Patriot Coal to shut down W.Va. surface mine, focus production at lower-cost operations

Patriot Coal to close W.Va. surface mine

CHARLESTON, W.Va. — Another major U.S. coal mining complex has fallen victim to the slumping demand for energy.

Patriot Coal Corp. said Monday it is closing its Samples mines and has told 314 workers they will lose their jobs Oct. 1. The St. Louis-based coal company said the sprawling West Virginia complex, which includes two surface mines, produces about 2.5 million tons of coal a year for electric utilities.

The weak economy and low natural gas prices have combined to cut demand for coal, with government figures showing utilities are generating about 6.6 percent less electricity and amassing big stockpiles of coal this year.

A string of big producers, including Peabody Energy and Arch Coal, have announced production cuts that the U.S. government estimates have trimmed output an estimated 7.7 percent. At that rate, 2009 production would decrease more than 90.2 million tons from last year.

The production cutbacks have been accompanied by a string of mine closures by Patriot, Richmond, Va.-based Massey Energy Co., and Abingdon, Va.-based Alpha Natural Resources.

Patriot last week lowered its production estimates to between 33 million and 35 million tons in 2009, down from 34 million to 36 million.

“Our strategy is to concentrate production at lower-cost mining complexes,” Chief Executive Rick Whiting said in a statement. “By ceasing operations at this higher-cost surface mine, Patriot will keep valuable permitted reserves in the ground until the market yields more favorable pricing and margins.”

Patriot’s stock climbed 84 cents, or 10 percent, to close at $9.21.

The bulk of Patriot’s annual production comes from mines in West Virginia and eastern Kentucky. Demand for coal from the region has plummeted, dropping the spot market price of utility-grade coal, for instance, 65 percent to $45.50 per ton, according to Energy Information Administration figures.

On Monday, Patriot rival James River Coal became the latest U.S. coal company to cut production and profit estimates. Richmond, Va.-based James River said it now expects to earn $2.25 to $2.60 per share this year, down from an earlier forecast of $3.30 to $3.80. Production from mines in Kentucky is expected to dip to a range of 7 million to 7.1 million tons, compared with an earlier range of 7.4 million to 7.6 million tons. James River also expects production from the Illinois Basin to range from 3.1 million to 3.2 million tons, compared with an earlier estimate of 3.6 million tons.

“Beyond our existing contract portfolio, at current market prices, we would lose money on every additional ton sold,” James River Chief Executive Peter Socha said in a statement. “This is not acceptable. However, running the mines at a less than optimal level will cause an increase in our cash costs per ton. We expect this increase to be temporary and to be reversed as we increase production in the future.”

Not everyone is cutting back.

A small Maryland-based outfit called KWV Operations told the Logan Banner newspaper that it plans to open two new underground mines in Logan County that would employ as many as 80 people.