Feds say 21 cents (per ton) bid for Powder River Basin coal is too low

— September 18, 2013

On the heels of the first ever no-bid on a federal Powder River Basin coal lease in August, federal officials announced Wednesday that a 21-cents per ton bid for another coal lease was rejected for not meeting fair market value.

Kiewit Mining Properties, Inc., with operates the Buckskin mine north of Gillette, had submitted a bid of $35.07 million — or 21 cents per mineable ton — for the Hay Creek II coal lease tract. The U.S. Bureau of Land Management, which manages the nation’s publicly-owned coal resources, said it rejected the bid for not meeting its estimated fair market value.

The action should please environmental groups, particularly Greenpeace, Sierra Club, WildEarth Guardians and others who wrote a letter to Kiewit Mining Co. executives asking them to “heed the growing financial, environmental, and reputational risks of expanded coal mining and decline to bid for the Hay Creek II tract.”

The groups issued a press release after the BLM’s announcement that it reject the bid.

“Kiewit’s rock-bottom bid is more evidence that coal markets are undergoing a radical transformation. The U.S. is moving away from coal in favor of cleaner energy, so the coal mining industry is wary of dumping big money into mines oriented to meet domestic demand,” said Kelly Mitchell, Greenpeace senior climate and energy campaigner.

The groups contend that the BLM is vastly underpricing Powder River Basin coal in lease sales — the subject of a U.S. Government Accountability Office investigation. They also claim the collection of federal royalties — particularly for volumes of coal that are sold overseas — is outdated and shortchanges the public.

For obvious reasons, BLM officials are not going to say how far Kiewit’s 21 cents per ton bid was off the mark compared to the agency’s fair market value calculations. But I asked Wyoming BLM spokeswoman Beverly Gorny whether the fair market value calculation for the Hay Creek II lease had changed drastically in the years or months leading to the competitive sale.

“I don’t know the answer to that question, truthfully,” Gorny said.

Gorny suggested that trying to draw parallels to the Hay Creek II lease by application (rejected at 21 cents per ton) and the Maysdorf II North coal lease by application (which attracted no bid) is comparing to apples to oranges. The coal tracts have different Btu values: Hay Creek II north of Gillette is lower, 8,297, while the Maysdorf II North tract south of Gillette has a slightly higher Btu value. The two tracts differ in volume, coal seam thickness, geology, and many other factors.

Is the value of Powder River Basin coal falling off a cliff? “I’m not sure we can draw an analysis since we had this and one other coal sale this year,” said Gorny.

In his testimony before a Wyoming legislative committee last month, Wyoming Mining Association executive director Marion Loomis said, “Wyoming producers have little room for increased costs in this market.”

According to recent reports among energy trade publications, the average cost of mining Powder River Basin coal exceeded the average sales price for a period between 2011 and 2013. The average price of Powder River Basin coal was about $13 per ton in 2012, and the average spot price now hovers around $10.30.

“The last year and a half has been challenging,” Loomis told Wyoming lawmakers. “You can see what’s happened to this industry, and certainly the concerns of our industry are evident.”

— Dustin Bleizeffer is WyoFile editor-in-chief. You can reach him at (307) 267-3327 or email dustin@wyofile.com. Follow Dustin on Twitter at @DBleizeffer

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