Unhappy Anniversary

walter energy's wolverine mineTrent Ernst, Editor

Traditionally, the first anniversary is the paper anniversary, but two years on, nearly all the members of the United Steelworkers who worked at the Wolverine Mine were officially given their walking papers.

April 15 was the second anniversary of the idling of the mine, with no hope of the mine re-opening for the foreseeable future.

Indeed, the mine is currently being shopped around to potential buyers as Walter Canada seeks to get out of the mining business.

They said coal prices would start to recover in about two years.

Yet, two years after the mines closed, the situation just keeps getting worse, not better.

At the time, Walter Energy’s vice president of communications Tom Hoffman told us that the closure was a temporary action.

“We’re in a cyclical business and it is dependent on the global industry, especially steel,” said Hoffman. “We’re at the low part of the cycle now, if history is any judge, we’ll come out of it. It’s always an equation. For us, it all starts with geology. When the mines run into difficult geological conditions, it drives up the cost to get a tonne of coal out of the ground. Even if the price doesn’t change, the economics for us will change, as it costs more for us to get that out of the ground.”

In spring of 2014, contracts were being signed for $120/tonne, with the price of met coal dropping to $105/tonne on the spot market.

Operating costs for the Wolverine mine were reported to be $132/tonne.

The company had a cunning plan for recovery. Before idling operations, the company had removed most of the overburden from the next coal seam, which would have provided about six months’ worth of work at a reduced production cost, allowing them to jump into the market earlier than their competitors.

But the company, still working to pay down the $3-billion buying price of the mine, just didn’t have the legs to survive. At the end of 2015, Walter Canada went into creditor protection as it tried to find a buyer for the property. Late last month the company sent letters to members of the Steelworker’s Union telling them they were officially unemployed as of April 16.

The mining industry is suffering from oversupply and a weakening Chinese market. Coal prices were driven up after flooding in Australia and forced the Australian met industry to basically shut down for the better part of six months, but when the Australian producers came back on stream, they came back with a vengeance, using their lower cost of production and closer proximity to the Chinese market to force higher cost producers out of the game.

At the same time, the Chinese government has been under pressure from the population to do something about the air quality in their largest cities. In 2014, the government vowed to shut down older steel production plants that were contributing to the air pollution, reducing output by 15 million tonnes.

While there was talk of new steelmaking plants being built that will more than make up for that (with an estimated 30 million tonnes of capacity under construction right now), production numbers are currently down and reductions still underway for at least another four years.

And the Chinese economy is shifting, so the promised recovery in steelmaking may not come to pass. In 2015, steel production fell for the first time since 1981, and the government recently announced it would be cutting crude steel capacity nearly in half.

As of February, the price of met coal had dropped to $81/tonne, well below the 2012 price of $330/tonne, with recovery still “a couple years off.”