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Labor, Access to Capital Challenge Outlook for US Met Coal Mining



November 10, 2023 - Issues with access to capital, long leads times for equipment and a lack of workers to staff mines are challenging US met coal miners, panelists said Nov. 9 at the MetCoke World Summit 2023.

While there is a push in the global steel industry to shift production from met coal consuming blast furnaces to less carbon intensive electric arc furnaces, which use recycled steel as a primary input, this is not a change that can happen quickly and those in the coal business still see a need for their product in the future.

"Blast furnaces are going to be here for a long time [and] we're going to need coking coal for a long time, but finding the capital to support that investment is the challenge we all have," said Ernie Thrasher, CEO of global met coal supplier XCoal Energy & Resources.

Thrasher noted there is less met coal being produced in the world today than in 2016, despite hitting record high prices in recent years.

"The supply side response isn't because there isn't an economic incentive to do it, it's because there are physical challenges to do it," he said.

As an example, Thrasher pointed to Australia, which exported 189 million mt of coking coal in 2016.

"This year it will likely be closer to 150 million mt despite the price being almost 100% higher," he said.

There are only four places in the world producing more coal today than in 2016 — India, China, Mongolia and Russia, Thrasher said.

"Unless you can buy from them, you're buying from a declining resource that needs continuous support," he said.

Coal mining requires investment just to keep production flat, said Jesse Parrish, CEO of US-based Blackhawk Mining.

"Lack of reinvestment means basically a gradual decrease in production," he said.

Blackhawk produces about 10 million mt/year of coal, with 6-7 million mt being coking coal or PCI coals, he said.

"I can easily put out a press release that says we're going to grow production but actually making it happen is a real constraint around people, primarily, equipment and around capital," he said.

He noted that wages for mine workers have not kept pace with the economy in 20 years, making it difficult to attract workers to the industry.

Additionally, long lead times for equipment make it difficult to increase production, even if you have workers, as it can take one to one-and-a-half years to get a new continuous miner, he said.

Plus, with a growing focus on ESG among investors and insurers, access to capital is highly constrained, panelists said.

"So the notion of a coal company being able to get capital to expand, it's just not out there," Parrish said. "Basically, as a coal company, you have to have the attitude that you're going to eat what you kill so to speak. You have to be self-sustaining because there is not — or at least it's very limited — to find outside capital sources that are going to allow you to grow supply."

Sulfur degradation is also an issue with existing mines, the panelists said.

"It's out there and the notion that there's all these sub-1% coals out there, I will say there are, but they're going to be a lot thinner and a lot more costly to find," Parrish said.

There are more reserves that could be tapped, but it comes down to the same issues impacting existing mines, Parrish said.

"There's plenty of coal reserves," he said. "You go to any coal company out here, I can show you 50 coal mines, then how are you going to staff, who are you going to get the equipment from, and how are you going to get the capital and put those in."