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Coal industry decline weighs heavily on jobs, output in Southwest US

Coal production and jobs in the southwestern United States have declined precipitously over the past five years as the industry has dealt with numerous setbacks.

Mines in the Uinta Basin and the Four Corners area and other mines in New Mexico, Colorado, Arizona, Utah, Nevada and California have suffered from toughened state regulations and have felt the impact of larger market trends affecting the industry nationwide, such as the shift to natural gas and lower global demand for U.S. coal.

Even as Uinta Basin mines shows some signs of bouncing back from the bottom in recent quarters, the largest mines in the Southwest saw production drop 30% from about 64.5 million tons in 2012 to about 45.1 million tons in 2016, according to data compiled by S&P Global Market Intelligence. Average employment at the top 20 mines fell from 4,369 in 2012 to 3,823 in 2016, but the drop was much steeper across all Southwest mines, falling by about a third over the past five years.

Peabody Energy Corp. owns three of the largest mines in the area, including Kayenta, the top mine in the Southwest today. It dropped from about 7.5 million tons of output in 2012 to about 5.4 million tons in 2016, and production is further threatened by the impending closure of the Navajo power plant, which the Kayenta mine supplies. The plant is slated to close near the end of 2019, but the majority owners, the Salt River Project, have said they might shutter it as early as this summer.

The Navajo Nation, which depends on revenue provided by royalties from the Kayenta mine, is fighting to keep the mine in operation until at least 2019. Average jobs at the mine have fallen from 432 in 2012 to 384 in 2016.

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Meanwhile, Peabody seems to have lost some of its wallet in El Segundo over the past five years, as its other top mines in the region were important factors in the coal giant's decision to file for Chapter 11 bankruptcy. Peabody had been negotiating a $358 million deal to sell El Segundo, Foidel Creek or Twentymile, and Lee Ranch mines to Bowie Resource Partners LP, but it fell through due to financing issues. In November 2015, around the time of the deal negotiations, those mines combined were projected to produce 11 million tons in 2016.

However, data shows that they produced just under 7.5 million tons in 2016. Production dropped at El Segundo from 7.5 million tons in 2015 to 4.9 million in 2016, while Twentymile dropped from 4.1 million tons to 2.6 million. Lee Ranch, which produced about 1.3 million tons in 2012, has produced nothing for the past few years, according to data from the U.S. Mine Safety and Health Administration.

Average jobs have fallen from 297 at El Segundo in 2012 to 248 in 2016 and at Twentymile from 497 to 339 in the same time frame.

Peabody spokesperson Beth Sutton told S&P Global Market Intelligence that its 2017 targets remained on track, and were based on customer demand.

"We'd also note that U.S. coal consumption is up 3% while natural gas has shown a 16% decline in the first quarter based on higher year over year natural gas price," she said.

Some of Bowie's mines have fared a little better. The producer's Skyline No. 3 mine has increased from 1.9 million tons in 2012 to 4.5 million tons in 2016, while Sufco saw a small drop over this period. Sufco will likely increase its output now that Bowie has acquired a mining lease for adjacent territory. The Bowie No. 2 mine saw a major drop, from 3.4 million tons in 2012 to 33,395 tons in 2016.

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The Navajo's other major mine in the region has also dropped a lot in production over the past five years, but it faces a clearer future than Kayenta. The Navajo Transitional Energy Co., which leases the land, switched operators in January. A NACCO Industries Inc. subsidiary will now operate the mine, taking over from BHP Billiton New Mexico Coal Inc. This decision was made after the Navajo received approval from the U.S. Department of the Interior in 2015 to extend the lease of the Four Corners power plant for 25 years and expand the mine.

Murray Energy Corp.'s Lila Canyon mine steadily ramped up its production over the past five years, despite the prediction by President and CEO Robert Murray that westbound coal from the Uinta Basin will decrease to nothing by 2030.

Tri-State Generation and Transmission Association Inc. announced this month it was closing its New Horizon mine in Colorado, while the Colowyo and Trapper mines it partially owns have recently cleared regulatory hurdles. Output at all three mines has declined over the past five years.

Colorado hit a four-decade coal production low in 2016, and Colorado Mining Association President Stan Dempsey told S&P Global Market Intelligence that Bowie's decision to suspend operations at its No. 2 mine was a big part of that.

However, he is positive moving forward.

"I think things are starting to level out in the overall Colorado situation," he said, though he noted the state has been increasing its share of renewable energy and switching its power generation to other fuels.

GCC Energy LLC's King II mine in Colorado, which is seeking an expansion permit from the U.S. Bureau of Land Management, according to local news reports, has remained more or less steady over the past five years.