Arch Coal, Inc. announced today that it has commenced development of a new mine in Barbour County, West Virginia, that will annually produce an estimated 3 million tons of premium, High-Vol A coking coal for sale into what the company described as an “undersupplied global marketplace.”
The company said in a statement the new mine, called Leer South, will be similar in virtually every respect to Arch's existing Leer longwall mine, and will operate in the same 200-million-ton reserve base as the Leer operation.
The company plans to sell the output from the Leer South complex principally into the 300-million-metric-ton-per-year seaborne coking coal market. According to Arch Coal, steel market consultants expect solid demand growth for seaborne coking coal over the next 10 years, driven by substantial steel sector growth in India and other rapidly emerging Asian economies.
“At the same time, we believe that global coking coal markets remain under-supplied following years of under-investment, with few large-scale projects – particularly in high-quality coking coal reserves – contemplated in coming years,” the company said. “Premium High-Vol A coals, such as those produced at the Leer complex, face a particularly tight supply outlook. With average seaborne coking coal demand growth projected at 1.5 percent per year, and assuming a modest annual depletion rate of 2 percent at existing mines, seaborne coking coal markets will require the installation of 10 million tons of new mine capacity annually, or a total of more than 75 million tons between now and 2025.”
The company said High-Vol A coking coals, with their high fluidity and superior plasticity, can facilitate the inclusion of a wide range of coking coals and even petcokes in a steel mill's coke blend, while reducing coking times and delivering a stronger and more homogeneous finished coke product. The company estimates that the global supply of High-Vol A or equivalent coals totals less than 25 million tons per year.
Arch Coal expects to invest approximately $360 million to $390 million over the next three years to develop the mine, with the longwall scheduled to start up in late 2021.
In addition to its plans for Leer South, Arch Coal announced that it would be transitioning its Mountain Laurel operation from longwall to room-and-pillar mining at the beginning of 2020, and moving the Mountain Laurel longwall equipment to Leer South at that time.
Following the transition to room-and-pillar mining, Mountain Laurel expects to produce approximately 1.3 million tons of High-Vol B coking coal annually. While that is roughly 20 percent lower than the mine's 2018 output, Arch Coal expects Mountain Laurel's per-ton costs to decline modestly and its product quality to improve following the transition. The company said the transition will not result in the layoff of any of Mountain Laurel's outstanding workforce, as they will be repositioned in the new room-and-pillar mine plan.
Arch expects to produce between 6.6 and 7.0 million tons of coking coal in 2019 – of which nearly 60 percent will be High-Vol A quality – and to maintain a similar level of production through 2021. In 2022, Arch's total coking coal production is expected to approach 9 million tons annually, with 75 percent of that total expected to be High-Vol A coal. With the start-up of the Leer South longwall, Arch expects the average, per-ton operating cost for its coking coal portfolio to decline meaningfully, which will drive higher margins in all market environments.