Rhino Resource Partners permits first foray in western Kentucky coal business

Pennyrile Energy LLC, a new unit of Rhino Resource Partners LP (NYSE: RNO), is seeking from the U.S. Army Corps of Engineers a Section 404 Clean Water Act permit on a new waste disposal area for the undeveloped Delaware underground coal mine in McLean County, Ky.

The Corps office in Louisville, Ky., will be taking public comment on the application until July 30. The project would be on an unnamed tributary and associated wetland of the Green River, located approximately 4 miles north of Beech Grove in McLean County.

“Pennyrile Energy, LLC has assumed ownership of the Delaware Underground Mine approved under Surface Mining Control and Reclamation Act (SMCRA) – Kentucky Department of Natural Resources (KDNR) Permit No. 875-5006 and Department of the Army Permit LRL-2005-1509 from Delaware Resources, Inc.,” said a Corps public notice. “The proposed project would expand the operation area of the mine and result in discharges of fill and/or dredge material into ‘waters of the United States’ on a 9-acre area abutting current operations at Delaware Mine. Work in the expansion area would include the construction of a conveyor and roadway. Additionally, a perennial stream on the property would serve, during the operation of the facility, as passage for flow from the waste area diversion ditches to a silt control basin downstream. The proposal would result in the filling of 574 linear feet of perennial stream and 1.38 acres of palustrine scrub-shrub (PSS) wetland.”

There is no Delaware mine listed with the U.S. Mine Safety and Health Administration by that name. On May 2, an MSHA registration for the Riveredge deep mine in McLean County was transferred from West Kentucky Energy Co. to Pennyrile Energy. The mine had not produced any coal since being first listed with MSHA under West Kentucky Energy in August 2009. There are no mines listed with MSHA under Delaware Resources.

Pennyrile Energy was first listed with the U.S. Office of Surface Mining on April 19, with its immediate parent being Rhino Energy LLC. OSM data shows that two state-issued permits of West Kentucky Energy/Delaware Resources are being put in the Pennyrile Energy name.

OSM data shows that West Kentucky Energy is the Massey Energy subsidiary that several years ago bought an undeveloped coal property in western Kentucky from coal developer Stan Pigman. This would have been a first foray for Massey, which was bought in June 2011 by Alpha Natural Resources (NYSE: ANR), into the Illinois Basin coal business. Delaware Resources is a Pigman company. The Delaware mine at one point was projected for production of up to 2.2 million tons per year.

Rhino said May 8 that it has purchased certain rights to coal leases and surface property located in Daviess and McLean counties in western Kentucky. The coal leases and property are estimated to contain approximately 30 million tons of non-reserve coal deposits and approximately 12,100 leased acres that are contiguous to the Green River, a major thoroughfare for western Kentucky coal moving into the Ohio River power plant market. The property is undeveloped, but fully permitted, and provides Rhino with access to Illinois Basin coal reserves adjacent to a navigable waterway, which is expected to provide enhanced export opportunity to non-U.S. customers, said Rhino. It didn’t offer any further description of the property or who the seller was.

Dave Zatezalo, President and CEO of Rhino’s general partner, stated: “We are pleased to make an acquisition that provides inland waterway access from the Illinois Basin. This acquisition provides Rhino lower cost capability to develop a substantial footprint in a major coal producing basin, thus strengthening our product and market offerings.”

Rhino hasn’t been in western Kentucky up to now. It does have the undeveloped Taylorville deep mine project in Christian County, Ill., also in the Illinois Basin. This western Kentucky presence puts Rhino in direct competition with established producers in that region like Patriot Coal (NYSE: PCX), Alliance Resource Partners LP (NASDAQ: ARLP) and Armstrong Energy Inc.

Rhino mentioned Pennyrile Energy as a growth project in a June 19 conference presentation, but doesn’t give any details on mine plans and development timeline.

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.