Mountain Coal Company received good news last week that a royalty rate reduction for a portion of the coal mined at the West Elk Mine near Somerset will be continued for another five years.
The Bureau of Land Management announced Friday that a royalty rate reduction (RRR) has been extended five years, effective from Feb. 1, 2015. The rate reduction from 8 to 5 percent makes it likely that the mine, with 200 plus employees, will be able to economically produce coal from the federal lease area.
A layer of rock and poor quality coal was encountered as Mountain Coal began to mine coal from what is known as Seam E at the West Elk Mine. This geological condition, known as a split in the seam, makes it more expensive to safely extract and prepare the coal for market.
The BLM anticipates the RRR will apply to approximately 33 to 40 percent of all coal produced from the leases in effect at West Elk Mine. It estimates the RRR will apply to approximately 10.2 million tons of coal produced over the five year period the RRR will be in effect. Total mine production during that period is expected to be 25-30 million tons.
"We appreciate the strong support from both the Bureau of Land Management and the Governor's office," said Logan Bonacorsi, spokeswoman for Arch Coal, the parent company of Mountain Coal Company. "West Elk is an efficient and technologically advanced mine with a highly skilled workforce, and a cornerstone of the North Fork's economy. Today's action will help West Elk remain competitive while optimizing recovery of an important public resource."
The decision was a long time coming. Mountain Coal applied to renew the RRR in January 2015. The initial RRR was granted in 2012, effective Feb. 1, 2010. The renewal application was evaluated by the BLM is assure the geologic condition continued to exist, and because the RRR impacted state tax revenue, was reviewed and approved by Colorado governor John Hickenlooper. Earlier this year, local municipalities were asked to send letters of support for Mountain Coal's application to the governor's office.
The royalty from coal production is divided between the federal and state governments. The state distributed its portion to a variety of funds, including a portion back to local municipalities based on the number of employees living in the community.
Although the split will likely continue to affect operations for the remainder of the mine life, the BLM limits the RRR to a five-year period. This allows the BLM the reevaluate the need for the royalty reduction on a periodic basis.