North of 60 Mining News - The mining newspaper for Alaska and Canada's North

Given an abundance of cheap coal available on the Pacific Rim, Usibelli Coal Mine Inc. is focusing on its core business - delivering more than 1 million tons of ultra-low-sulfur coal mined at its Healy operation to electricity- and heat-generating customers in Interior Alaska.

"Right now, we are sort of regrouping, focusing on our domestic customers," Usibelli Vice President of Government Affairs Lorali Simon told business and government leaders gathered for an Oct. 16 Resource Development Council breakfast.

This renewed focus on its Alaska customers follows an announcement that Usibelli subsidiary, Aurora Energy Services, is suspending operations at the Seward Coal Loading Facility for the rest of 2015.

Located at the southern end of Alaska's railbelt, the Seward facility loads Usibelli coal on ships bound for South Korea, Chile and Japan.

The bulk of coal mined at Healy, however, typically is destined for customers at the northern end of the railbelt.

Cornerstone customers

From its first contract to supply Ladd Army Air Field, known today as Fort Wainwright, near Fairbanks with 10,000 tons of coal in 1943, providing thermal coal to Interior Alaska has been the cornerstone of the Usibelli Mine.

Nearly three-quarters of a century later, Usibelli operations have expanded to delivering more than 1 million tons of coal annually to seven facilities generating electricity and heat along the northern 100 miles of the Alaska Railroad's route that runs from Seward to Fairbanks.

If it wasn't for burdensome federal regulations, Simon said more coal-fired electricity would be the best option for Alaska.

Coal-fired generation provides the lowest cost and most price-stable electricity to Interior Alaska, according to figures provided by Golden Valley Electric Association, the electrical utility for Interior Alaska. Despite these advantages, less than a third of the power in the region is fueled by coal.

Golden Valley Electric's Healy Unit #2, formerly known as the Healy Clean Coal Power Plant, is the newest customer and key driver for the anticipated increased domestic demand for Usibelli coal.

This lower emissions facility, which is designed to supply 50 megawatts of power to the Alaska railbelt's electrical grid, is located at the mouth of the Usibelli Mine at Healy.

By burning low-grade Usibelli coal in stages and adding limestone, Healy Unit 2 was engineered to significantly reduce nitrogen and sulfur oxide emissions. The original construction of the facility was completed in 1997 and testing ran through 1999, but the facility since has sat idle.

In a trade-off agreement with the U.S. Environmental Protection Agency, GVEA retrofitted the plant with state-of-the-art emission controls, which are scheduled to be finished in the summer of 2017. The total cost of the restart and environmental controls is estimated at roughly US$187 million.

The cost savings and stability of upping the amount of coal-fired electricity is expected to more than offset the cost of buying and modernizing the plant.

"This 50 MW power plant increases our baseload of coal-fired generation and will provide long-term stability since coal prices over time have proven to be significantly less volatile than oil or gas prices," GVEA explains on its website.

A dedication ceremony marking the restart of Healy Unit 2 was held Sept. 22 and the low-emissions facility is expected to be running at full capacity by year's end.

The added demand of the new low-emissions facility, however, will be partially offset by the winding down of a coal-fired power plant at Clear Air Force Base.

Simon said Clear's switch from coal to a mix of diesel generation and buying electricity is part of a federal mandate to reduce its "carbon footprint." The facility consumed roughly 58,000 tons of coal per year.

Low price, exports

With an abundance of low-sulfur coal and a rail-link to Alaska's advantageous location on the Pacific Rim, in 1985 Usibelli expanded its business overseas.

At more than 15 million tons, the majority of this coal was exported to South Korea. More recently, power facilities in Chile and Japan began buying Usibelli coal.

With coal heading to all of these destinations, Usibelli exports reached an apex of about 1.2 million tons in 2011. Over the ensuing four years, however, these shipments have declined to about 150,000 tons in 2015.

"2015 is a historically low year for coal exports, and quite frankly price is the largest reason," Simon explained.

Coal being shipped from Newcastle, Australia, the world's largest coal exporting port, to Pacific Rim markets peaked at more than US$130 per ton in 2011. Today, coal leaving Newcastle is selling for less than US$60 per ton.

Two factors have contributed to this plummet - a slowdown of manufacturing in China and a surge in the strength of the U.S. dollar.

Over the past two years, the value of the U.S. dollar has increased 35 percent compared with the Australian dollar. During this same period, the U.S. dollar price of coal has dropped a comparable 30 percent. This has provided an advantage to the South Pacific coal producing juggernaut.

Simon is not optimistic that an immediate turnaround is coming.

"We are seeing a dip for 2015 - I don't have a lot of high hopes for 2016, for our export business," she told the RDC gathering.

This year Usibelli coal sales are expected to top 1.2 million tons, which includes two shiploads of coal sent to Japan. For 2016, the company anticipates sales to increase to about 1.4 million tons of coal, including two additional shiploads bound for Japan.

Simon said Usibelli has more than enough coal at its properties in the Healy area to warm and light homes and businesses in Interior Alaska for more than 1,000 years. So when coal markets again turn positive, the company will be ready to deliver its energy wealth to buyers along the Pacific Rim.

"For Usibelli, we need to focus on our in-state customers and keep a very close eye on the export market so that we can expand our business in that area," she added.

Author Bio

Shane Lasley, Publisher

Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.

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