Item 2. Properties
Item 2. Properties
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Coal Reserves
We prepared our estimates of reserves which were audited by Marshall Miller & Associates, Inc. (“MM&A”), and MM&A reviewed our methodology, assumptions and reserve factors utilized in determining these estimates. In the few instances where MM&A recommended revisions to reserve figures, MM&A worked with our team to modify reserve estimates. MM&A relied on their independent pro-forma economic analysis for ultimate reserve determination; this analysis is further discussed in the Costs & Calculations section below.
We maintain an internal staff of engineers and geoscience professionals who work closely with independent reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate our estimated reserves. Our internal technical team members meet with independent reserve engineers periodically to discuss the assumptions and methods used in the proved reserve estimation process. We provide historical information to the independent reserve engineers for their properties, such as ownership interest, production, test data, commodity prices and operating and development costs.
These estimates are based on engineering, economic and geologic data, coal ownership information and current and proposed mine plans. Our proven and probable coal reserves are reported as “recoverable coal reserves,” which is the portion of the coal that could be economically and legally extracted or produced at the time of the reserve determination, taking into account mining recovery and preparation plant yield. These estimates are periodically updated to reflect past coal production, new drilling information and other geologic or mining data. Acquisitions or dispositions of coal properties will also change these estimates. Changes in mining methods may increase or decrease the recovery basis for a coal seam, as will changes in preparation plant processes.
“Reserves” are defined by the SEC Industry Guide 7 as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Industry Guide 7 divides reserves between “proven (measured) reserves” and “probable (indicated) reserves,” which are defined as follows:
• “Proven (Measured) Reserves.” Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
• “Probable (Indicated) Reserves.” Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
On October 31, 2018, the SEC voted to adopt amendments to modernize the property disclosure requirements for mining registrants and related guidance under the Securities Act of 1933 and the Securities Exchange Act of 1934. The final rules provide a three-year transition period, thus, we will be required to begin to comply with the new rules for the fiscal year beginning on January 1, 2021 (reported in the Annual Report on Form 10-K for the year ended December 31, 2021). We are in the process of assessing the impact the new rules will have on our disclosures.
As of December 31, 2020, we had estimated reserves totaling 623.5 million tons, of which 331.1 million tons, or 53%, were “assigned” recoverable reserves that were either being mined, were controlled and accessible from a then active mine, or located at idled facilities where limited capital expenditures would be required to initiate operations when conditions warrant. The remaining 292.4 million tons were classified as “unassigned,” representing coal at currently non-producing locations that we anticipate mining in the future, but which would require significant additional development capital before operations could begin.
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The following table provides the location and coal reserves associated with each of our reportable segments and related significant mines as of December 31, 2020:
As of December 31, 2020
(in thousands of short tons) (1)
Recoverable Reserves
Reportable Segment Location Reserves Proven Probable Assigned (2)
Unassigned (2)
Met
Deep Mine 41 Virginia 28,475 22,685 5,790 28,475 —
Road Fork 52 West Virginia 32,803 23,238 9,565 16,759 16,044
Black Eagle West Virginia 17,387 12,483 4,904 17,387 —
Lynn Branch West Virginia 23,228 12,298 10,930 23,228 —
Met Other Virginia, West Virginia, Pennsylvania 517,206 370,410 146,796 240,816 276,390
CAPP - Thermal West Virginia 4,444 3,911 533 4,444 —
623,543 445,025 178,518 331,109 292,434
(1) 1 short ton is equivalent to 0.907185 metric tons.
(2) “Assigned” reserves represent recoverable reserves that are either currently being mined, reserves that are controlled and accessible from a currently active mine or reserves at idled facilities where limited capital expenditures would be required to initiate operations. “Unassigned” reserves represent coal at currently non-producing locations that would require significant additional capital spending before operations begin.
The following table provides the breakdown between the quantity of reserves that is currently covered by an active mining permit or not permitted and the quantity of reserves that is met coal or thermal coal associated with each of our reportable segments and related significant mines as of December 31, 2020:
As of December 31, 2020
(in thousands of short tons) (1)
Reserve Control By Permit Status By Coal Market Type (2)
Reportable Segment Owned Leased Permitted Not Permitted Met Thermal
Met
Deep Mine 41 — 28,475 25,673 2,802 28,475 —
Road Fork 52 237 32,566 2,422 30,381 32,803 —
Black Eagle — 17,387 12,944 4,443 17,387 —
Lynn Branch 813 22,415 14,479 8,749 23,228 —
Met Other 61,983 455,223 123,185 394,021 460,281 56,925
CAPP - Thermal — 4,444 4,444 — — 4,444
63,033 560,510 183,147 440,396 562,174 61,369
(1) 1 short ton is equivalent to 0.907185 metric tons.
(2) Classification of coal market type is based on available quality information and is subject to change with shifting market conditions and/or additional exploration.
