Natural Resource Partners makes final Deer Run coal reserve buy

Coal landholder Natural Resource Partners LP (NYSE: NRP) said Aug. 22 that it has completed the final acquisition of coal reserves at the Deer Run mine near Hillsboro, Ill., for $40m from Colt LLC, an affiliate of the Cline Group.

The acquisition was funded through the partnership’s credit facility. With this final sale-leaseback deal, NRP has now completed a total of $255m worth of purchases of about 200 million tons of reserves related to the Deer Run mine. The Deer Run mine is capable of producing 7 million to 9 million tons annually once the longwall is at full production. During the first six months of 2012, NRP reported revenue of $2.9m based on production of about 630,000 tons related to the development of the mine.

“The Deer Run mine will be one of the lowest cost underground coal mines in the country with access to four different railroads and the river markets which bodes well for the marketing of this coal in any type of market conditions,” said Nick Carter, President and COO of Natural Resource Partners.

Coal operator Chris Cline has been planning to take Deer Run (also known as Hillsboro) and his other Illinois mines public under Foresight Energy LP. “Our four mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin) are designed to support up to 8 longwall mining systems, giving them a combined productive capacity of up to 65 million tons of high Btu coal per year,” said an April 12 Form S-1/A filing by Foresight Energy. “We currently operate one longwall system at Williamson and one longwall system at Sugar Camp. We plan to commence one longwall system at Hillsboro in the third quarter of 2012, having already invested most of the expansion capital necessary to develop these mines.”

The Hillsboro/Deer Run complex as of Jan. 1, 2010, had an assigned reserve base of approximately 879 million tons of clean recoverable proven and probable coal with an average heat content of 10,961 Btu/lb, said the Form S-1/A. Permitting began in July 2006, and construction began in May 2009. Hillsboro’s slope reached the coal seam at a depth of approximately 450 feet in October 2010. Gate road development for the first longwall panels to be mined has begun and longwall production is expected to commence during the third quarter of 2012, the April filing said. The first longwall panels mined are 1,400 feet wide. The panel lengths are approximately 15,000 feet and have seam height of about 7.37 feet.

Hillsboro, like Cline’s other Illinois mines, operates in the Herrin No. 6 seam. Coal will be washed at Hillsboro’s prep plant, stockpiled and then shipped by rail or truck to market. Hillsboro has direct access to the Union Pacific railroad which can deliver its coal directly to customers or to the Mississippi River to serve the domestic thermal market or the international market through New Orleans. Foresight Energy is developing additional transportation infrastructure that will ultimately give Hillsboro access to the Norfolk Southern railroad, the new SITran river terminal on the Ohio River and all rail access to New Orleans. Much of this coal will move to scrubbed power plants in the eastern U.S.

Hillsboro has a contract mining arrangement with Patton Mining LLC, a third-party mining contractor, at Deer Run, with the mine listed with the U.S. Mine Safety and Health Administratiion under Patton. Hillsboro leases its reserves from Colt and from a subsidiary of NRP.

Natural Resource Partners is a master limited partnership headquartered in Houston, with its operations headquarters in Huntington, W.Va. NRP is principally engaged in the business of owning and managing mineral reserve properties. NRP primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership.

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.