Western Coal outlines West Virginia coal plans

Options Toolbox

Related Companies Arch Coal Inc. (ACI) Atlantic Leaseco LLC Maple Coal Co. Western Coal

Related Documents Investor Presentation (IP) Western Coal 11/3/2009, filed on 11/3/2009

Western Coal Corp., which recently changed its name from Western Canadian Coal Corp., is conducting Nov. 3-4 sell-side analyst meetings and tours at its northern British Columbia operations and is outlining plans for its West Virginia mines.

In a slide presentation on its West Virginia operations, the company noted that the metallurgical coal markets are showing some signs of life, with U.S. steel plants having increased utilization rates, improving prospects for met coal exports to Europe and Brazil.

As for thermal coal, U.S. consumption remains low, and current NYMEX prices are about $50 per ton, said Western Coal, which added that 2009 barge volume on the Kanawha River in West Virginia is expected to be down 67% for calendar year 2009.

Western Coal's strategy for West Virginia includes the fact that the company has access to 15 coal seams to blend to customer specifications. The company has contracts for the West Virginia production for 1.153 million tons in calendar 2010 and 960,000 tons in calendar 2011.

The primary met coal producer for Western Coal in West Virginia is Maple Coal Co.'s Eagle No. 1 deep mine in Fayette County. That coal has markets in Brazil, Canada and the United States. The mine is expanding from 550,000 tons per year to 800,000 tons per year, the company noted. The operation is permitted for 2.4 million tons per year. The expansion capital expenditures total $5 million. The total marketable coal reserves in hand are 12.8 million tons. (Western Coal uses short tons for U.S. operations, which is the standard U.S. measurement, and metric tons, or tonnes, for its Canadian operations.)

The U.S. Mine Safety and Health Administration database shows that the Eagle No. 1 mine produced 187,895 tons in the first three quarters of this year and 352,804 tons in all of 2008. Maple Coal also has a strip mine in Fayette County that was not outlined in the presentation; MSHA data show that it produced 184,572 tons in the first three quarters of this year and 150,135 tons in all of 2008.

In Nicholas County, W.Va., the company owns the Gauley Eagle operations, which are operated by its Atlantic Leaseco LLC unit. The Gauley Eagle prep plant has a capacity of 550 tons per hour, or 3 million raw tons per year, and can wash both met and thermal coal. The coal is trucked 20 miles to the new Cowen rail loadout on CSX Transportation or 60 miles to the Kanawha River for transloading to barge.

At Gauley Eagle there is the Lower Muddlety surface mine, where the strip ratio is 13.6 bank cubic yards per ton. The coal there is thermal and semisoft met, with markets in the United States, Canada and Europe. The mine has "steady state" production of 600,000 tons per year and is permitted for 1.2 million tons per year. Western Coal did not mention Gauley Eagle's underground operations in its presentation.

MSHA data show Atlantic Leaseco operates the Crooked Run surface mine, which apparently is the Lower Muddlety mine referred to in the presentation, with production of 347,448 tons in the first nine months of this year and 324,017 tons in all of 2008. The only other Atlantic Leaseco mine that MSHA currently lists as active is the Black Pearl deep mine, which went into production in the third quarter of this year and turned out 62,300 tons in that quarter. Also, Atlantic Leaseco has registered with MSHA the new Widen No. 1, Mearns No. 1 and Peerless No. 1 deep mines, none of which has had any recorded production through the end of the third quarter of this year.

Western Coal showed estimates that Maple Coal has approximately 27 million tonnes of reserves and 64.4 million tonnes of resources, while Gauley Eagle has 15.5 million tonnes of reserves and 61.3 million tonnes of resources.

A U.S. coal industry veteran is running Western Coal's northeast British Columbia operations. The analyst presentation said Bob Bays, a 27-year veteran of Arch Coal Inc., is the company's vice president and general manager of the northeast British Columbia operations. His last job with Arch was at Arch's West Virginia operations. He has been with Western Coal since 2007.