Arch Resources Inc., which runs one of the largest surface coal mining operations in the world out of northeastern Wyoming, has telegraphed for years that it wants to reduce its thermal coal footprint in the energy-rich Powder River Basin and elsewhere.
Its announcement of a merger with Consol Energy Inc. this week may accelerate those plans.
“I think as you look back over the last, really, six to seven years with Arch, in particular, we’ve never hesitated to being willing to shed an asset that no longer fit our profile,” said Arch CEO Paul Lang on a conference call with Wall Street analysts in discussing this week’s merger plans.
Lang’s response came in response to questions from Lucas Pipes, an analyst with B Riley Securities.
“Are there other assets in the portfolio that you would consider non-core that could be monetized?” Pipes asked.
Lang did not rule out the possibility of selling surface coal mining operations in the PRB. And Consol Energy Chairman and CEO Jimmy Brock agreed.
“We look at any opportunities that we have to create shareholder value, and as far as divestitures, you know that there are some that are in the portfolio,” Brock said.
Arch’s Lang agreed.
“As difficult as it is, if it is in the best interest of shareholders, you should expect us to continue to make those hard decisions as we move forward,” Lang said.
The combined businesses, to be renamed Core Natural Resources after the proposed merger is finalized early next year, are expected to focus on metallurgical coal needed for steelmaking.
Arch’s news release announcing the merger Wednesday makes a point of emphasizing this new focus in its boilerplate description of the St. Louis-based company: “Arch Resources is a premier producer of high-quality metallurgical products for the global steel industry.”
No Fire Sale
Gone from the description the thermal coal business that has been the bread-and-butter of the Powder River Basin. Thermal coal is used for burning in power plants to produce electricity for the grid.
“It won’t be a fire sale,” said Robert Godby, the University of Wyoming director of the Energy Economics and Public Policies Center, of any potential sale of assets.
“Whether their mines close sooner or later depends on market conditions,” Godby said. “The coal miners speak optimistically about coal’s immediate future because of AI (artificial intelligence) data and server farms that need power 24/7, which will keep in coal demand for longer.”
The merger, said Godby, poses an interesting question with respect to thermal coal.
“Will the company find additional incentive now to divest or close those assets to focus more on the met coal space given the reduced importance of that segment in the new larger company?” he asked. “Only time will tell.”
Godby sees the merger as a “significant consolidation” of the metallurgical coal mining operations in the eastern U.S.
“It definitely seems like the merger could benefit both companies,” he said. “Consolidation allows both companies to manage operations for better profits, while the focus Consol has on exports and the port access they provide guarantees Arch assets better access to export markets.”
Arch has been reducing its operational footprint in the basin for several years as its Coal Creek and Black Thunder mines have reported falling production from its glory days over a decade ago. It’s also accelerated reclamation at both mines.
In September 2020, Arch and Peabody Energy Corp. abandoned a joint venture after the two businesses couldn’t convince federal regulators that the combination wouldn’t reduce competition. Under the joint venture, Peabody would have become the managing company of their combined coal mining operations in Wyoming and Colorado, where Arch’s West Elk mine is located.
The plan was to merge the Arch’s Black Thunder and Peabody’s North Antelope Rochelle mines, which are the top two producing thermal coal mines in the U.S.
Colorado has been pushing for retirement of coal-fired power plants given its stringent plan to eliminate greenhouse gases and transition to alternative forms of energy like that produced from solar and wind farms.
Government Reducing Demand
The diminishing role of coal sales from Wyoming comes amid the backdrop of federal clean air policies shifting to alternative forms of power generation from wind and solar sources — all at the expense of carbon-based fuels like coal, oil and gas.
Electric utilities also are showing less appetite for coal as they change out their fuel-burning equipment to take natural gas.
Separately, Arch previously unveiled plans to shut down its Coal Creek mine in northeastern Wyoming nearly three years ago as the volume of coal scraped from the surface pit operation has tapered off.
The demise of Coal Creek began in earnest in 2019, when it dropped to 2.5 million tons of production compared to the 8 million tons the year before. In the years since, the mine has continued to produce in the low 2 million tons range, except for 2022 when it pulled 3.8 million tons out.
About a year ago, Campbell County commissioners and other local economic development officials began working in earnest with Arch to cushion the blow of closing the mine about 30 miles southeast of Gillette near Wright.
That’s when the idea of turning the site into an industrial park came to mind.
After all, the inevitable was coming and local officials couldn’t just sit on their hands facing a grim outlook of the closure of Coal Creek and the eventual closure of Arch’s flagship Black Thunder mine just south of it.
While Arch hasn’t said what it’s firm timeline is for shuttering its Wyoming mines — or selling them, if it can — it has repeatedly maintained a corporate stance that it wants to be out of the thermal coal business.
Wind and Solar Farms?
Mike Shober, vice president in charge of operations for the Energy Capital Economic Development, said his Gillette-based organization is in constant talks with the local mining operations about repurposing infrastructure on abandoned land.
Some of these alternative possibilities include everything from building solar and wind farms to enticing a heavy industrial manufacturer involved in assembling components for micro-sized nuclear reactors or establishing an industrial park to attract other businesses.
Even an ammunition manufacturer recently evaluated the possibility of locating to Gillette, though it opted for another state offering incentives, Shober said.
“What Arch is doing is nothing new. They’ve talked about getting out of western coal for a number of years,” Shober said.
The merger, however, “was surprising, because I didn’t know anything about these events.”
“They are planning a new company, so my question is whether they want to close everything up and exit,” he said. “What can we do that opens up opportunities for other businesses.”
The local economic development group has been planning for diversification for years. This is partially why it founded the Wyoming Innovation Center, which is a research and development hub to formulate new coal-based products.
“This does two things. It keeps mines working. It won’t be 480 million tons like 15 years ago, but I see this as the next step,” he said of the innovation center. “Maybe this comes faster than I thought, or it takes four to five years.”
Pat Maio can be reached at pat@cowboystatedaily.com.
