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US coal miner productivity improved in most regions in recent quarter

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US coal miner productivity improved in most regions in recent quarter

U.S. coal mine productivity has generally been on the rise in most regions in 2017, with the exception of the Illinois Basin.

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An increase in tons of coal produced by a miner per hour generally means lower costs for producers, which can either widen margins or enable producers to better compete with other coal producers or other fuels. Increasing productivity had become a focal point for companies as demand for coal narrowed and pushed out more expensive production.

While the amount of coal produced per man hour varies mine-to-mine based on geology, mine plans and other factors, there are a few stable, general trends. Surface mines are typically more productive than underground coal mines. The Powder River Basin's thicker seams tend to produce more efficiently than coalfields further east. The Northern Appalachia and Illinois basins — less extensively mined and dominated by large longwall coal operations — tend to be more productive than Central Appalachia coal mines often going after higher-priced metallurgical coals.

Ramaco Resources Inc. President and CEO Michael Bauersachs recently said he hoped that new leadership at the U.S. Mine Safety and Health Administration, or MSHA, could increase the agency's efficiency and remove restrictions that could lead to higher productivity levels.

"We believe that mining operations can be conducted safely and efficiently while loosening some regulatory constraints that hamper productivity and that inordinately increase costs," Bauersachs said on an Aug. 16 earnings call.

Productivity is also often affected by uncontrollable factors such as geological challenges, which multiple companies faced in the recent quarter. Alliance Resource Partners LP reported such an issue at its Hamilton mine, where a roof fall hampered production.

"[P]roductivity is always the key issue, so we feel like we've got a pretty good handle on the geology as we go year to year," said Alliance President and CEO Joseph Craft about what could keep the company from achieving cost-reduction goals. "Every once in a while Mother Nature throws you a curveball like it did this past quarter."

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Powder River Basin surface mines, with large seams and equipment that can ramp production up and down with relatively little employment change, saw productivity rise from 23.1 tons of coal per employee hour in the second quarter to 26.5 tons per employee hour in the third quarter, according to an S&P Global Market Intelligence analysis of MSHA data. At the country's largest coal mine, the North Antelope Rochelle mine operated by Peabody Energy Corp., production rose 22.4% from the prior quarter, growing from 22.7 million tons to 27.8 million tons, while the average employee count only increased by 45, or about 3.4%, according to MSHA data.

SNL ImageCentral Appalachia coal miner productivity rose at the end of 2016 but has been relatively steady after taking a dip in the second quarter of 2017. Meanwhile, Northern Appalachia coal mine productivity fell sharply between the final quarter of 2016 and the end of the first in 2017 while production was rising. Productivity in Northern Appalachia has increased in each of the last two quarters, even as production has declined.

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Productivity at underground Illinois Basin mines, relatively high for underground mines, has held steady despite production volumes falling off in the last two quarters after steep increases at the end of 2016 and in early 2017. In the most recent quarter, average productivity in the basin was about 4.1 tons per man hour, compared with 4.3 tons per man hour in the prior period.

Foresight Energy LP, an Illinois Basin coal producer, routinely touts its high productivity numbers to investors.

"Once again, our mines operate as the most productive underground mines in the country, as measured on a clean ton per-man-hour-worked basis," President and CEO Robert Moore said on a Nov. 9 earnings call. "On a combined basis, the Foresight mines produced over 14.4 tons per man-hour worked during the third quarter as compared to the national average for underground mines of 4.7 tons per man hour worked."

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