Wyoming’s second largest coal company confirmed last week what many miners and residents had feared: It will prepare to close its mines in the state even as it looks for a buyer for the properties.
Arch Resources Inc. operates the Black Thunder and Coal Creek mines in the Powder River Basin, both located in Campbell County. The company employs more than 1,100 workers in Wyoming, about 23% of the state’s coal mining workforce, according to the Mine Safety and Health Administration. Black Thunder, the second largest mine in the nation, accounts for more than 1,000 employees.
Arch said it will eventually close or sell all of its remaining thermal coal assets, which in addition to its Wyoming mines include the West Elk mine in Colorado and the Viper mine in Illinois. Although there are no target closure dates, the company will vastly shrink operations in Wyoming over the next two to three years, according to a statement.
“We view this systematic winding down of our thermal operations — in a way that allows us to continue to harvest cash and to fund long-term closure costs with ongoing operating cash flows — as the right business solution in the event we are unable to find an appropriate buyer,” Arch CEO Paul Lang said in a prepared statement.
Arch forecasts its Powder River Basin production will come in under 55 million tons this year, a 27% decline from 2019. The company plans to continue to reduce production in the basin “by an additional 50 percent over the course of the next two to three years.” In 2008, Wyoming’s highest coal production year in history, Arch produced more than 142 million tons from four mines in the state, according to WyoFile calculations.
The company’s “systematic” exit from thermal coal — which is primarily burned to generate electricity within the U.S. — comes as the market continues to shrink. Utilities are simultaneously running coal-fired power plants at lower capacities while speeding up the retirement of aging coal units in favor of more affordable natural-gas and renewable-power generation.
Coal accounted for more than 50% of U.S. electrical generation in the mid-2000s, but has sunk to about 20% this year, according to the Energy Information Administration. Industry analysts say coal’s slide will continue.
As it exits thermal coal, Arch plans to focus on its remaining mines that produce metallurgic coal used in steelmaking — primarily its Leer South mine in West Virginia.
“Arch is going to embrace these new realities as opposed to fighting them by continuing our pivot toward coking coal markets and pursuing a reduction and exposure in our thermal assets,” Lang said during Arch’s Q3 investor call last week.
The news, while not unexpected, is the clearest evidence to date that Wyoming coal communities are in for big changes.
Reality check for Wyoming coal
Arch’s plan to intentionally downsize its Powder River Basin production while preparing the mines for closure contrasts with past declarations by the industry and Wyoming elected officials.
Through a series of bankruptcies and the loss of nearly 1,000 mining jobs since 2016, Powder River Basin mining executives and state officials had projected hope that cost-cutting efficiencies and shedding debt would slow or level out a years-long production decline. Wyoming Gov. Mark Gordon has enthusiastically embraced the Trump administration’s efforts to roll back regulations on coal while boosting carbon-capture and refining technologies for coal.
Like its coal utility customers, Arch doesn’t see a profitable future by sticking with thermal coal.
“They [Arch Resources] are publicly traded, they have access to capital and they are intentionally moving away from thermal coal,” University of Wyoming energy economist Rob Godby said. “This is a reality check. It shows you just how desperate things are.”
Arch’s announcement that it will exit the Powder River Basin came less than a month after a pivotal court decision to block a proposed operations merger of Arch and Peabody Energy’s western coal operations.
Arch’s Black Thunder and Peabody’s adjoining North Antelope Rochelle mines account for nearly two-thirds of all coal production in the Powder River Basin. Combining these, along with the companies’ Colorado operations, would have reaped an annual savings of $120 million, according to the proposal.
But the Federal Trade Commission ruled against the merger, claiming it would take competition out of the Powder River Basin coal market. That view dismissed arguments by Arch and Peabody that the actual competitive market is not necessarily in the basin, but nationally among thermal coal, natural gas and renewables competing for the U.S. utility market.
Arch and Peabody challenged the ruling, with supportive arguments from the state of Wyoming. But the Eastern District of Missouri upheld the FTC’s decision in late September.
“Arch’s plan to reduce production levels at its two Powder River Basin mines is extremely disheartening but not shocking given their response to the court’s decision blocking the Peabody/Arch merger,” Gordon said in a prepared statement last week. “That is the reason I supported that merger so strongly and was frustrated by the FTC and the Court’s decisions.”