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The following table provides a summary of the quality of our reserves for each of our reportable segments and related significant mines as of December 31, 2020:
As of December 31, 2020
(in thousands of short tons) (1)
Sulfur Content Average Btu
Reportable Segment Reserves Primary Coal Type (2)
<1% Sulfur 1 - 1.5% Sulfur >1.5% Sulfur >12,500 <12,500
Met
Deep Mine 41 28,475 MVM 28,475 — — 28,475 —
Road Fork 52 32,803 LVM 32,803 — — 32,803 —
Black Eagle 17,387 HVM 17,387 — — 17,387 —
Lynn Branch 23,228 HVM 23,228 — — 23,228 —
Met Other 517,206 HVM 397,385 114,837 4,984 497,865 19,341
CAPP - Thermal 4,444 T 4,444 — — — 4,444
623,543 503,722 114,837 4,984 599,758 23,785
(1) 1 short ton is equivalent to 0.907185 metric tons.
(2) Coal Type: T=Thermal; LVM=Low-Vol. Metallurgical Coal; MVM=Mid-Vol. Metallurgical Coal; HVM=High-Vol. Metallurgical Coal .
The following table provides a summary of information regarding our mining operations for each of our reportable segments and related significant mines as of December 31, 2020:
Transportation
Reportable Segment Reserves (thousands of short tons) (1)
Type (2)
Mining Equipment (3)
Rail Other (4)
Met
Deep Mine 41 28,475 U CM CSX B
Road Fork 52 32,803 U CM NS B
Black Eagle 17,387 U CM CSX B
Lynn Branch 23,228 U CM CSX —
Met Other 517,206 U/S CM/S/H NS/CSX B
CAPP - Thermal 4,444 U CM NS/CSX B
623,543
(1) 1 short ton is equivalent to 0.907185 metric tons.
(2) Type of Mine: S = Surface; U = Underground.
(3) Mining Equipment: S = Shovel/Excavator/Loader/Trucks; CM = Continuous Miner; H = Highwall Miner.
(4) Transportation: B = Barge Loadout availability.
The following table provides a summary of information regarding our significant preparation plants as of December 31, 2020:
Preparation Plant(s)
Reportable Segment/Preparation Plant Capacity
(short tons per hr) (1)
Utilization % Source of Power
Met
McClure
1,000 64% MP2 Energy
Toms Creek
1,050 37% Old Dominion
Bandmill 1,200 51% AEP
Marfork 2,400 47% AEP
(1) 1 short ton is equivalent to 0.907185 metric tons.
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Information provided within the previous tables concerning our properties has been prepared in accordance with applicable U.S. federal securities laws. All mineral reserve estimates have been prepared in accordance with SEC Industry Guide 7.
The following is a summary of information regarding our significant coal terminal as of December 31, 2020:
• DTA coal export terminal in eastern Virginia . We own a 65.0% interest in DTA which provides us with the ability to fulfill a broad range of customer coal quality requirements through coal blending, while also providing storage capacity and transportation flexibility.
Costs & Calculations
Coal tonnage is classified as reserve when demonstrating profit on a fully loaded cost basis. Pro forma testing conducted by MM&A demonstrated that our reserves are expected to generate cash and are profitable on a fully loaded cost basis. Fully loaded costs were compared to two-year historical sales realizations for all potential reserve areas. The classification of reserves is dependent upon the sum of all costs normalized to a per clean ton basis being less than the two-year historical sales price. The two-year historical sales price includes the following average prices categorized by coal qualities:
Coal Qualities Two Year Historical Average Sales Price
Met High-Vol. A
$106
Met High-Vol. B
$91
Met Mid-Vol.
$105
Met Low-Vol. $117
Thermal - CAPP-Thermal $56
For the surface mining reserve areas, the mining costs were estimated using the surface mining overburden ratios. Direct mining costs were estimated for labor, blasting, fuel and lubrication supplies, repairs and maintenance, operating supplies and other costs. The pro forma mining cost estimates for underground mining areas began with the computation of representative total seam thickness for each area evaluated. The clean-tons-per-foot of mining advance was calculated to support mine production and productivity calculations.
All underground and highwall miner coal reserves are expected to require washing to remove coal partings and out-of-seam contamination. Preparation plant yield was calculated by multiplying the in-seam recovery, out-of-seam contamination and plant efficiency factors. In-seam recovery factors were obtained based upon the relative percentages of coal and rock within the seam. Direct mining costs were estimated for labor, supplies, maintenance and repairs, mine power and other direct mining costs. Sales, general and administration and environmental cost allocations were based on values typically observed by MM&A. Sales variable costs for royalty payments, black lung excise tax and reclamation fees were calculated, along with cost components for other indirect mining costs.
The following map shows the locations of our significant properties, Met properties, CAPP - Thermal properties, and corporate headquarters.
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