Coal industry competition made mines bigger
In July 1997, Arch Mineral Corp. acquired Ashland Coal Inc. The merged companies formed St. Louis-based Arch Coal Inc., the largest coal producer in West Virginia.
Arch Coal's West Virginia operations mined 26.9 million tons of coal in 1997, just enough to edge out the longtime top producer, Consolidation Coal. Arch Coal owns four of the five largest surface mines in West Virginia. All four are mountaintop removal jobs. They produce 16 million tons of coal a year.
But competition to sell that coal is fierce. The main threat to West Virginia operators is cheap coal from huge Wyoming surface mines, industry officials say.
Ten years ago, Wyoming produced 181 million tons of coal a year, about one-fifth of U.S. production. Today, Wyoming produces 320 million tons of coal annually, nearly a third of nationwide production.
Over the same period of time, central Appalachia's share of national coal production has remained the same, about one-fourth.
"The pricing power and market share of West Virginia's coal has been eroded by competition from Wyoming's Powder River Basin," a task force appointed by Gov. Cecil Underwood concluded in November.
In Wyoming, coal seams are 100 feet thick. Coal companies remove 20 or 30 feet of rock and earth to reach them.
West Virginia coal seams are much thinner, and the rock and earth above them much thicker. Coal companies remove 100 feet of rock and earth to reach a couple of coal seams. If they're lucky, each is 2 or 3 feet thick.
Wyoming coal costs much less to mine. Ohio River power plants can afford to haul it across the country.
By 2000, central Appalachian coal will cost one of American Electric Power's plants in Mason County $1.27 per million Btu. Powder River Basin coal will cost the same plant $1.22 per million Btu.
"There is no room for costs for central Appalachian coal to go up," said Jerry Eyster, a Washington-based coal consultant. "The marketplace will shift further to western, Powder River Basin coal, and Appalachian production will decline."
So far, West Virginia mines have only kept pace by producing more coal with bigger equipment and fewer workers.
"It takes these large-type mines to create this type of volume," said Ken Woodring, executive vice president of Arch Coal. "This is by far the best approach."
In 1986, the average coal miner in West Virginia produced 4,000 tons of coal a year, according to the state Office of Miners' Health, Safety and Training. By 1996, the average miner produced 8,000 tons a year.
A decade ago, West Virginia produced 152 million tons of coal a year. Nearly 25,000 miners were working. Last year, West Virginia produced 171 million tons of coal. About 18,000 miners had jobs.
Surface mines played a big role in the state's increased productivity.
Twenty years ago, only about 10 percent of West Virginia's coal production came from surface mines. Today, about a third of the state's coal is produced by surface mines.
In 1997, the average surface miner in West Virginia produced 46 tons of coal per day, according to the West Virginia Coal Association. The average underground miner produced 38.5 tons per day.
Mountaintop removal miners are the most productive of all. Draglines can move 4,000 cubic yards of material an hour, according to a report by the Marshall Miller Associates consulting firm. Conventional loaders can move only 1,600 cubic yards an hour. Dozers move about 600.
"MTR methods are essential to maintain the state's present levels of coal production," the governor's task force concluded. "The lower production costs of MTR have contributed significantly to maintaining West Virginia as a competitive coal producer."
More than many in the West Virginia coal industry, Bob Bays understands how competitive Wyoming mines are. He manages Arch Coal's West Virginia mines.
On July 1, 1998, Arch Coal bought the western coal holdings of Atlantic Richfield Co. The purchase included huge surface mines in Wyoming, Utah and Colorado. Some of these mines dwarf Arch's West Virginia operations. One mine alone, the Black Thunder, produces more than all of Arch's West Virginia mines combined.
When West Virginia mines need a new dozer or truck, Bays has to compete with Wyoming. If mines there will make more money, Arch Coal invests there instead of here.
"We compete internally for those investment dollars," Bays said. "If we can't do that, nothing else matters."
Woodring has an even bigger problem. He has to make sure Arch Coal can get people to buy stock in a coal company instead of a software firm or some other business.
In 1998, Arch Coal made its investors a 6.5 percent return on their money, Woodring said. The Standard & Poor's average return on investment was about 21 percent, Woodring said.
"I don't know what's acceptable, [but] certainly, I would like to see us have a 20 percent return on investment, instead of a 6 percent return on investment," Woodring said. "That is an unacceptable level of performance, and we have to improve."