New report evaluates reserves, plans for New Elk coal mine project

Canada-listed Cline Mining Corp. (TSX: CMK) has released a new technical report on its New Elk underground mine in southeast Colorado that doesn’t yet have the data in it for a planned longwall installation at the mine, but does lay out the coal reserves and other underlying factors in this major new coal mine development project.

The study, dated July 5 and done by consultant Agapito Associates, said that updated production and cost guidance will be developed for the longwall version of the mine. Cline has said the longwall system could be brought into operation in 2015, bringing mine production to up to 7 million tons of saleable coal per year. For the new Agapito report, major mining parameters and assumptions have been updated from prior technical evaluations and are summarized as follows:

  • Mining will occur in the Blue seam in the central, northern and southern parts of the property, in the Maxwell seam in the northern portion of the property and, to a limited extent, the Apache and Allen seams near the long-shut Allen coal mine.
  • Where multi-seam mining is projected, there is at least 220 feet of interburden which should mitigate any material seam interaction issues.
  • Room-and-pillar mining will be practiced, with second mining (pillar extraction) on retreat.
  • Entry and crosscut spacing vary between 55-foot and 125-foot centers, depending on overburden depth, intended use (main versus production panels), expected life, ventilation requirements, and productivity considerations.
  • The mine will operate two 12-hour shifts per day, both production shifts, with maintenance scheduled during those shifts as needed or required.
  • Production shifts are scheduled 7 days per week, 52 weeks per year (with three scheduled holidays per year).
  • Mining sections will be added from startup to full production, with five super sections (two continuous miners per super section) active at full production. Super-section advance rate is assumed to average 360 feet per shift, and the retreat rate will average 500 feet per shift.

This is a revival of a long-shut CF&I Steel mine

Cline’s wholly-owned subsidiary, New Elk Coal Co. (NECC), is in the process of reactivating its New Elk metallurgical and thermal coal mine property in Colorado, 24 miles west of Trinidad. NECC’s coal property assets include surface property ownership, coal leases, and water rights located in Las Animas County. The property rights include the abandoned New Elk underground coal mine (formerly Colorado Fuel & Iron Steel Co.’s Allen mine). The abandoned Golden Eagle mine (CF&I Maxwell mine) is not part of the NECC properties. The surface property assets include a coal preparation plant, coal storage silos, various mine facility buildings and approximately 13 miles of railroad right-of-way from west of the mine site toward Trinidad. Coal is initially being trucked to rail, with plans underway to re-establish the rail line.

The Allen/New Elk mine was opened in 1951 in the Allen seam by CF&I to supply met coal to its Pueblo iron and steel production facility. CF&I ceased production from the Allen and Maxwell mines in the early 1980s and allowed the Allen mine to partially flood. Subsequent owners constructed a coal preparation plant on the Allen Mine East portals site in 1984 and operated the nearby Golden Eagle mine until around 1995. The new-defunct Montana Power was the Golden Eagle mine owner in its last days. Later, the prep plant briefly processed coal from the Lorencito surface mine until the early 2000s when it was closed.

NECC has re-opened the New Elk mine in order to supply coal to the domestic and international metallurgical and/or pulverized coal injection (PCI) coal markets, with the option to supply coal to the domestic thermal markets. The re-opening and developing steps to date include dewatering a portion of the flooded area of the mine, reestablishing mine ventilation, rehabilitating the East portals slopes, development of mains from the slopes in the Apache coal seam, constructing the Bates portals and slopes to access the Blue seam, development of mains in the Blue seam, rehabilitation and upgrading of the coal preparation plant plus other surface facilities, and modifying existing and acquiring new mining permits. NECC mined 176,000 tons of coal in 2011 through February 2012, and has shipped a limited amount to test markets.

The New Elk coal resource includes, in descending stratigraphic order, the Green, Loco, Blue, Bing Canyon Upper (BCU), Red, Maxwell, Apache, and Allen seams contained in the lower coal zone of the Raton Formation. The seams vary from less than 2 feet to over 12 feet thick, with a mineable coal thickness considered to be from 3 feet to the maximum seam thickness. The coal resource is based on a minimum coal thickness of 3 feet. The overburden depths vary from outcrop to over 1,400 feet.

