Arch Coal (NYSE: ACI), in a Nov. 28 investor presentation, hinted that it is looking to develop the “Macoupin Reserves” in Illinois, while providing no details beyond that on this project.
On one page of the presentation, Arch noted that it has 722 million tons of coal reserves in the Illinois Basin. It showed a map of Illinois that mentioned the long-established Viper room-and-pillar deep mine that it got in a June 2011 purchase of International Coal Group, the undeveloped Lost Prairie room-and-pillar mine that it had prior to the ICG purchase deal, and its 49%-owned Knight Hawk Coal LLC affiliate that has surface- and deep-mining operations in Illinois.
Then there is the reference to the “Macoupin Reserves,” with an indication that these reserves were also obtained in the ICG deal.
Consultant John Hanou, who specializes in Illinois Basin coal reserves and is nearing the completion of a new study on the basin, told GenerationHub that Arch is apparently referring to two coal reserves in and around Macoupin County that it got in the ICG buy.
One of them, usually called the Macoupin reserve, holds about 139 million tons of recoverable coal in the high-sulfur (3.2%), relatively low-Btu (about 10,500 Btu/lb) No. 6 coal seam, Hanou noted. That 139-million-ton reserve figure is about half of the total reserve, since Hanou says this reserve is too shallow to work with a longwall, with the recoverable tonnage estimate based on the usual rule-of-thumb that a room-and-pillar mine recovers about 50% of the coal seam. A longwall could recover something like 70% of the reserve. The seam depth in this area is about 325 feet at the maximum, Hanou said. The seam thickness here averages about 5.5 feet, he added.
The other nearby, but not contiguous reserve, is usually called the Gillespie property and has 35 million to 40 million tons of recoverable reserves in the No. 6 seam, Hanou said. The sulfur, Btu and seam depth figures for this reserve are about the same as for the Macoupin reserve, he added. The seam thickness at Gillespie is about 6.6 feet, Hanou noted.
Hanou can be reached at Hanou Energy Consulting LLC in Annapolis, Md.
An Arch spokesperson on Dec. 6 didn’t get into specifics about company plans for the region, only noting that demand for Illinois Basin coal is growing in the United States and abroad, and that Arch expects to more fully participate in that growth story in the coming years. “However, it is premature in this market environment to discuss future mine development or reserve plans in Illinois,” said spokesperson Kim Link in an e-mail.
Lost Prairie would located in Perry County, 6.6 miles northwest of Pinckneyville, Ill. A mine permit for the project was issued in 2011 by the Illinois Office of Mines and Minerals. The OMM permit shows this as a room-and-pillar operation that would work the No. 6 coal seam at a depth underground ranging from 146 to 237 vertical feet within a 3,605-acre “shadow area.” A shadow area is the underground coal reserve area of a mine. Lost Prairie would produce up to 3.5 million tons per year.
Arch sees some sign of rebound for coal in the utility market
In some other points of note from the Nov. 28 Arch presentation:
- Arch expects U.S. coal consumption to increase by more than 50 million tons in 2013. It noted that some well-respected third-party sources are projecting an even stronger recovery, with demand rebounding back to 2011 levels in 2013.
- There is 45 GW of “at risk” coal-fired power plant capacity that may close by 2018, with another 280 GW to survive. The at risk plants don’t fire much coal, Arch noted, with those plants burning 75 million tons in 2010, 65 million tons in 2011 and a projected 40 million tons in 2012. The coal burn at the surviving 280 GW of coal capacity could rebound by 100 million to 150 million tons per year off of depressed 2012 levels, Arch noted, more than making up that loss.
- Powder River Basin coal is very competitive as a power generation fuel with natural gas, Arch said. The company showed that an 8,800 Btu/lb PRB coal (like out of its Black Thunder mine in Wyoming) has a competitive parity with natural gas at $3/mmBtu for the gas and a $12.50/ton coal price, with $4/mmBtu gas at parity with a PRB coal price of about $25/ton (all cases assume coal transportation costs of $20-$25/ton).
- After a record build by May 2012, coal stockpiles at U.S. power generators could decline to 177 million tons at the end of 2012, on par with the past two years, Arch said. Coal stockpiles are still about 25 million tons above target. From 2007-2011, a normal drawdown of stockpiles in the winter was 15 million tons. In the winter of 2011/12, there was actually a build of 19 million tons, Arch noted.