First Load for Conuma Coal

Trent Ernst, Editor_mg_3892-pano_web

On Wednesday afternoon, closing in on 5:00, the first load of coal was loaded at Conuma Coal’s Brule site.

The plan was to ship the first truck on Monday, but that proved to be just a little too optimistic for the newly minted mine owners, coming just ten days after the papers were signed for the company to take over Walter Canada’s assets.

Indeed, says Mark Bartkoski, the president of the newly formed company, it is so quick, that all the permits have not even been transferred over. “We did something a little different here,” says Bartkoski. “Any time you buy something, you make an offer on it, then you have to go through closing. If you buy a house, that’s a month, two months to close.

 “When you buy a coal company it’s anywhere from two to four months to transfer all the permits and equipment. We didn’t want to wait two to four months. From a business standpoint, that was going to cost us money, and we want to be a blessing to the community. We can’t be a blessing if we can’t get the hiring process started.”

So, says Bartkoski, the company did something that he has not ever seen in his 35 plus years in the mining industry. “We did something really different. We said ‘how about we buy all this stuff at closing, but we want Walter to continue to have the mining rights, and we’ll be a contract miner for Walter Canada, and we’ll do that until the permits get transferred.’”

This means, says Bartkoski, the company can start hiring people and putting them to work immediately.

Indeed by September 16, when the company had an information meeting, they had already hired 30 people. “A lot of the praise goes to the Crown and the agencies and the communities,” says Bartkoski. “Everybody helped out. Everybody said let’s not lose sight of the faces. Let’s not lose sight of the community. Everybody worked really hard.”

While the company missed its Monday ship date, the whole thing is moving at a nearly surreal pace.

For people familiar with Walter’s operations, the new face of the company may look an awful lot like the old face. Al Kangas will be acting as General Manager for Conuma, a position similar to what he was doing for Walter. And most of the local management team has also been retained.

Old faces, new environment

_mg_3909_webBut while the faces stay the same, the idea behind the company is vastly different.

“These guys know how to make a mine run at the bottom side of the market,” says Kangas. “A lot of people in town have gone through a number of closures of the mines up here. There isn’t one mine yet that has lasted through the bottom side of the market. Our intention is to get these mines up and running, and they’re going to run when the market is down next time.”

This is because, says Bartkoski, they are planning on running the mines as if they are in a down market, even if the price of coal skyrockets as it has in the last few months.

As of last week, the price of premium hard met coal had hit US$180/tonne, more than doubling the price at the start of the year. While this price spike has motivated Conuma to move into the market a lot faster than they were originally planning, they are going to be running a very tight ship.

The most obvious change? Staffing. When Walter shut the Wolverine mine down, 415 people lost their jobs.

Once the mine comes back online, that number will be 180 people. That’s fewer than half the number of employees returning.

Over at Brule, they had 250 employees working when it shut down. Conuma plans to operate that mine with 170 people.

But, while the number of employees will be significantly reduced, Kangas says the production should be able to stay the same.

This will be due to a few major changes in how things are done. One of the biggest changes, says Ken McCoy CEO and Co-founder of ERP Compliant Fuels and one of the co-owners of Conuma, will be the fact that Conuma is coming into the market with very little debt. “I’m not saying we’re that much better at coal mining than Walter, but we don’t have the debt,” he says. “We did a graph. When Walter bought this property, they bought it right at the very top of the market. They paid over $3-billion for it, and as soon as they bought it, it started going down, down, down. If you look at the graph, we bought it right at what we think is the bottom. Now the market has turned up. In the last two months, the price of this coal has gone up significantly, which justifies us to come in and open these coal mines up.”

McCoy says the original plan was to treat the mines as a longer-term investment. “Six months ago, when we first started looking at it, we thought we’d probably buy it and just sit on it and wait for the markets to come back, but in the last two months, it’s hit the floor and it’s coming up nicely.”

On the operations side, says McCoy, one of the big changes will be cast blasting.

Cast blasting is a technique designed to reduce the quantity of waste material that needs to be handled. According to a report by Dyno Nobel, cast blasting “utilizes the explosive energy to cast a portion of the overburden into the spoil pile without the need for subsequent handling.”