The New Elk seams can be classified as low-sulfur, high-volatile, B bituminous coal, which can be marketed as a metallurgical-grade coal, a PCI coal, or a thermal coal. All run-of-mine (ROM) coal produced will require washing for market. NECC anticipates washing the coal between a 1.30 and 1.60 specific gravity (SG) float, depending upon market requirements and the tradeoff between pricing and plant yield, the Agapito study noted.

The property is estimated to contain 299.8 million tons measured and 319.1 million short tons of indicated in-place low-sulfur, high-volatile B bituminous coking coal in the Green, Loco, Blue, Bing Canyon Upper, Red, Maxwell, Apache, and Allen seams, excluding in-seam partings and including only coal exceeding 3.0 feet in thickness within a seam.

Preliminary mine plans indicate that there is adequate resource to support over 20 years of operation at 3 million tons (the maximum production in a room-pillar configuration) of saleable coal per year. The mine plans assume room-and-pillar mining with pillar extraction (secondary mining) in the Blue, Maxwell, Apache, and Allen coal seams.

Agapito looks at chances of getting workers from other coal mines

One interesting point in the study is a look that Agapito took at pulling experienced workers for this mine from other coal mines in the region. “In estimating labor skill level, it is necessary to evaluate the likely source of labor for the New Elk Mine,” the study noted. “It is assumed that few experienced miners remain in the Trinidad area from earlier mining activities. Of those that do, only a small proportion may be qualified, as it is unlikely that they will have recent underground coal mining experience. The nearest underground coal operations are the San Juan Underground Mine (BHP, Farmington, New Mexico) and King Coal (outside of Durango, Colorado). The compensation package at BHP is excellent, and it is doubtful NECC will attract more than a handful of experienced miners from that operation. King Coal is smaller and maintains what appears to be an experienced and loyal workforce.” King Coal is a small deep mine operated by a Mexico-based cement company.

“In northwest Colorado, Twentymile Coal Company faces some longevity challenges, but its parent Peabody Energy has a replacement operation planned,” said the study. That is a reference to Peabody (NYSE: BTU) developing the new Sage Creek longwall mine next to Twentymile, with first production from Sage Creek occurring in May and a longwall start expected in 2015.

“The North Fork of the Gunnison River Valley, encompassing Paonia and Somerset, Colorado, is currently home to three mines,” the study added. “It is possible that one or more of these mines will close or scale back production in the next few years. The most unlikely outcome would be a net expansion in the North Fork Valley area. Thus, it is likely the New Elk Mine will be able to attract some number of experienced miners from this area, assuming competitive compensation is offered.” The three mentioned mines are the Bowie No. 2 longwall mine of Bowie Resources, the West Elk longwall mine of Arch Coal (NYSE: ACI) and the Elk Creek longwall mine of Oxbow Mining. Oxbow Mining has indicated recent plans to explore new coal reserves in the Oak Mesa reserve near Elk Creek for a new mine when Elk Creek runs out of coal.

“Carbon and Emery Counties in Utah contain several mature coal mines,” the report said. “By the 2012–2013 timeframe, it is very likely additional mine closures in this area will occur. There are only two properties with potential to absorb displaced miners locally in the near term. The most likely scenario is for the New Elk Mine to be able to attract some personnel from Utah, but not in any great numbers. The existence of two large power plants in Emery County suggests Utah production will remain relatively stable.” It isn’t clear if any outright mine closures will occur in this area in the near term. Arch Coal has said it is shutting down the longwall this year at its Dugout Canyon mine in Utah due to market conditions. The West Ridge mine in Utah is due to close later this decade. On the other hand, an Australian company plans to open the new Kinney No. 2 deep mine in Utah in the next couple of years, and America West Resources wants to expand an existing deep mine in the state into a longwall operation, both of which would add to demand for experienced workers.

“An unknown factor in the labor picture is the trona mining district near Green River, Wyoming,” the Agapito report said. “This area has undergone several periods of expansion and contraction since multiple producers opened operations in the 1970s. For purposes of evaluating the trona mines as a source of, or competitor for, labor, the assumption is that the employment levels in trona will remain relatively stable in the future.”

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.