Usibelli starts Jumbo Dome permitting

Usibelli Coal Mine Inc. has seen the future, and the future - its Jumbo Dome project - is bigger and better than anything the company has mined in the past, says Steve Denton, Usibelli vice president of business development.

Jumbo Dome promises to be an improvement over Two Bull Ridge, the mine that currently produces 90 percent of Usibelli's coal production, Denton told an audience at the Pac Com meeting Feb. 22 in Anchorage.

Based on initial samples, the company thinks the moisture content of the Jumbo Dome coal is higher, but the usable coal seam is thicker, with ash and sulfur content lower than the coal at Two Bull Ridge.

"The net effect of it all is that we expect the quality to be somewhat better in the Jumbo Dome area than what we are accustomed to right now," Denton said. "In the Two Bull Ridge area about the top eight or 10 feet of coal we have to waste because its high sulfur and high ash. We don't see that in the Jumbo Dome area.

"That full 38 feet of thickness is probably recoverable at least to the extent that we physically can with the equipment."

Jumbo Dome mine is seven miles northeast of Two Bull Ridge. Usibelli expects to obtain permits for a road to Jumbo Dome this year, Denton said.

Jumbo Dome is a very large resource, probably in excess of 100 million tons, he said, adding that the deposit is especially attractive because of its comparatively low overburden. The company anticipates a stripping ratio of 3-to-1 at Jumbo Dome, vs. a 5-to-1 stripping ratio at Two Bull Ridge.

Flagship of operation

While Jumbo Dome promises ample future coal supplies, the reign of Two Bull Ridge is hardly over.

"It's the flagship of our current mining operation," Denton said.

Two Bull Ridge is one of four mines the company currently has permitted for production, Denton said. Ten percent of the company's production comes from the Gold Run Pass mine. Gold Run Pass is a satellite pit, he said.

"We always keep one or two satellite pits either in operation or permitting," Denton said. "We'll use that to help the quality situation when we get into some lower quality coal."

Poker Flats mine, the company's flagship a decade ago, is in the reclamation process now, Denton said.

Usibelli's total coal production in 2005 was about 1.4 million tons, Denton said, adding that the company has about 25 million tons remaining in Two Bull Ridge that are permitted for mining.

"We expect that we'll find quite a few million more in the successive ridges as we continue up the valley," he said.

Search for markets

The U.S. military is Usibelli's largest coal consumer, followed by exports to Korea. The next big user is the Golden Valley Electric Association, a Fairbanks-based utility that serves 90,000 customers.

In 2004 Usibelli sent two boatloads of coal to Chile, and it exported two boatloads again in 2005. The company is hopeful that Chile will become a growth market for Alaska coal.

"We do have a shipping advantage to Chile that we don't have to Korea, so we're anxious to see that grow," Denton said.

South Korea is getting most of its coal from South Africa and Australia, he said, adding that those countries are fairly low-cost mature industries that are adding to export capacity. The United States was once a major supplier to Korea, out of its Los Angeles export terminal - now shut down completely. The price competition in the Korean market is fierce.

"Indonesia is an emerging competitor with very low mining costs," Denton said.

"In Indonesia, they only have to make three passes with the shovel to move the coal seam," Denton said. "The logistics are how to move the coal, not how to move the overburden."

Usibelli's costs are higher.

"The export market, while it's something that we're in, is a very difficult market to stay in," Denton said. "The export market challenge for Usibelli is strip five yards of overburden per ton of coal, load and ship the coal 300 miles, and load it on a boat for $20 per ton."

Despite the challenges, recently the export business has been increasingly worthwhile for Usibelli, largely due to other changes in Asian markets. China is consuming so much coal that the country is almost becoming a net importer, a big part of what's driving the increases in fuel prices worldwide, Denton said. Higher prices, and the elimination of China as a competitor for Pacific Rim markets, benefit Usibelli.

"In 2004, a lot of the export purchasers were purchasing a lot of things on the spot market - a lot of competition, overcapacity, it was easy for them to just go out and purchase a boatload at a time of coal, and get a good price on it. Well things have changed.

"Now the prices are much more volatile and there is a great inclination for customers to start looking at term contracts - maybe a year, six months, or two years."

Home-growing markets

Usibelli is already in the business of providing coal for electricity generation in Alaska's Railbelt.

Golden Valley is the only utility that has coal-fired electricity generation. The utility has 25 megawatts of capacity in Healy; they also have 25 megawatts which they purchase from Aurora Energy, Usibelli Coal Mine's sister company.

"We're currently in plans to revitalize and expand (the Aurora) plant," Denton said, adding that the work will result in an output increase.

Talks between the Homer Electric Association and the Alaska Industrial Development and Export Authority about restarting the shuttered Healy clean coal project plant have raised the company's hopes that more coal power generation will fire up soon.

"I'm optimistic that that's going to work, it seems to be a willing operator and a willing seller deal between Homer Electric and AIDEA," Denton said. "It's a much different environment than has existed for the clean coal project for many years, after the obvious acrimony that's existed between Golden Valley Electric and AIDEA."

Other coal-fired power generation is much further from completion.

Denton said the Matanuska Electric Association has plans to build a coal-fired plant in the Matanuska Valley, but it has not filed a permit; Anchorage-based Chugach Electric has studied a coal plant; and Anchorage Municipal Light has no plan to build one, as far as Denton knows.

"It absolutely flabbergasts me that there is no utility in the Railbelt right now that is permitting a coal plant," Denton said. "I don't know if they're waiting for somebody to hit them twice with a rubber mallet, or what, but there's no permit out there.

"From the time you start permitting to the time you get a plant in place, if you do a real good job of it, you can do it in seven or eight years - probably more like a 10-year timeline."

Blue sky

If talks between Usibelli and Agrium Inc. bear fruit, the market for coal in Alaska will be greatly expanded. Agrium, facing natural gas shortages in the Cook Inlet area, is looking at coal as a source for gas to feed its Kenai nitrogen fertilizer plant. The companies are jointly studying a coal-to-gas project, dubbed the Blue Sky project, which would call for 4 million tons per year of coal at full operation.

"Agrium seems to be very committed to following through on this," Denton said

The project would use coal from Healy and from a mine at Beluga, on the west side of Cook Inlet. Beluga coal would be barged to Kenai from Beluga, while Healy coal would be barged from Anchorage.

The Blue Sky plant would burn the coal in a low oxygen environment, feeding with air to produce a syngas feedstock, which is a hydrogen and carbon rich gas ideal to feed the Agrium plant, Denton said. The companies are hoping for a startup in 2010 or 2011.