Cline Mining (TSX: CMK) said July 11 that as part of its ongoing mine plan review process, intended to maximize short-term production values and ensure the viability and net present value (NPV) growth of the New Elk coal mine in southeast Colorado, the company will be temporarily suspending production at New Elk to manage costs.
Cost efficiency, the preservation of the Canada-based company’s financial condition and achieving sustainable sales contracts remain a priority for the company, Cline Mining added. Due to the production suspension, the company’s workforce will be temporarily reduced by 78%, with the majority of the personnel at New Elk receiving notice of temporary lay-off for an anticipated 60-day period, which gives the company time to pursue strategic alternatives, potential financing and complete the sale of the coal in inventory as part of the review process.
While the company said it anticipates that the duration of the layoffs will last for about 60 days, the variability of market conditions and other economic factors make it impossible to project an exact personnel return date with certainty. The company currently has about 70,000 tons of saleable coal stockpiled at New Elk and will retain personnel on an as-needed basis to load stockpiled product and maintain the asset for any sales made during this period.
New Elk Coal Company LLC is the Cline subsidiary running this underground mine, and its recently-appointed Chief Operating Officer, David Stone, said: “The Company acknowledges it is extremely regrettable that the workforce is being temporarily laid-off, but Cline believes it is in the Company’s best interests to manage its cash position during the mine optimization period. The combination of cash conservation from the temporary suspension of operations and reduction of our workforce will enable both the plan to be properly developed and implemented efficiently and effectively. During this time, the Company has a significant stockpile of quality coal product and a workforce capable of loading the coal should a sales agreement be made.”
Ken Bates, President, CEO and Director of Cline Mining, commented: “The Company’s Board of Directors felt it prudent to make these decisions given current market conditions, which preserves the Company’s financial condition as we move toward completing the mine review and optimization process which we believe will make certain the long term viability and NPV of the New Elk coal mine.”
This mine is largely targeted at the metallurgical coal export market, which has run into a relatively slack period lately, though not the monumental freefall that the domestic steam coal market has been in.
In May, Cline Mining said the New Elk mine had 305 employees. This level of employment is sufficient to operate two super-sections. With two super-sections and 300 employees, the New Elk mine could produce 650,000 tons in 2012. If the company decided to add more employees (up to about the 500 level), it could operate five super-sections. That would result in the production of 1.2 million tons of coal in 2012, in which case the full operating capacity of 3 million tons of saleable coal per annum would be reached by January 2013.
But, the company in May said that due to slack market conditions it had decided to operate one and a half super-sections over the short term, with a total employment level of 235. This alternative, which the idling announced July 11 at least temporarily puts on the shelf, would have generated production of 470,000 clean coal tons in 2012.