The Bluestone mining business in southern West Virginia of Russia’s Mechel OAO sold 3.4 million tonnes of coking and steam coal in 2011, 71% of which was sold to the export market, said Mechel in an annual Form 20-F report filed May 10 at the SEC.
The Bluestone operations produced 4.9 million tonnes of run-of-mine (raw) coking coal in 2011, up from 4.1 million tonnes in 2010. Bluestone produced 0.5 million tonnes of run-of-mine steam coal in 2011, down from 0.7 million tonnes in 2010.
Substantially all of the Bluestone coal was sold on the spot market. A major portion of production is shipped via the Norfolk Southern railroad, so the Bluestone operations are dependent on the capacity of and the company’s relationship with Norfolk Southern, Mechel noted. These shipments either go directly to coking plants in North America or to port facilities for transloading into ships. In 2011, Bluestone exports went through the port of Norfolk, Va., and the port of New Orleans, La.
The Bluestone mines, bought in May 2009 from coal operator Jim Justice II, are located in McDowell and Wyoming counties in southern West Virginia, near Beckley. The mines are organized around three mining complexes: Keystone No. 1 and No. 2 (collectively called Keystone), Justice Energy and Dynamic Energy, all of which are located in close proximity to each other.
- The mines in the Keystone complex produce premium low-vol coking coal. The complex includes two active surface mines and three active deep mines. Seam thickness ranges from a few centimeters to 1.8 meters. Coal is hauled by truck directly to the complex’s prep plant for washing and is then sent to its rail loadout, which is served by the Norfolk Southern. The Job 32 strip operation has a mine life extending to only this year, with the Job 39 strip job having a life to 2030. The Mine 58 deep mine has a mine life to 2016, the Mine 65 deep operation has a life to 2014 and the Spider Ridge deep mine life extends to 2013.
- The mines in the Justice Energy complex produce mid-vol coking coal. Presently, the complex includes one active surface mine, Job 38, which has a mine life to this year. Seam thickness ranges from a few centimeters to 1.52 meters. Coal from the mine is hauled by dump truck directly to the complex’s prep plant (which is leased from Natural Resource Partners) for washing and is then dispatched to its rail loadout facility, which is served by the Norfolk Southern.
- The mines in the Dynamic Energy complex produce high-vol coking coal. Presently, the complex includes an active surface mine and an active deep mine. The Job 30 strip operation has a life to 2015 and the Ben’s Creek 1 deep operation has a life to 2014. Seam thickness ranges from a few centimeters to 2.1 meters, with the majority of the seams being more than one meter thick. Coal from the mines is hauled by dump truck directly to the complex’s preparation plant (which is leased from Natural Resource Partners) for washing and is the moved to the NS-served rail loadout.
Keystone’s KS1 prep plant still idle
Most of the coal produced at the Bluestone mines is washed. Some coal extracted from the surface mines is clean enough to bypass the coal washing process. This coal is either blended with washed coal or other clean mined material from different seams to produce a metallurgical quality product. Coal is hauled from the mines to the coal washing facilities by truck.
Keystone’s KS1 prep plant, which has a capacity of 2 million short tons per year, was idled in February 2011 due to an excess of wash capacity for the coal being produced, but is on care and maintenance. Keystone’s KS2 plant has a capacity 3.25 million short tons per year and is active. Justice Energy’s Red Fox plant is active and has a capacity of 1.9 million short tons per year. Dynamic Energy’s Coal Mountain plant is also active and has a capacity of 1.9 million short tons per year.
- The Keystone surface-mining operations have proved reserves of 33 million tonnes of coal and Keystone’s underground operations have proved reserves of 10.4 million tonnes.
- The Justice Energy strip operations have proved reserves of 4 million tonnes, with proved reserves of 3.8 million tonnes at the deep operations.
- The Dynamic Energy surface-mining component has proved reserves of 8.5 million tonnes, with proved reserves of 14.1 million tonnes at the underground operations.
Coking coal prices jump in 2011, fall back this year
“Average contract prices for premium hard coking coal in calendar year 2011 were $289 per tonne (FOB Australia), up from $191 per tonne (FOB Australia) in calendar year 2010, according to CRU,” said the Form 20-F. “Previously, the contract price for premium hard coking coal was $129 and $300 per tonne, on the same basis, in [Japanese fiscal year (JFY)] ( 2009/2010 and 2008/2009, respectively, according to CRU. … At the beginning of 2011, hard coking coal spot prices increased sharply to $350 per tonne (FOB Australia) due to supply disruptions caused by heavy floods in Queensland, Australia, according to CRU. Since then, coal supply has normalized and spot prices decreased to $305 per tonne in June 2011, according to CRU. In the final quarter of 2011, the price declined sharply to $235 per tonne in November, according to CRU. The contract price for the first quarter of 2012 was set at $235 per tonne, while the spot price declined to $219 per tonne in January 2012, according CRU.”
For Mechel, which also has coal mining operations in Russia, coking coal concentrate sales to third parties increased by $766m, or 52.6%, to $2.2bn in the year ended Dec. 31, 2011, from $1.5bn in calendar 2010, as a result of sales prices increase of $530m and sales volumes increase of $236m. The sales prices increase is explained by the sharp increase in international coking coal prices.
The volume of coking coal concentrate sold by Mechel to third parties increased by 1.3 million tonnes, or 16.2%, to 9.6 million tonnes in the year ended Dec. 31, 2011, from 8.3 million tonnes in the year ended Dec. 31, 2010. The increase in sales volumes during the period was due to increased demand from foreign customers due to Australian coal supply disruptions.
The volume of coking coal sold to third parties increased at the Yakutugol and Bluestone operations, and increased slightly at Southern Kuzbass Coal Co. Bluestone’s coking coal sales volumes to third parties increased by 565,000 tonnes, or 27.2%, to 2.6 million tonnes in calendar 2011, from 2.1 million tonnes in calendar 2010.
Mechel is a vertically-integrated group with revenues of $12.5bn in 2011, of $9.7bn in 2010 and $5.8bn in 2009, with operations organized into four industrial segments: mining, steel, ferroalloys and power, each of which has a managing company set up to perform the functions of respective executive management bodies of the companies within the segment.