While the technique reduces the cost of removing the overburden, it can also lead to more coal loss if used improperly.

Previously, says McCoy, overburden was loaded into trucks and hauled. “We have four D11 (bull dozers) on order to push the rocks. We’re going to mine a little differently which will result in a lower cost.”

Kangas says the other mining technique they are bringing to the project is highwall mining. This is something that hasn’t been done in the area before.

Highwall mining is a form of surface mining that evolved from auger mining, says Wikipedia. But instead of an auger, a continuous miner, remotely operated, is used to drill up to 300 metres deeper into the coal seam after traditional open pit methods become unfeasible. Kangas says Highwall Mining could extend the lives of the existing mines by a number of years. He says there is probably two million tonnes of coal at Brule sitting in the highwall.

Loss Prevention in coal mining

Safety, says Bartkoski, is going to be the company’s number one priority.

Which is something most people have heard before, but Bartkoski says it is truly the company’s number one, unalterable principle. He learned this from personal experience, he says.

“A couple engineering degrees out of school, I went out to the real world,” he says. “I worked underground, in surface mining, in the prep plant and in the load out for my first ten years. I decided I needed to learn that side if I wanted to understand what the guys and gals were going through.”

Then, at 29 years old, with a longwall crew of 12, that he’d been working with for a year and a half, he was asked to move into the engineering department.

Six months later, there was an explosion at the mine, killing all 12 of his former crew. “It cut me deeper than anything that I’ve ever had to do in my life,” he says, his voice cracking. “When you have to do twelve funerals in three days, you’re never the same. I had to live through that. What I decided was I would never compromise safety moving forward. I would never compromise something in the short term, because I can still remember those wives I had to talk to and I don’t ever want to do that again.”

Two weeks after the accident, the company asked him if would take over the mine. “I wasn’t ready for that. But I did it,” he says. “900 employees. 29 years old. For the next 14 months, I averaged about 91 hours a week, and it just about killed me, it about killed my family.”

But he was able to turn the company around. He was able to rebuild the team, and make the mine a safe place. That experience led him into a career of rebuilding mining companies, reopening closed mines and otherwise learning the best processes in mining.

“When there’s a disaster, somebody calls and says ‘can you come over here and help lead the team?’ I don’t have all the answers. If you’re looking for the smartest guy, I’m not the right choice. What I am going to tell you is I’ve made a lot of mistakes and I’ve learned from those mistakes. When you turn something around, it takes uniting people under a common vision. And the vision we’re going to operate Conuma under is job security. It’s not investor returns, it’s job security. And we’re going to build it through what we call loss prevention.”

Bartkoski says one of the most successful, engaging management styles is servant leadership. “Remember, our people will not commit to the program, until they sign-in to the leader,” he writes in a 2013 paper for the Society for Mining, Metallurgy and Exploration. “When we lead from within and in support of, they become part of the solution. If we are willing to flip the common organizational chart, then ME becomes WE and a team is born.”

Bartkoski calls the plan the Integrity Process, which finds its roots in a quote by Warren Buffet. “In looking for your people, search for three qualities, integrity, intelligence, and energy. And if they don’t have the first one, the other two will kill you”

Bartkoski says that he has learned that if you reduce loss, due to accidents, due to violations, due to downtime, due to waste and due the rework, what happens? “They produce coal safely. They take care of the investor, they take care of the community, they take care of the environment, and they take care of the whole picture. If you treat people with respect and you build a team around that, then people will perform for themselves and for the team.”

Bartkoski says this is a story he wants to tell around Conuma. “It’s going to be a great story. I think people have the same motive I do, which is job security for their families. If we can share that dream together, then we’ve got something. I’m no more important than a belt shoveler. I’m no more important than a server. I’m no more important than a truck driver. The Lord has given me a different skill set, a different background.”

ERP Compliant, explained_mg_3873_web

A year ago, says Bartkoski, McCoy called him up. “I had the change to rebuild a couple companies for him,” says Bartkoski. “He called me up and said there are four other Christian businessmen. We’re getting together. I’ve got this mission project that I need to help support, and I think right now there’s a neat opportunity to step in to the coal industry as the little guy and we can slide in and buy a couple coal companies. He didn’t tell me we were going to buy four coal companies inside of ten months. He said, ‘there’s an opportunity for a little guy with no debt to come in and build something.’

