Walter Idles Mines: Calls Closure “A Temporary Action”

Trent Ernst, Editor

 

Walter Energy is assuring employees of its Canadian operations that the current shutdown is only temporary.

“We were very precise in saying ‘we view this as a temporary action,’ says Tom Hoffman, vice president of communications for Walter Energy. “We’re in a cyclical business and it is dependent on the global industry, especially steel. We’re at the low part of the cycle now, if history is any judge, we’ll come out of it.”

That said, says Hoffman, when that will happen is a matter of much speculation. “I don’t have a crystal ball. You have to make some judgments.”

Hoffman says the closure is simply a matter of finances. “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.”

Many met coal producers (including Anglo American) have signed second quarter contracts to sell product at $120/tonne, the lowest price in six years, down from $137 in the fourth quarter of last year.

Meanwhile, the price of metallurgical coal has dropped to $105 on the spot market, and steel producers are playing that difference to pick up coal at the reduced price, which promises to force coal prices down even further.

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

“The met coal market is oversupplied, driven especially by the Australian market,” says Hoffman. “They have an advantage over Canada and the US with their low dollar.”

Hoffman blames weakening demand from China for the low prices, too. He says that China’s economy was growing at 12 or 13 percent a couple years ago, now it’s at seven or eight percent. There are a variety of factors driving that.

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

While there are 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. “Until they can transition that to the more modern steel mills, it will impact their demand in the short run,” says Hoffman. “Longer term, it will all come out in the wash, but what China is doing now does impact us now.”

So the current strategy is to not compete in today’s market, but to keep the mine ready to start production with little notice once prices reach a point where it’s feasible to restart the Canadian Operations.

In the meantime, about 40 employees (ten per shift) will remain in the pit. Hoffman says these people will keep the equipment in operational order. “You’ll have people there all the time, who will start and run the electric motors, cycling the equipment through the lifting process. If we were just going to be down for a week, we’d probably just have a night watchman, but if the length of time is more than a few week, we need to have a big enough crew to make sure the equipment is not damaged or deteriorates.”

More coverage inside: pages 2, 3, 8 & 9