U.S. coal mines generally saw productivity rise in the second quarter, although the amount of coal produced per employee hour has fallen off sharply in the Powder River Basin since an uptick in the third quarter of 2017.
Higher productivity is generally associated with lower mining costs, a competitive advantage against coal producers that require more labor to extract the same amount of coal. As the coal sector has seen its customer base shrink, finding ways to boost productivity could mean the difference between securing a contract and closing up shop.
Productivity across U.S. coal basins varies not only mine by mine but also based on coal mine geology, mining method and other factors.
Surface mines, for example, are generally more productive than underground mines. Surface mines in the Powder River Basin, where miners have access to seams of coal that dwarf their eastern competitors' reserves in thickness, tend to report more coal produced per employee hour. The Powder River Basin reported surface mine productivity of 25.0 tons per employee hour, while the highest level of surface mining productivity in the eastern U.S. was just 4.7 tons of coal produced per employee hour at Illinois Basin mines.
Productivity varies widely among underground mines as well, with those deploying longwall coal mining units in places such as the Illinois Basin and Northern Appalachia basin reporting higher levels of productivity compared to other underground mines. Central Appalachia mines averaged 1.8 tons of coal produced per employee hour, while underground productivity at Illinois Basin mines was more than twice as productive at 4.3 tons per employee hour.
Underground and surface coal mine productivity increased in the second quarter of 2018 compared to the prior quarter in Central Appalachia, Northern Appalachia and the Illinois Basin. The boosts in productivity occurred even as production declined in the Illinois and Central Appalachia basins, while Northern Appalachia producers saw production and productivity rise in the period.
Ramaco Resources Inc., a relatively new public coal company developing mines in Appalachia, showed it closely monitors productivity on its August earnings call with investors. The company highlighted its operations as being among the "most productive metallurgical deep mines in the nation," but also saw potential obstacles to maintaining that productivity in the form of employees leaving its mines for higher pay or reduced commute times.
"At this point, we are able to continue to attract highly qualified miners to fill these vacancies," Ramaco President and CEO Michael Bauersachs said. "However, the labor markets have tightened considerably. We are continuing to closely monitor turnover levels, and we will react if turnover places us in a position of losing significant numbers of key operating employees, such that our productivity and production would be negatively impacted."
Consol Energy Inc. touted record coal production volumes at its Pennsylvania coal mining complex on its August earnings call, crediting a productivity level not seen at the complex since 2004 and improved by 13% compared to the previous quarter.
"As long as we continue to gain efficiencies and drive towards that cost efficiency and higher volumes of productivity, we could possibly raise the [EBITDA] guidance again," Consol President and CEO Jimmy Brock said.
Illinois Basin coal producer Foresight Energy LP regularly touts the productivity of its mines on calls with investors.
"For the second quarter, all three operating mines ranked once again in the top 15 most productive underground mines in the country," Foresight President and CEO Robert Moore said Aug. 3. "On a combined basis, the Foresight operations produced over 13.8 tons per man-hour work during the second quarter. This compares to the national averages for underground mines of 4.6 tons per man-hour worked. These high levels of productivity allowed us to maintain a very low cost of $23.70 per ton."
While the Powder River Basin produces more coal than any other region in the country, it does so with relatively few miners operating surface mining machines that enable high levels of productivity. With production from the Powder River Basin down due to weak demand, fewer export opportunities than eastern producers and rainy weather in recent months, productivity declined significantly.
Both production and productivity have been steadily falling in the region since an uptick in production in the third quarter of 2017.