Bartkoski says the company has some great pedigree. “McCoy took probably the best safety guy in the US, and he got him on board, and he got a great HR guy onboard, and he got a great financial guy onboard, and then he had to stoop down to me as operator. We started working together and we started dreaming together, and this is what we came up with.”

It is this, says McCoy, that is one of the company’s greatest strengths. “We have five former presidents of coal companies with 30 plus years of experience, so we bring a vast amount of experience. Everyone is hands on. Big companies tend to get bogged down in bureaucracies and layers of management that loses their focus. We are going to stay slim. We’re going to be trim. We’re going to be hands-on. The smartest guys in our companies are going to be at the coal mines, and that gives us an advantage.”

McCoy says he retired from coal mining a number of years ago. “I’ve been a Sunday school for my whole life,” he says. “So after teaching the bible for all those years about taking the gospel to all the world and helping the less fortunate, we retired and started doing missions work. We do missions work in Nicaragua, in Central America. We have an orphanage in Bolivia that we sponsor.”

He was happily doing the Lord’s work, when he was contacted by Tom Clarke. “Tom contacted us and said he wanted to get into the coal business. He said ‘we need a management team’. So I was contacted and asked if I was interested in getting back in the coal business.”

McCoy says he realized the best thing he could do to raise money for his missions project was get back into the coal business.

“We want to operate mines in a balanced, safe and responsible manner,” says Bartkoski. “That’s an uncompromisable value.”

Second, he says, the plan was to acquire a group of met coal companies that cover future needs.

Third, the plan was to be nimble. “We want to be able to go in and not make some of the same mistakes some of the other companies have made. They paid too much when they went out and bought it, so they had these huge interest rates. They couldn’t pay the people. They couldn’t pay their bills because they had these monstrous interest rates. We’re not going to take all the credit. A lot of the big boys are under water. There’s a lot of good companies that are carrying a lot of debt, so they can’t go out and pick up the good deals. We didn’t have the debt. We bought the other companies with no debt. We worked some stuff around, and we financed back some equipment and we set it up so we were low debt, because we are building this company so it will be sustainable if the economy goes back down again. That’s a responsibility we feel we have.”

Finally, the company’s plan is to provide security for communities and investors. “You take care of the employees and the communities, the investors get taken care of,” says Bartkoski. “Our company motto is to build job security. If we do that, people are going to be willing to sign on to that.”

The original dream of being the little guy, though, is being replaced by the reality of the landscape.

The plan was to leverage the experience of the company’s principal members to create a small, nimble company that was able to leverage their experience and a portfolio of high quality specialty coals.

“We wanted to be a small coal company, but we’re going to be running 12 million tonnes before we know it. There’s nothing small about 12 million tonnes. In two years, when the markets really come around, we’re probably going to be better positioned than any other met company out there. We have a plan, and I think it is right on key.”

What’s changed? The last downturn in the market devastated the American Coal industry. While locals have been following Walter’s bankruptcy case, many other mining companies have gone bankrupt, or are deeply mired in debt. “Peabody, Arch, Walters and a dozen others have all gone bankrupt,” says McCoy. “Before, when any mine came open, one of the big boys would just come in and grab it, but all the big boys are deep in debt and most of them bankrupt, so when some really good opportunities came along, they weren’t able to get them, which created a good opportunity for us.”

McCoy says, despite the last few years, he feels there will always be a market for top quality metallurgical coal. “There has been a tremendous movement to get away from burning coal for electricity,” he says. “You could argue the good and bad of that, but we didn’t want to fight that. People in the coal industry have basically lost that argument. But on the steelmaking side, if people want to make steel, you need met coal. We wanted to be in the met coal business, so we strategically started looking at how we could get that.”

The company was able to pick up some of the best mines in the States, including Walter Energy’s Maple Mine in West Virginia.

