Alpha Natural Resources Inc. (ANR), the second-largest U.S. producer, hasn’t posted a profit in three years and is closing money-losing mines in West Virginia amid plans to increase production out West by as much as 30 percent.
Miner Steven King is going along for the ride. After losing his job last month at the company’s Black Castle operation, King, 42, is getting ready to move his family 1,500 miles (2,400 kilometers) to a state he’s never visited to work at an Alpha site in Wyoming.
With the U.S. coal industry in its worst decline in decades, companies including Alpha and Peabody Energy Corp. (BTU), the biggest producer, are pivoting toward pockets of future profit. No prospect is bigger than the Powder River Basin, a high, mineral-rich plain of yellow grass and sagebrush stretching from central Wyoming to southern Montana.
“It’s going to be running a good while in Wyoming, because of how much coal they put out,” said King, who expects to start work by next month. While he doesn’t know what he’ll be earning, a friend made the move a year ago and since then his base pay has increased to about $35 an hour from $25.
Coal output in the Powder River Basin increased 2.6 percent in the first half from a year earlier while total U.S. production inched upward a mere 0.75 percent. Mines there are vast open holes that cost less than half to operate than those in West Virginia where workers head underground to extract the fuel.
Peabody’s North Antelope Rochelle mine in Wyoming is the country’s biggest, with five pits that span 100 square miles (259 square kilometers).
The St. Louis-based company sold 123.3 million tons of Western U.S. coal in the first three quarters, the vast majority from the Powder River Basin. That’s up 4.6 percent from a year earlier and Scott Durgin, senior vice president of operations for the region, said Peabody would have increased output even more if there were enough trains available to haul it away.
Looking at one of the North Antelope pits, he points to a coal seam that’s 60 feet (18 meters) high, and runs north for more than 50 miles.
“I don’t see the end of it,” he said. “It just continues to grow.”
Not Enough Workers
That’s driving a boom in Gillette, Wyoming, the rapidly growing city of 32,000 at the heart of the region. The unemployment rate for the surrounding Campbell County is 3 percent, compared with the national figure of 5.9 percent.
The area is also home to oil and gas production, and about half of Gillette’s workers are in theenergy industry or supporting fields, according to the local chamber of commerce.
“We have more jobs than people,” said Gina Michael, visitor services manager with the Campbell County Convention & Visitors Bureau, “and more people than housing.” Michael frequently has trouble finding newcomers a bed at the packed hotels and motels, and apartment vacancy rates are less than 1 percent.
The region’s mines contain the country’s thickest, easiest-to-reach seams and supply about 41 percent of the country’s coal, according to the U.S. Energy Information Administration. Not only does it produce a lot of coal, it’s the right kind: low-sulfur coal that doesn’t require expensive scrubbers when it’s burned to produce electricity. The fuel is the largest source of U.S. electricity and those plants are the top source of U.S. carbon emissions that are driving climate change.
To fight global warming, the U.S. Environmental Protection Agency has proposed rules to cut carbon output from coal-fired power plants by 30 percent 2030. That means Powder River Basin coal will be in demand for decades while output from other regions struggles to compete against cheap natural gas.
“The PRB is going to be a very, very strong part of the Alpha footprint,” Paul Vining, the Bristol, Virginia-based company’s president, said in a July conference call. The mines “will be very profitable.”
In Wyoming, it cost Alpha an average of $11.06 a ton to mine 17.4 million tons of coal in the first half of the year.
On the other side of the continent, the company spent an average of $63.86 a ton to extract Appalachian coal. That output comprised 15.1 million tons of thermal coal and 8.9 million tons of better-quality metallurgical coal, which is used to make steel and commands a higher price.
The price of thermal coal for generating electricity has declined 12 percent in Central Appalachia this year, dragged down by the boom in gas produced by fracking and the EPA emissions policies. Metallurgical coalhas slumped 21 percent amid a global surplus and slowing demand inChina, the top consumer.
More than 50 percent of Central Appalachian coal production is unprofitable at current prices, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence.
Cloud Peak Energy Inc. (CLD), based in Gillette, produces coal only in the Powder River Basin. It has recruited former auto workers fromMichigan and expects to hire 250 people before the end of the year, including welders, electricians and IT database managers, spokesman Rick Curtsinger said.
In the second quarter Cloud Peak sold 20.6 million tons at an average price of $13.08 a ton, with an average cost per ton was $10.48. That led to profit — something rare for U.S. publicly traded producers these days — of a penny a share, excluding one-time items.
Alpha lost 56 cents a share in the same period and Peabody lost 59 cents for its fourth straight quarter in the red.
Donnie Edwards, 33, spent a decade mining coal before he followed his father’s footsteps making drinks at the Fireside Bar in Gillette. Now, he gets to work before 6 a.m. to serve a mix of coal miners getting off the overnight shift, oil-sector roustabouts and old timers.
“I’ve seen chemical engineers make more money here than they could with their college degree,” he said.