There is no scenario where Powder River Basin coal recovers, Godby said. The likely outcome is that production shrinks quickly over the next few years to about half its current rate of production and remains there — for how long, nobody knows, Godby said. Arch’s planned exit from Wyoming coal is a harbinger for a vastly different coal economy in the state. “That’s why I say it’s a reality check,” Godby said.
Order or chaos?
According to Godby, and other analysts, the Powder River Basin has operated “over-capacity” for about a year. Essentially, the volume of production needed to financially justify keeping 12 mines operating in the basin hasn’t been matched by demand, let alone forecasts for declining demand.
“Eventually, somebody’s got to fail,” Godby told WyoFile in January.
Last week, he said that Arch’s measured exit from Wyoming coal is a preferable scenario than the continuation of bankruptcies among smaller operators that might not fulfill obligations to miners and the state.
A prime example is Blackjewel. The same day it filed for bankruptcy in July 2019, it locked gates to the Eagle Butte and Belle Ayr mines and sent miners home, sparking a year of chaos. Employees lost healthcare benefits, had to fight for wages and didn’t know whether they would ever return to work. Although the mines reopened under a new owner in 2019, Blackjewel still shirked obligations to miners and left Campbell County in a lurch, delinquent on some $37 million in taxes.
If Arch ultimately sells its Wyoming mines, it would choose a buyer who could follow through on employee and reclamation obligations, CEO Lang said.
“If you’re going to have a consolidation [in the Powder River Basin],” Godby said, “it’s much better that it happens in an orderly fashion like this. They noted that they’re going to be open to their employees and suppliers, and they mentioned the communities so the communities can start to plan.”
Instead of digging in to compete on volume after being denied the operations merger, Arch’s plan to significantly cut production as it prepares to exit Wyoming might help avoid a continuation of bankruptcies and unmet liabilities among other operators in the Powder River Basin, Godby said. However, several remaining operators still face significant headwinds.
Now, Godby said, it’s up to the state to heed what is a clear warning shot from Arch.
“If you’re one of [Arch’s] thermal coal communities, things are going to change,” Godby said. “[Arch is] trying to give them as much advanced notice as they can.”
Shannon Anderson, attorney for the Sheridan-based landowner advocacy group Powder River Basin Resource Council, said her organization still worries Arch could sell its mines to a buyer that’s not financially capable of, or even committed to, meeting reclamation liabilities.
“There is a very small list of companies that are interested in coal mining these days, and none of them have the capital and corporate infrastructure to take over a mine as large as Black Thunder,” Anderson said. “A better focus is the plan Arch talked about, but we want to see the details, especially on reclamation and employee retirement and severance compensation.”
For now, the state should be prepared to hold accountable any potential buyer of Arch’s Wyoming mining properties, Anderson said.
The state can help Arch make its planned exit less painful by insisting on a timeframe for completion of reclamation work, preferably with miners already on staff, Anderson said. “Reclamation work can serve as an employment bridge until mine closure, if prioritized and done right.”
A July report by the Western Organization of Resource Councils suggests that the scale of reclamation required for the thousands of acres of surface mines in the Powder River Basin adds up to nearly $2 billion. That represents a financial and jobs opportunity that can help miners and service companies just as mines are closing.
But so far, a coordinated plan to help miners and communities make an economic transition from coal has yet to materialize in Wyoming.
Sen. Michael Von Flatern (R-Gillette) said he expects that Gillette — at the center of the Powder River Basin coal industry — will likely shrink from its current population of about 32,000 to about 26,000. Prospects for the town of Wright, which began as a coal company town to construct the Black Thunder mine, might be worse, he said.
“I can’t see those people hanging around Gillette, not with oil the way it is now,” Von Flatern said.
However, decades of wealth from coal, oil and gas has built a self-sustaining Gillette and Campbell County economy, he said. Intense energy development has fostered the growth of an industrial services and manufacturing sector that’s expanded its clientele beyond local coal mines.
“Gillette itself is doing better than it would have 20 years ago,” Von Flatern said. “We’re a house town and service town now. We’ll always maintain a good share of the population.”
Gordon has said there’s no way to completely fill the economic and job gaps left behind as the coal industry recedes. However, his administration continues to push for coal programs beyond mining.
“I am committed to working with workers and communities in the Powder River Basin during this challenging period, and our statewide approach is aligned with local efforts such as the Carbon Valley Initiative in Campbell County,” Gordon told WyoFile via email after Arch’s announcement last week. “This announcement serves as a reminder of how important our work is to support coal production and to advance carbon capture.”