The Foundation of a Modern Economy
Metallurgical Coal, aka ‘Met Coal’ or ‘Coking Coal,’ is purer, rarer and more expensive than the more common thermal steam (energy use) coals. Due to its clean burning properties, Met is irreplaceable for forging iron ore into structural steel. The world may decide to stop using coal for energy but it simply can’t replace Met for steel making.
- It takes roughly 2 tons of Met coal to produce 1 ton of construction grade steel
- Met can be substituted or blended as a cleaner fuel for coal-fired power plants
- West Virginia holds significant reserves of high-quality Met coal; that production is largely exported to Western European foundries
Other Uses for Met Coals
- Cement Manufacturing
- Coal-to-Liquid Fuels
- Cleaner Coal Power
- Aluminum Refining
- Chemical Production
Higher Energy & Carbon = Higher Grade
Coals are graded according to moisture content, volatile content, plasticity and ash content. Generally, the highest value coals have a specific grade of plasticity, volatility and low ash content.
- Anthracite – the highest carbon content, between 86 and 98%. It has a heat value of nearly 15,000 BTUs/lb.
- Bituminous – has a carbon content ranging from 45 to 86% carbon. It has a heat value of 10,500 to 15,500 BTUs/lb. Met Coal is a subset of this grade.
- Sub-bituminous – has a carbon content ranging from 35 to 45%. It has a heat value of 8,300 to 13,000 BTUs/lb.
- Lignite – has a carbon content ranging from 25 to 35 %. Sometimes called brown coal, it has a heat value of 4,000 to 8,300 BTUs/lb.
Coal County USA
The Met Coal Capital of North America
Coal has been mined here since the mid-1700s, but mining took off during the Industrial Revolution with the proliferation of blast furnaces in steelmaking. Vast and growing demand for purer grade coals emerged after that. Today overall KY production has dropped but is still significant.
State of the Industry
A History of Boom & Bust
Like other commodities, Met coal is subject to swings in market pricing. In 2011 Met coal prices reached all-time highs due to increasing Chinese demand and Australian production issues. These highs were followed by additional capital investment, reduced global shipping rates, and significant increases in Australian capacity, and subdued European and Asian growth. Prices tumbled and have recently flattened.
Advantages in today’s production market generally belong to large foreign producers whose margins can withstand pricing moves and who are not subject to US environmental and safety regulations.
To be successful in the current environment US producers need to have low costs, good access to transportation, the best grades of Met and access to unusual value opportunities.
Despite the current decline, Met grade coals are still in demand and will be for the foreseeable future due to continued and expanding long-term economic development in emerging markets requiring alumina and steel production.
There are no practical alternatives to Met coal for coking and alumina furnaces. Costs of production and shipping to Western Europe is still more economic than most competitor production.
New uses are emerging for energy rich and clean burning Met coals include cosmetics, chemicals, coal based liquid fuels and clean power.
Commodities Cycle Creates Opportunities
There are a handful of investment opportunities where the previous operator’s capital investments, our industry know-how/creativity and mining cost structure creates a low risk opportunity, even at today’s depressed Met coal prices.
The Company is confident that its unique mix of Met Coal assets can be profitably run in today’s pricing environment, and are therefore primed for outsized returns when prices eventually rebound.
Additionally, the Company’s substantial reserve ensures that the company will be in production and ready for opportunities through multiple commodity cycles.