Montana leases new coal for Bull Mountains longwall mine

The Montana Land Board, made up of top state elected officials, including the governor, agreed Sept. 17 to lease to Signal Peak Energy LLC about 11.9 million tons of recoverable coal (9.8 million tons after post-mining cleaning) at the Bull Mountains No. 1 longwall mine.

A board document shows that Signal Peak Energy (SPE) was also the sole bidder on five tracts of federal coal that surround the state section new being leased. SPE submitted a bonus bid offer to the state of $3,578,200. This equals the board’s target bonus, and represents a bid of $0.30 per recoverable ton of coal from the state section. The federal coal leases contain a royalty rate of 8%, while the state lease contains a 10% royalty rate.

SPE operates the Bull Mountains No. 1 mine, a longwall operation located 12 miles south of Roundup, on the border between Musselshell and Yellowstone counties. Expressions of interest to lease the state section date back to at least the late 1980s. Bull Mountain Coal Properties Inc. submitted an application in 2008. No lease was issued at that time, primarily due to uncertainty regarding market demand and infrastructure, the ability and timeframe required to obtain the federal coal leases, and the requirement to have a state lease in production or within an approved permit area within the ten-year primary lease term, the board staff noted.

“Market demand and infrastructure have enabled SPE to successfully develop the mine, which produced about 5 million tons of coal in 2011,” the staff added. “SPE also recently obtained coal leases from the BLM for five tracts of Federal coal located in a proposed life of mine expansion area. The State section contains approximately 11.93 million tons of recoverable coal and is also located within the proposed expansion area. The five Federal coal leases are located around three sides of the State section.”

The target coal is the Mammoth/Rehder coal seams in the Fort Union formation. Coal thickness ranges between 8 and 13 feet thick in the mine area. The Mammoth coal is approximately 10 foot thick in the state section. The interburden between the Rehder coal and the Mammoth coal ranges in thickness from 13 feet in the western part of the section to 0 feet in the eastern part of the section. Where this interburden layer is thin, the 3-foot-thick Rehder coal is mined along with the Mammoth coal. The overburden (depth from the surface to the target coal seam) ranges from 400 to 800 feet on the state section.

The processing plant recovery factor averages 82%, which is the ratio of clean (shippable) coal to run of mine (recoverable) coal. Therefore the state section’s shippable coal reserve is an estimated 9.78 million tons. The Mammoth/Rehder coal seams are low-sulfur, moderate-Btu coal. Average quality values reported for this coal are as follows: ash, 10.2%; sulfur, 0.87%; and Btu/lb, 9,640.

The U.S. Bureau of Land Management office for Montana said Feb. 29 that it accepted a single, high bid of $10.65m ($0.30 per recoverable ton) from Signal Peak Energy for the five coal parcels. The competitive coal lease sale was a reoffer of the coal lease tract the BLM had up for sale in a November 2011 auction. That first bid, also from Signal Peak Energy, was rejected because it did not meet or exceed BLM’s secret estimate of the fair market value of the tracts. The rejected November bid was $5.325m ($0.15 per recoverable ton), about half of the Feb. 29 winning bid. The 2,680-acre lease area contains an estimated 35.5 million tons of recoverable coal reserves.

In October 2011, Ohio-based utility holding company FirstEnergy (NYSE: FE) announced that Gunvor Group Ltd. purchased a one-third interest in Global Holding, a joint venture that owns the Signal Peak longwall mine and the related rail transportation operations. Following the sale, FirstEnergy has a one-third interest in Global Holding.

U.S. Mine Safety and Health Administration data shows that the mine, long targeted for production in excess of 10 million tons per year, turned out 4.2 million tons in the first half of this year and 5.1 million tons in all of 2011.

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.