As coal prices tumble and bankruptcies rise, a few U.S. miners are still pushing ahead with plans to expand.
Arch Coal Inc. and Consol Energy Inc. remain on track to open new mines to dig steel-making, or metallurgical, coal from the West Virginia hills. That's even as the market is already glutted, with prices down about 30% in 12 months.
They're betting they can produce coal cheaply enough to profit even as their rivals retrench. Bloomberg Intelligence expects the global supply of the metallurgical variety to exceed demand this year by 2.7%, as economic head winds blunt steel demand. At least four U.S. companies have closed mines since August. Five have filed for bankruptcy this year.
"There is a lot of pain in the marketplace," Consol chief executive Jimmy Brock said during a conference call last week. "We expect to hold our ground."
Arch, the second-largest U.S. miner, has already started digging small amounts of coal from its Leer South project, which won't reach full production of 3 million tons annually until the third quarter of 2021. The company announced the project in February, when metallurgical coal prices were around $190 per ton. Now they're about $137. The site is near an existing Arch mine and will plumb the same reserves, reducing some of the risk for the company.
In July, Arch sped up the project's schedule by a quarter. Last month, the company said it would "drive forward with the accelerated build-out." Arch did not respond to a request for comment.
Consol, the eighth-largest U.S. miner, expects to begin extracting some coal next quarter from its Itmann mine in West Virginia before ramping up to full capacity in 2021. Excavation is already underway, and the company is working to hire miners. Consol announced the project in May, just as metallurgical coal prices peaked at $200 million a ton. At the time, Brock said the returns on the project would "significantly" exceed capital costs even if metallurgical coal is $150 per ton.
The company did not respond to a request for comment.
Warrior Met Coal Inc. is laying groundwork for a new metallurgical mine, too, but doesn't plan to make a final decision on it until early next year. The company expects the Blue Creek project to be "fully permitted and shovel ready" at that time.
While Warrior Met has said repeatedly that it hasn't made a final call, "many investors interpreted the company's language on its earnings call to mean the project is more likely to happen than not," Seaport Global analyst Mark Levin wrote in a research note.
Contura Energy Inc. has also unveiled plans to start production at a new metallurgical mine in West Virginia next year. But coal from the Lynn Branch project will essentially offset the lost output from another mine in the region that Contura is closing. The company hasn't disclosed much in recent months about the project, which was announced in May.
Much of the rest of the U.S. coal industry is struggling.
Peabody Energy Corp., the top U.S. coal company, announced last month that it was closing an Illinois mine. Murray Energy Corp., the biggest closely held American coal producer, filed for bankruptcy last month, becoming at least the fifth to do so this year.
"We probably won't need all that new U.S. met [metallurgical] coal within the time frame of when they're expected to come online," Bloomberg Intelligence's Andrew Cosgrove said in an interview.
Michael Bloomberg, the founder and majority stakeholder of Bloomberg LP, the parent company of Bloomberg News, has committed $500 million to start Beyond Carbon, a campaign aimed at closing the remaining coal-fired power plants in the U.S. by 2030 and slowing the construction of new gas-powered plants.
SundayMonday Business on 11/17/2019