US coking coal miner Arch Resources said it is progressing its Leer South project, which is expected to add more high-vol A coal into global markets toward the end of next year.
Arch expects the 4 million st/year Leer South mine to start longwall mining operations in the third quarter of 2021, before ramping up toward capacity, St Louis-based Arch said July 28.
Leer South is expected to operate for over 20 years alongside the existing Leer high-vol A mine, which produces very high coke strength after reaction, or CSR, and fluidity coal with over 1% sulfur. Another major new mine close to Leer South led by AMCI, Itochu Corp. and POSCO, called the Longview development, is due to start up by the end of 2022 with a similar capacity of over 4 million st/year.
Development at Leer South, in West Virginia, "remains on time and on budget," Arch Chief Operating Office John Drexler said in a quarterly update.
"By maintaining our forward progress during this period of economic uncertainty and supply rationalization, we believe we are greatly increasing the likelihood that we will be able to ramp the mine's initial longwall production into a strengthening coking coal market environment," he said.
Arch is adding new, lower-cost, higher quality US coking coals as it expects global demand to recover and consumption of lower quality met coals to slip.
COKING COAL
Arch said coking coal sales in Q2 dropped 19% to 1.3 million st from the year earlier period after some customers deferred shipments, which may lead to higher sales later in the second half.
Arch said Q2 coking coal prices averaged $84.26/st at the mine, down from $92.53/st in Q1, and cash costs rose slightly to $61.95/st, squeezing cash margins.
Arch spent $46 million on Leer South's development during Q2, and reaffirmed guidance for $360 million-$390 million in total spending on the mine.
While Arch is bringing on Leer South, US met coal production has been cut, due to weaker North American and export demand, as well as low spot prices.
The S&P Global Platts US high-vol A and high-vol B price assessments have seen a narrowing in the spread over Q2 to as low as $5/mt in July, due to weaker overall spot demand. Costs supported offers for lower quality US coals over second-tier and high-vol Australian and Canadian coking coals.
Arch said more supply reductions are needed to balance the market, on top of high-cost production already being cut, particularly in North America.
"US coking coal production was down an estimated 15% in the first quarter of 2020 when compared to the second quarter of 2019, just before coking coal prices started to retrace appreciably," Arch said.
"Moreover, Australia is struggling to maintain last year's production levels in the face of weak pricing, operating disruptions at certain mines, and limited capital investment in recent years, and Canadian producers are guiding to significantly lower 2020 production as well," the company added.
