Coal Age

MAR 2013

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news continued uous miner operation just outside the small community of Oaktown in Knox County, Ind., should be producing coal this year, sooner rather than later, the company hopes. Initially, Oaktown 2 was expected to follow its sister Oaktown No. 1 deep mine into production about a year or so ago. But a slow coal market blamed largely on historically low natural gas prices and a mild winter of 2011-12 that built bulging utility inventories forced the Evansville, Ind.-based company to delay Oaktown 2's opening. There still is no precise date when mining will begin. But Vectren officials said in late February that startup is approaching. Oaktown 2's development essentially is completed, and the mine's opening could "accelerate" if negotiations with unidentified prospective customers in the southeastern United States bear fruit soon, officials said. ing a 2006 methane explosion that killed 65 miners. Local activist and Catholic Bishop Raul Vera Lope has been especially vocal in condemning Mexican authorities for allowing the "modern slavery" Coahuila's coal miners experience by the Zetas. Ransom kidnappings of mine workers are typical, as are $40,000 monthly security fees levied against individual mines, according to InsightCrime, a firm that tracks organized crime in Latin America. The Attorney General's office, meanwhile, is now probing extortion cases involving 300 mines nationwide, the newspaper Excelsior has reported. Given their trademark savagery, the Zetas are also deemed the biggest threat to the Mexican state, according to the U.S. Drug Enforcement Agency (DEA), plying trafficking routes to Guatemala, Nicaragua and beyond. Operating in a loose federation of cells, almost like insurgents, they exhibit technical prowess—easily outgunning their competitors—with highcaliber assault rifles, grenade launchers and even helicopters. Unsurprisingly, say observers, the Zetas have taken to planting the same blasting gel used by local coal miners, Teovex, in their car bombs. Most often they serve as warnings, though, said Sylvia Longmire, a consultant for U.S. law enforcement agencies and author of "Cartel: The Coming Invasion of Mexico's Drug Wars." "They'll usually go off in front of a police station," she added, but usually only to protect business interests, in lieu of mass casualties. "Cartels don't get caught." Such violence has been escalating across the region around Highway 57, and in Piedras Negras or "Black Stones," a city of 150,000. Across Coahuila, the tiny roadside mines, or "pozos," that dot the landscape are big targets. Nonetheless, Mexico's mining sector, representing 6% of global financing in exploration, warmly embraces foreign direct investment (FDI). The government allows for 100% private ownership for the exploration and production of metals and minerals. Low labor costs with 60% of its mines open pit are further FDI incentives. Other benefits include assistance from the Mexican Geological Service which helps foreign companies discover and develop mines. March 2013 When Oaktown 2 is producing high-sulfur steam coal, it will give the electric and natural gas company three operating underground mines in southern Indiana: Prosperity in Pike County in addition to the two Oaktown mines. Vectren's coal output is projected to rise appreciably as a result. After turning out 4.8 million tons of coal in 2012, the company is targeting 2013 production of 5.5 million tons, increasing to 7.5 million tons annually once all three mines are operating. Oaktown 1 enabled Vectren to trim production costs, and the company is counting on Oaktown 2 for additional cost improvements. For example, Vectren's coal production costs averaged $47.87 a ton in 2012 but are forecast to drop to $43.50 a ton in 2013. Oaktown 1 has helped in that regard, but Vectren also credits cost improvements at Prosperity due to "lower profile mining equipment and changes to roof-bolting plans." The 2010-2011 Survey of Mining companies by Canada's Frasier Institute ranks Mexico highly for workforce stability, as well as environmental, regulatory and taxation issues. The Metals Economics Group (MEG) consultancy, in fact, lists Mexico as the nation with the fourth-biggest exploration budget worldwide and No. 1 in Latin America. In 2009, according to government statistics, mining extraction and processing were significant in reviving domestic growth—with 280,000 direct and 1.5 million indirect jobs—after the global recession. Nationwide, there are some 700 mining projects operated by more than 290 companies. Nonetheless, the above-board nature of much of Mexico's mining industry is sometimes deemed a barrier to less scrupulous interests. For one thing, it takes six to 12 months for an environmental impact authorization alone—a length of time dishonest investors don't always want to wait. Indeed, drug gang appropriation itself sometimes leaves Mexico's mining boom vulnerable to foreign markets—not least emerging ones. Jesus del Campo, an Economic Ministry official, has also publicly said some outside businesses actively encourage illegal mining to bypass permitting altogether. In 2010, for example, Ignacio Lopez, a money launderer for the Familia Michoacana in southwestern Michoaca, was arrested for exporting $42 million in iron ore to China. That year, steelmaker ArcelorMittal filed a complaint with authorities that iron had been stolen from an operation there. All this belies one other reality: Selling or laundering money with something legal like coal, silver, gold or bismuth, rather, is far easier than retailing marijuana, cocaine or heroin—three other substances U.S. and Mexican authorities have spent billions trying to combat. Such a strategy is not endemic to Mexico. Factions in Colombia mired in a counterinsurgency campaign featuring cocaine-exporting Marxist rebels are themselves enjoying financial help from some 6,000 wildcat miners at 30,000 illegal mines. Regardless of his experience back home, Oscar Naranjo, the retired Colombian four-star general recently appointed to advise the Mexicans on the drug war, has his hands full already. www.coalage.com 21

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