Coal Age

JAN-FEB 2017

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January-February 2017 www.coalage.com 21 forecast 2017 continued overwhelmingly positive response that can best be summed up by the following anony- mous quote, "I believe and pray that, during this four-year term of the new administra- tion, we will see our government working for the good of the coal community and our country and we will be proud to say, 'Free! Free at last! Thank God, we are free at last!!!'" Picking Up the Pieces Coal Age contacted 500 professionals in- volved in coal mining and processing, and received 61 completed surveys. The demo- graphics largely resemble the U.S. coal in- dustry. The majority of them (65%) produced bituminous coal. Subbituminous, lignite and anthracite accounted for 20%, 9% and 6%, respectively. As far as production capacity, most of the respondents represented large mine operators (more than 5 million tons, 49%), followed by medium (1-5 million tons, 28%) and the small (less than 1 million tons, 23%); 34% described themselves as under- ground coal operators exclusively, while 31% said they only operated surface mines. The remainder (35%) said they worked for a com- pany that mined coal using both surface and underground techniques. Similar to years past, most of the respondents said their coal went to electric utilities (72%). The remain- der said their coal was destined for steel mills (17%) or industrial boilers (11%). Power gen- eration remains the overwhelming use for the majority of U.S. coal production. Going into 2016, the survey revealed that coal operators were overwhelmingly optimistic. A total of 89% (vs. 10% last year) described their attitude as positive, while only a few were less optimistic (3% vs. 72%). Last year, 18% said they were ambiv- alent, and that number declined to 8%. The overall mood in coal country has bright- ened considerably in a matter of months. Confirming that feeling, 44% of the re- spondents thought their coal production would increase in 2017, compared to 16% last year. A little less than one-half (49%) said production would remain the same, com- pared to 16% last year. Only 7% saw produc- tion decreasing, compared to 68% last year. A majority of the industry (83%) see produc- tion remaining the same or growing in 2016, as opposed to 32% last year. Looking forward to 2018, 58% see pro- duction improving with 32% saying it will stay the same. Only 10% see a decrease in 2018. That would be 90% of the respon- dents saying production would either stay the same or improve in 2018. Of the 49% saying that business would remain the same in 2017, about one-third of them see business improving in 2018 while a small amount see business declining. Coal mining is a capital-intensive busi- ness. For 2017, 40% of the respondents said their capital budgets would increase, which was up dramatically from 16% last year. Last year, 59% said their budgets would decrease, and this year that figure has dropped 33%. A quarter of the respondents (27%) said their budgets would remain the same, compared to 25% last year. That is a significant turn of events, where two-thirds of the industry see their budgets either staying the same or increasing over 2016. Obviously, it's time for many opera- tors to retool after several years of limited investment. When asked how they would spend the money, they said new mine de- velopment (62.2%), permitting and bond- ing (52.4%), new equipment (50.8%), equip- ment upgrades (46%) and used equipment (36%). Equipment upgrades have remained a priority for more than five years now. When asked how their money would be al- located on a percentage basis, the majority of the respondents (28%) said their money would be spent on equipment rebuilds (see Figure 6). Spending on plant additions and new mine/plant construction rose to 9% and 5%, from 4% and 3%, respectively. When asked about their capital bud- gets, 32% of the respondents reported they would spend less than $10 million this year. A total of 24% said they would spend more than $100 million; 20%, $10-$25 mil- lion; 11%, $25-$50 million; and 13%, $50- $100 million. Those that are going to spend are going to spend much more. This year, 48% will spend $25 million or more. Last year that figure was 25%. In 2017, coal op- erators will invest in operations and equip- Figure 6 — Average Expenditure Allocation Figure 5 — On a scale of 1 (not very important) to 5 (extremely important), how do the following concerns rate? 1. Politics and policy (4.3) 2. Power plant regulation (4.3) 3. Prices (4.0) 4. Economy (3.9) 5. Limited capacity (2.5) 6. Retiring workforce (2.4) 7. Other (1.0) Figure 4 — Current Spot Prices for Coal ($/ton) Btu/lb lb SO 2 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Northern Appalachia 13,000 3.0 $63.00 $68.00 $65.30 $48.95 $45.75 Central Appalachia 12,500 1.2 $68.15 $63.58 $56.10 $43.50 $48.05 Illinois Basin 11,800 5.0 $47.90 $46.15 $44.70 $32.60 $35.50 Powder River Basin 8,800 0.8 $10.45 $11.50 $11.55 $10.90 $11.00 Western Bituminous 11,700 0.8 $35.75 $35.95 $37.75 $40.65 $40.90 Source: EIA/Platts Coal Outlook Weekly Price Survey Source: Energy Information Administration Figure 3 — U.S. Coal Production, 2006-2016 (million short tons)

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