Coal Age

MAR 2019

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4 March 2019 leading developments Arch Coal Starts Development of New Coking Coal Mine in West Virginia Arch Coal Inc. has commenced devel- opment of a new, world-class long- wall mine in Barbour County, West Virginia, that will produce an estimat- ed 3 million tons of premium, High- Vol A coking coal annually for sale into an undersupplied global market- place. The new mine, Leer South, will be similar in virtually every respect to Arch's existing Leer longwall mine, and will operate in the same 200-mil- lion-ton reserve base as the Leer operation. The Leer mine is widely regarded as one of the lowest-cost, highest-quality and highest-margin coking coal mines in the U.S. coking coal industry, according to Arch Coal. "We are excited about this new project, which we view as transforma- tional for Arch Coal and its sharehold- ers," said CEO John W. Eaves. "With the addition of Leer South, Arch will greatly enhance its portfolio of world- class coking-coal assets, and cement our position as the premier global producer of High-Vol A coking coal. "We believe there is significant, unfulfilled global demand for High- Vol A coking coal generally, and our Leer brand specifically, and are al- ready engaged in discussions with leading steel producers around the world that are eager to secure ad- ditional volumes of our Leer-brand products." The company plans to sell the output from the Leer South com- plex principally into the seaborne coking-coal market. Arch Coal be- lieves global coking-coal markets remain under-supplied following years of under-investment, with few large-scale projects — particularly in high-quality coking coal reserves — contemplated in coming years. Pre- mium High-Vol A coals, such as those produced at the Leer complex, face a particularly tight supply outlook. With average seaborne coking coal demand growth projected at 1.5% per year, and assuming a modest annual depletion rate of 2% at existing mines, seaborne coking coal markets will re- quire the installation of 10 million tons of new mine capacity annually, or a total of more than 75 million tons between now and 2025. "We believe that Leer South's pro- jected position in the first quartile of the U.S. coking coal cost curve — cou- pled with its extremely high-product quality — will enable us to achieve highly attractive margins, an excel- lent return on investment, and a rap- id payback across a range of potential market environments," Eaves said. Leer-brand coking coal has the significant, added advantage of high coke strength after reaction, or CSR, which results in an even stronger fin- ished coke product. Arch estimates that the global supply of High-Vol A or equivalent coals totals less than 25 million tons per year. Arch expects to invest approxi- mately $360 million to $390 million over the next three years to develop the mine, with the longwall sched- uled to start up in late 2021. Arch also announced it would be transitioning its Mountain Laurel oper- ation from longwall to room-and-pillar mining at the beginning of 2020, and moving the Mountain Laurel longwall equipment to Leer South at that time. "We view this transition as ben- eficial in multiple ways," said Paul A. Lang, president and COO. "First, Mountain Laurel's still-extensive re- serve base is increasingly well-suited to room-and-pillar mining, which is expected to deliver greater operation- al flexibility, higher product quality and a modestly lower cost structure. "Second, the redeployment of the longwall equipment to Leer South will lower the capital requirements for the new project by around $35 million and further enhance our expected return on investment. Third, we see great val- ue in expanding further our high-mar- gin High-Vol A production while maintaining a value-creating position in High-Vol B markets via a reconfig- ured Mountain Laurel operation." Following the transition to room- and-pillar mining, Mountain Laurel expects to produce approximately 1.3 million tons of High-Vol A coking coal annually. The transition will not result in the layoff of any of Mountain Lau- rel's outstanding workforce, as they will be repositioned in the new room- and-pillar mine plan. Arch Coal's newest longwall mine will operate in the same reserve base as the Leer mine. (Photo: Arch Coal)

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