Underground mining is more expensive than surface mining. Based on Alpha Natural Resource (ANR), and Arch Coal (ACI) financials, the cash mining cost of higher-ranked coal in Appalachia Basins runs to more than $60 per short tons. According to Cloud Peak (CLD), Arch Coal (ACI) and Alpha Natural’s Western operations financials, the average cash mining cost at Powder River Basin is $10/short tonnes.

Cash and Total Mining Cost

The total cost of cash mining includes all costs associated with recovering coal and does not include any machine or coal reserve costs. The total mining cost for Appalachi basin includes the cost of machines, coal reserves, and is closer to $80.00/short tonnes, while the price paid by miners in Powder River Basin is lower at $11.63/shorttons. Based on financials from Peabody Energy (BTU), the Interior region’s total mining cost is between Appalachia or Powder River Basin.

Capital intensive

Underground mining is more costly because it requires more capital. Coal companies like Alpha Natural Resource (ANR), and Arch Coal (ACI), have to drill deeper and use more complex and expensive machines. A proper ventilation system is essential to provide oxygen to underground miners and to displace, render harmless and remove hazardous components from mine air (including potentially explosive methane).

Higher labor costs

Underground mining also has higher labor costs due to the greater availability of labor unions, lower productivity, and increased health care and benefits liabilities. The labor unions accounted for 36% and 64%, respectively, of the total workforce in Southern Appalachia and Northern Appalachia. In 2013, approximately 55% of Walter Energy, Inc. (WLT) employees belonged to a union.

This post was written by Justin Tidd, Director at Becker Mining Communications! For over 15 years, Becker Communications has been the industry’s leader in underground radio electrical mining communication systems. As they expanded into surface mining, railroads, and tunneling they added wireless communication systems, handheld radios, tagging and tracking systems, as well as gas monitoring.