Coal Economics - A Factor to Consider for Reserve Evaluations

TRUMAN, JAMES T.; Hill and Associates, Westover, WV

It is becoming increasingly important to establish a reasonable estimate of the recoverable volume of coal reserves in the U.S. Over the next few years, domestic utilities will make decisions concerning their method of compliance with Phase II of the Clean Air Act Amendment and how to operate in a deregulated environment. Governments need to use a reserve number that is fair to both the coal companies ant to taxpayers when estimating property taxes. On a state and county level, governments must estimate how much severance tax they can depend on in the future.
The economics of mining coal is an additional important factor that needs to be considered when evaluating reserves. To open a mine in an undeveloped reserve and support a greenfields mining complex, a reserve block must be adequate to support a mine life of 15 to 20 years in order to recover the capital invested in the mine and associated facilities. Reserves for potential punch mines must be located within a reasonable trucking distance to an existing preparation plant of grouped to support their own central plant and loadout. At existing surface mines, if the market price of coal drops below a certain level, the company will often adjust the stripping ration to lower production costs, reducing the recoverable reserve base. At deep mines, if the price of coal falls, some areas of the reserve may not be recovered before closing. These factors reduce the number of tons that are recoverable.
However, as new mining techniques are further developed and employed, such as the highwall miner and improved thin-seam miners, some reserve blocks which had been uneconomical to mine may now be reclassified as recoverable reserves. Also, after the current economic reserves are depleted, the value of coal will likely increase to make some of the remaining coal viable for production.

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