Coal Mining
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Industry Overview
The US coal mining industry includes about 1,000 companies that operate 1,500 mines, with combined annual revenue of $25 billion. Large producers include Peabody Energy, Arch Coal, and Massey Energy. After strong consolidation during the last decade, the 10 largest companies hold about 65 percent of the market. The typical company operates a single mine. The size of mines varies considerably, but a large operation produces more than 1 million tons of coal per year.
Competitive Landscape
Demand comes mainly from generators of electricity. Profitability depends on efficient operations, as the product is a commodity sold on the basis of price. Small companies can compete if they hold long-term contracts or if they supply local customers. Big companies have large economies of scale in production and distribution. The industry is capital-intensive and highly automated: average annual revenue per employee is almost $300,000.
Products, Operations & Technology
Bituminous coal is the major product but comes in many grades of heat value and with different impurities like sulfur. Low-grade coals, like peat and lignite, have a low heat value, a high moisture content, and high residual ash when burned. Anthracite is the highest-grade coal, with a 95 percent carbon content, but is found in only a few areas in the US. Bituminous coal is the most plentiful, with a moisture content less than 20 percent, and heat values that range from 8,000 to 14,000 BTUs per pound. Coal usually contains various contaminating materials, the most important of which are sulfur and various metals. When coal is burned, any contaminants end up either in the air (sulfur and mercury) or in the ash (heavy metals).
Coal is produced either from underground or surface mines. The Powder River Basin in Wyoming contains the largest surface mines. In underground mines, coal is removed using either room-and-pillar or longwall mining techniques. Surface mines use large machines called draglines to remove the earth and rock (the "overburden") that covers a coal seam, after which giant excavators, shovels, and loaders remove the coal. Many mining operations include preparation plants where the coal is crushed to the proper size for customers, so that the delivered product can be used directly.
Surface mining is cheaper and safer than underground mining. Excavating costs at surface mines are about 30 percent less on a per-ton basis, but yield coal that sells for about half the price of coal from underground mines. Large surface mines can produce up to 100,000 tons of coal per year per employee. Operators sometimes own the land they mine, but most often hold leases that allow them to remove the coal in exchange for royalty payments. Some operators mine coal under contract to the owners. The value of a mine depends on the amount of recoverable reserves it contains.
Because coal is bulky and costly to ship, transportation from mine to customer is an important consideration, as customers usually pay those costs. Since it is cheaper to move electricity than coal, utility companies, the primary coal customer, often locate generation facilities close to mining areas. About 50 percent of coal is moved by rail, while barges, trucks, slurry pipelines, and conveyor belts move the rest. Coal that will be shipped by rail is fed into giant silos, which can precisely load a constantly moving train of 100 hopper cars in less than an hour.