The CAM-Colorado LLC (CAM) unit of Rhino Resource Partners LP (NYSE: RNO) recently cleared an environmental assessment (EA) process at the U.S. Bureau of Land Management for a 317-acre addition to the federal leaseholdings for its idled McClane Canyon deep mine in Garfield County, Colo.
These reserves are located north and south of the existing mine workings within the McClane Canyon mine leasehold that would otherwise be bypassed. The lease modification would add reserves of 1.98 million tons of federal coal that might not be mined by any other method in the future.
“Adverse geologic conditions located along the eastern boundary of Federal Coal Lease C-0125439 have raised concerns about the long term access to unmined reserves located both north and south of existing mine workings within the existing leasehold,” said a final EA document released in May. “The proposed lease modification would allow entries to be developed to the east around the existing old McClane workings and north to reserves located in lease C-0125439. It is estimated that as much as 2.18 million tons (recoverable) to the north and possibly 14 million tons (recoverable) to the south of existing reserves more or less could be bypassed depending on which coal seam is mined. These estimates of primarily federal coal do not include 1.98 million tons of federal coal in the proposed lease modification.”
The existing McClane Canyon workings are developed in the Upper Cameo Coal Bed. Adverse geological conditions encountered in the eastern extent of the mine workings, have isolated access from existing workings to the reserves to the north. The coal reserves to the north occur in both the Upper and Lower Cameo Coal Beds and are isolated by faulting to the west, deep cover, and high sulfur to the east. Because of thin interburden between the Upper and Lower Cameo coal beds, accessing the reserves to the north by driving underneath the McClane workings through the Lower Cameo Seam would be very risky at best, BLM noted. A corridor around the existing mine is needed to access the reserves to the north.
Coal reserves to the south are restricted by mine workings where adverse geological conditions were encountered. As a result, mainline access to the south is limited to a small corridor. The narrow corridor does not provide the necessary distance to accommodate an adequately sized barrier pillar and a five-entry mainline section with large pillars to protect the entries from the effects of deeper overburden and stresses. Attempting to develop the corridor for long term access would be risky and could potentially “sterilize” reserves to the south, BLM explained.
Coal in the area of the proposed lease modification is only mineable and merchantable from McClane Canyon, which is the only existing coal mine in this area. A large block of high-sulfur coal and deep overburden (+1,500 ft) isolates the proposed lease modification area from developments originating from the east.
Development from the east would have to mine through the high-sulfur coal or deep overburden areas to reach the lease modification area.
Mine was idled after losing Cameo power plant as its main customer
The McClane Canyon mine provided coal to the now-shut Cameo power plant until December 2010. The mine stopped operating after the now-decommissioned Cameo plant was shut by Public Service Co. of Colorado, a unit of Xcel Energy (NYSE: XEL).
Said Rhino’s March 8 annual Form 10-K report about this operation: “The McClane Canyon mine is located near Loma, Colorado and is on property leased from the Bureau of Land Management (‘BLM’). We temporarily idled production at this mine at the end of 2010 and the mine remained idle at the end of 2012. We have received a conditional permit to build a rail loadout at this location. We believe access to a rail loadout will enable us to expand our customer base. We plan to restart production at the McClane Canyon mine when market conditions are favorable.”
The Form 10-K added: “In addition to the McClane Canyon mine, we currently control three nearby federal leases consisting of approximately 7,600 acres, two of which have the potential to support a future underground coal mining operation with procurement of an adjacent federal leasehold. We began the permitting process and leasehold procurement in 2005 and expect the process to last approximately one to three more years. We are currently in an exploration process to define the volume, quality, and mineability of the coal reserves.”
That last part is a reference to the Red Cliff longwall mine, which would be developed near McClane Canyon. BLM issued a draft environmental impact statement for Red Cliff in 2009, with no final EIS issued yet. Said the BLM website about this project: “CAM submitted a lease by application (LBA) in September of 2006 for 11,735 acres that was later modified to 14,466 in 2008 during the BLM draft tract delineation process. BLM determined that, if this coal is to be leased, it would be by a competitive bid process. BLM will be reinitiating public and internal scoping to develop alternatives for the tract size and location in early 2013.”