Conuma is born

McCoy says the company knew about Walter’s Canadian properties back when they started, but the sale kept getting pushed back and back. When they finally were put on the market, there were more than 80 individuals or companies that expressed an interest in Walter Canada’s assets, but as time went on, the list got smaller, until Conuma was the winning bidder.

The bankruptcy sale was completed September 9, says Bartkoski. “We got all the physical assets, equipment infrastructure, building and properties,” he says. “We also got the employee liabilities on the 20 active Walter Employees. We took all their liabilities because they were with the company when we bought it. We took on all the environmental liabilities. We didn’t walk away from any of that. We took on any of the First Nations agreements. We didn’t want to walk away from any of that. What Walter Canada continues to hold on to is their payout with vendors and any past employee liabilities.

The company, says Bartkoski is not a subsidiary of ERP, but shares common ownership. “What is Conuma Coal? It’s a private, stand-alone Canadian Coal company, headquartered in Vancouver. It’s not a US company. There was something reported that said we were a subsidiary of a US company. The thing about a subsidiary is you could play a carpet bagger project. You could take resources from here and ship them somewhere else. That’s not what we are. We are a standalone Canadian company. If we make it here, the money stays here. If we don’t make it here, there’s nobody to bail us out.”

The company is a member of the ERP Complaint group, he says, sharing a common ownership. “But just because the ownership is similar, it doesn’t mean that we’re tied together. In fact, from a surety standpoint, from the government’s standpoint, we had to make sure there was a total separation. They are part of the same family, but they’re not tied to each other financially. That’s important because if we go up there and affect something environmentally, we should be responsible for it. We shouldn’t be able to just jump across the border and jump away from our responsibility.”

And because it is a private company, they are able to run the business however they want. “We’re not wall street, we’re not investors, we’re coal miners. It’s a group of coal miners that have bought these mines,” says McCoy. And being coal miners, they understand what it’s like to work in the industry. I can identify with every one of these guys. I’ve seen my brother unemployed for three years. I’ve had to loan him money. My dad came home laid off and we weren’t able to go on vacation. I’ve seen all that. I’ve been there, and if I have the ability to help them, I want to do it for no other reason that I want to help. You make your reputation every day and it is important to me that we be respected in this community.”

Bartkoski says many publicly held companies are built around the idea of serving the shareholder. “Too many companies build around the profit focus. We build it around job security, and that takes care of the investors. We want to be a good member of the community. This is a community where the people are coal miners. We like being in places where people understand and appreciate coal miners. We’re excited to be a part of that.”

He says a part of that is to build the company for the long-term. “This isn’t going to be a short term play. We all know that coal is cyclical. We’re going to build this like we’re looking at an $80 to $90 market. If it gets better than that, great. The greatest day I’m going to have is to be able to start sharing a profit sharing cheque on a monthly basis. That’s a success story. When we can do that, then everybody that’s a part of our company, and everyone that is a part of our community become co-owners. And we want to build a co-ownership to our project.”

McCoy says it comes from his background. “I was raised in a coal camp. I know how important the coal company is to the community and we want to give back to the community. To the Food Bank. Computers for the schools. If we have the ability to do that, we’ll do that. We don’t want to just take stuff from the community and send it someplace else. We want to use local vendors, local people. We want to be a part of this community. We want to be a company that people want to work for. We want to add value to the community. We’re not here to rape and pillage and leave. We want to be a part of the school system. If we have the ability and the means to help in this community, we’re going to do that, because we feel a corporate responsibility to do that.”

Why these mines

What’s so special about these mines? McCoy says it’s because the coal is “absolutely world class.

“The Brule Mine is the best mine in the world for PCI. It’s better than a lot of Australia. Wolverine is right there with some of the best coal in the world. Willow Creek is as good as anything Australia has. When an opportunity to get some of the best coal in the world comes along, it’s exciting. You’re not too far from the ocean to get in into Asia, where most of this coal is used. Logistically it’s a good location, the quality is great.”

Bartkoski says the Brule mine is one of the top four mines in the world for PCI. “The next two are in Australia, and they have less than a three year life left. When those reserves run out, where are they going to get that high quality PCI? What’s happening to Brule? Its value is going to go way up.”

He says when the company started mapping out what they wanted to be able to provide, they decided they wanted to focus on specialty met coal.

