Carbonado Coal Company, L.P. – West KentuckyCarbonado Coal Company is developing a coal property located in Webster County, West Kentucky. The underground mine would access the No. 9 seam which is the predominant seam mined in West Kentucky. The mining conditions are good with a typical seam height of 4.5 feet. Typical clean quality would be 12,200 Btu/lb and 2.5 percent sulfur. This property is twenty miles from the Green River and the Ohio River, where coal barge transportation is readily available.
Eighteen miles east of the property is a large coal power plant owned by Big Rivers Electric Co-operative. The target area is approximately 10,000 acres. The amount of mineable coal is approximately 30 million tons. The area was mainly controlled by Peabody Energy (a NYSE company) and they had leased the property until 2007.
The present owners, Carbonado Coal Company, have begun the permitting process. Weir Consulting of Chicago is conducting the due diligence process. They are familiar with the property and with the local management, and have assessed this to be a worthy project.
As a result of initial conversations with the utility, Carbonado Coal feels that a long term, 5-year contract, starting January 2010, for 500,000 tons a year is achievable. The mining output would be around 750,000 clean tons a year. Other markets on the river are available. Mining costs are comparable to other underground mining operations in the area.
PermitAll background studies and drilling procedures have been completed, and the initial mining permit is underway for 67 acres of surface disturbance, and 10000 acres of underground mining for 30 million mineable tons. The expected date for the permit to be issued is fall 2011. Other acreage and tonnage will be added to the permit incrementally.
- West Kentucky along with Illinois and Indiana are expected to experience increased coal demand as more utilities add pollution control equipment that increase the sulfur content of the coal they can accept. In addition to the 46 GW of scrubbers already retrofit on eastern power plants, an additional 20 GW are under construction and another 30 GW are either required or projected to be built.
- West Kentucky coal has certain quality advantages over Illinois and Indiana coals. A large portion of planned Illinois production is high in chlorine which poses a concern about corrosion to many utilities. Duke Energy exercised its option to terminate a long-term coal supply agreement for Williamson coal because of chlorine. At least one other major utility has taken the position that it will not burn large quantities of the high chlorine coals. Indiana coals tend to be lower in Btu and higher in moisture than West Kentucky coals, which reduces plant efficiency. The only quality concern over West Kentucky coal is sulfur.
- West Kentucky coal has certain location advantages over Illinois and Indiana given its superior access to river markets.
- The domestic market for West Kentucky coal can be categorized as follows:
- Local truck/barge market – TVA, Big Rivers, LG&E/KU and Owensboro
- Ohio River barge market – LG&E/KU, Duke, AEP, EKPC, and Dayton P&L
- Southeast market – Seminole, TECO, Progress Florida, and Gulf Power
- All of the utilities in the West Kentucky market purchase coal on a portfolio basis with a mixture of long, medium, and short-term contracts. As a result, these utilities attempt to maintain a diversity of suppliers and are regularly in the market allowing new entrants sales opportunities.
- Alliance has a large and growing share of the West Kentucky coal market with its existing mines and its new River View mine. Patriot is the second largest producers with several former Peabody mines. A new entrant, Armstrong Coal, has quickly become the third largest producer with properties acquired from Peabody. Armstrong’s success confirms the willingness of the utilities to work with new producers.
- New mines are needed to increase production because several current operations have little reserve life including the Phoenix surface mines that were sold to Oxford Mining and Patriot’s surface mines in Henderson County
- The prompt price for a Carbonado-type West Kentucky coal is currently $45-$50 per ton FOB barge. Contract prices for West Kentucky coals have been higher. Prices will vary based upon the specific market and allow producers to capture the economic rent if there is a specific transportation advantage.