virginia-Kentucky border, where Rhino has 5.8 million tons of surface-mineable met coal reserves. A fully-permitted surface mine is ready to go here when markets develop and can produce up to 375,000 tons per year.
Also, at the Deane complex in eastern Kentucky, Rhino is working on developing a new mine by 2014 to produce pulverized coal injection (PCI) coal for the steel market. This operation has 20 million tons of reserves, about 50% of which are PCI quality.
Another possible met coal project, with no mine plans firmly mentioned, is at the Rich Mountain operation near Elkins, W.Va. This property is currently being explored, has proved reserves of 8.6 million tons and Rhino is open to the idea of a joint venture with a project partner.
On the steam coal side, future projects include:
- The Leesville deep mine is in Ohio, where the state has issued a conditional mine permit subject to final receipt of sewage and air permits. This is a 27-million-ton reserve.
- Rhino in the third quarter of last year bought 2.5 million tons of non-reserve coal deposits at its Sands Hill operation in Ohio, which could host a future deep mine.
- The company has gotten a conditional approval to build a first-time rail loadout at its idled McClane Canyon deep mine in Colorado, with the mine to be revived when market pricing improves. Rhino has also been working for several years to lease a big new coal reserve nearby that would host a longwall mine that would be much bigger than McClane Canyon.
- Rhino has the fully-permitted, undeveloped Taylorville deep mine in Illinois that has 111 million tons of demonstrated reserves of mid-Btu, high-sulfur coal. The mine site in Christian County is next to the long-delayed Taylorville coal gasification power plant project of Tenaska.
Rhino has a geographically diverse asset base with coal reserves in Central Appalachia, Northern Appalachia, the Illinois Basin and the Western Bituminous region. As of the end of 2011, it controlled an estimated 437 million tons of proven and probable coal reserves, consisting of an estimated 415.6 million tons of steam coal and an estimated 21.4 million tons of met coal. In addition, as of the end of 2011, it controlled an estimated 417.1 million tons of non-reserve coal deposits.
As of the end of 2011, the Rhino Eastern joint venture controlled an estimated 43.4 million tons of proven and probable coal reserves, and an estimated 17.9 million tons of non-reserve coal deposits, said Rhino’s March 15 annual Form 10-K report.
As of the end of 2011, Rhino operated ten mines, including five underground and five surface mines, located in Kentucky, Ohio, West Virginia and Utah. Excluding results from the Patriot joint venture, in 2011 Rhino produced about 4.6 million tons of coal, purchased about 0.3 million tons of coal and sold around 4.9 million tons of coal. The joint venture produced and sold about 0.3 million tons of premium mid-vol met coal in 2011.