“You need a certain composition of coal going into a coke oven,” he says. “There’s no one metallurgical coal in the world that can feed a coke oven. Usually there’s four or five different types of coal that go into that coke oven. So we wanted to be a one stop shop. We need a little bit of PCI, we need a little bit of hard coking coal, a little bit of low vol coal, and a little bit of mid vol coal. So if someone is running a coke oven, they can call the ERP family of companies and they can order their feed stock.”

He says their operations down in the States have some great mid vol and high vol coal. “What we didn’t have was a really low sulfur, really high quality low vol, and that’s exactly what Wolverine has. And we didn’t have a good quality PCI, and that’s exactly what Brule has. We thought if we got a good buy on this, and not be heavily debt laden, we thought it would fit our portfolio really well.”

Plans for the future

The company has already started producing coal at Brule. Over the next two months, they plan on hiring 160 people to bring the mine to full production. “That is exciting,” says McCoy. “I don’t apologize. We think we can make some money here. That’s good. But along the way, we can provide some jobs and we take that very seriously. We want to be good citizens here in this community.”

As part of that, the company says they plan to hire as many people locally, even if that means training people. “We’re not going to have the camp out at the Brule mine,” he says. “If you hire people from 150 miles away, they’ll work here just long enough to get their job back home. I don’t blame them. I would do the same thing, but we firmly believe in hiring local people. It’s a win-win. It’s self-serving for us. You hire local people, they’ll stay with you longer, their cars won’t break down on the drive in. I would rather train a local person than hire a person from 3000 miles away. It’s just better business sense.”

The company plans to hire about 80 people from the Tumbler Ridge area, the rest from Chetwynd. “We are going to put those people together to run Brule,” says Bartkoski. “We get to work as a team, we get to build our systems, we get to listen and learn from each other, build a good mining system.”

Sometime in the next six months, the company plans on re-opening Wolverine, though that isn’t written in stone. “There are some railroad issues,” says McCoy. “The railroad has been neglected for the last few years, so we’re talking with CN. The Ridley port people have been good to work with. The Canadian Ministry of Mines have been great to work with. People have been working together to make this happen.”

Once Wolverine does open, the plan is to bring the people from Tumbler Ridge back to that mine to work. “All the people from Tumbler Ridge comes to the Wolverine operation,” says Bartkoski. “Now both mines are half staffed. Everybody is on their town side, then we hire 80 people from both sides to get back up to full speed. That way we keep everyone’s transportation down. We also help with our start-up as we don’t have to do two different ramp ups at two different times. It gives us a chance to train people up. It gives us a lot of people with a lot of experience, and that way we can bring in newer employees and offer some training.”

He says the plan is to hire people with experience first and get them learning the systems at Brule and start to train new people once the Wolverine is re-opened.

McCoy says he wants to have Wolverine opened by January. Bartkoski says May is more likely. Kangas cautions that it isn’t 100 percent that the mine will reopen at all.

What about Walter’s third property? “Willow creek has some of the best coal in the world,” says McCoy. “But the geology there? I just don’t understand it. We’re going to look at Willow Creek, and if we can put a mine plan together that makes sense. We desire to open it up, but you have to have a mine plan that makes sense. We’ll be looking hard at Willow Creek, but it’s not in our six month plans.”

Brule has about 17 million tonnes in reserve. When Walter shut down, they were mining just over one million tonnes per year. Willow Creek has about the same.

The Wolverine Mine has about nine million tonnes, which gives the mine about a five year life span, says Kangas. But the company is also picking up all of Walter’s coal licences too. “The next pit, which has gone through EA process is East Bullmoose Mine on Mount Spieker. Walter had everything ready to submit the permits. There’s another eight to ten years at East Bullmoose, then there’s Mount Hermann, Grizzly Transfer….we have the reserves to be here for a long long time.”

The company will be contacting out its trucking. “We’re not good in the trucking business. If I had an enemy, I’d buy him a coal truck,” says McCoy. For Brule, that’s probably going to be 30 or 40 trucks, with two operators per truck. “We’ve already talked to the contractors and we’ve told them we want local people sitting in those seats.”

While most of the coal produced at Brule will be shipped from Willow Creek’s loadout, if any coal needs to be washed before it is shipped, it will be sent to Wolverine. “It’s not worth firing the plant up at Willow Creek, so it makes sense to bring that coal out to Wolverine,” says Kangas. However, if plans for Wolverine fall through, they may chose to open the plant at Willow Creek.

The company is hoping to get away from using contractors on site. “Certainly from a mechanical or services standpoint, we want to use contractors as little as possible,” says Kangas. “The best dollar is to have our own people doing the work. When Wolverine was running before, we were spending a million dollars a month on mechanical contractors.

For employees, the mines will both run 12 hour shifts, seven on and seven off. At the start, they will be busing people to Brule from Chetwynd and Tumbler.

Kangas says the seven and seven shifts were one of the key reasons he signed on with the company. “When they first showed up with the gang about six or eight months ago to take a look at the property, we had lots of discussions on how things worked,” says Kangas. “When Ken asked about the shift schedule. I said seven and seven, because that was the favourite shift. Brule was 14 by 14, which I didn’t agree with, but it was established by the time I got there. But seven by seven is fairly established in the industry in the north. It’s not what they wanted to do, but they’ve listened to what the community wants, what the workers want. That’s exciting for me, because that is new to me that an outside group would come in and listen.”

While the company is part of the ERP group, says McCoy, they are not going to be bound to that company’s environmental policies. He says to think of the coal business like the fast food business. “If I own a Burger King and a Wendy’s, they’re not affiliated, they just have a common ownership.”

This means, he says, there is no strategy or plan to offset carbon emissions at this time for Conuma, though they remain committed to doing that. “To the extent that we can offset carbon emissions through reforestation, we will. We are trying to influence regulations in the US and lead by example in the US, and we want to do the same thing here. Tom Clarke is the advocate for carbon offsets. I’m a coal miner. Mark is a coal miner. We’re sensitive to the environment, and we have a moral obligation to taking care of our people and the environment, but Tom is the driving force behind the reforestation.”

The group has also made some overtures towards expanding its influence. It was in the building to buy an iron ore mine back east, but pulled out, as it just wasn’t financially feasible. They were also looking at buying Stelco’s steelmaking operations in Hamilton, but that too, fell through. “To the extent we can vertically integrate, we’d like to do that,” says McCoy. “But because you’d like to do it, doesn’t mean you get to do it. We would have an interest at some point in iron ore, coking plants, and even steelmaking if the opportunity rose up, because of the benefits of vertical integration. But we don’t have a broad strategy to make that happen. We’d like for it to happen. If the opportunity comes, we’d want to capitalize on that, but those are huge investments. We’re a coal company. We’re a met coal company, first and foremost.”

One of the biggest potential change is the idea of profit sharing. Bartkoski says such a plan would be based on safety first. “In order to qualify, you’d have to have no lost time injures that month. And you would have to show up to work. We’d have two or three key performance indicators based on the efficiency rates of the operation. If we hit those, we’re obviously hitting our budget numbers, and there’s moneys that employee gets at the end of the month.

“If we do well, I want them taking home a cheque. If Al and I do our jobs right, our people are going to take a substantial cheque home at the end of the month as a reminder of what they did. We don’t compromise safety. If someone gets hurt, it knocks everyone out of that bonus cheque. I don’t want someone coming back to me and saying we’re buying production at the cost of safety. If anyone gets hurt, nobody gets a cheque. It’s going to be very much built on the team, with an uncompromising safety value. If we as a business do well, we share it with our employees.”

McCoy says it’s very simple psychology. “Behaviour that gets rewarded, gets repeated. Once they draw a bonus cheque, that’s very tangible and meaningful, and they will do that. The company gains from that, and the employee gains from that.”

McCoy admits that the company doesn’t have much history, and that people have heard promises like this before. “All we ask is you give us a chance. We will make every effort to do what we say we’re going to do. We want to provide for families. We want to be the preferred employer, and we know that if we want to be the preferred employer, we need to treat people the way we want to be treated. There’s a lot of families in the balance, and there’s no reason there can’t be a win-win.”