- Alliance says used equipment helped it shrink capital costs
- Miners can cut costs by 29% using secondhand wares: Blackacre
Some of America’s coal producers are doing what anyone else might do when faced with tough times and the need to shop: They’re hitting the thrift stores.
Coal producer Alliance Resources Partners LP said last week that buying secondhand mining equipment has helped it cut maintenance costs. Murray Energy Corp. says it’s buying used parts “from time to time” while rebuilding its own. With more than 400 mines shut in the last five years, pre-owned machinery is selling at the lowest prices in decades. That gives miners with money the chance to shrink production costs by almost a third, according to consulting firm Blackacre LLC.
Shopping for secondhand deals and stripping down used equipment for parts has become “critical” to coal producers weathering an unprecedented industry downturn, said Douglas Blackburn, owner of Richmond, Virginia-based Blackacre. “It’s part of a strategy people are using to help keep capital expenditures down.”
The bargain hunting illustrates the toll that coal’s slump is taking on equipment manufacturers, with Caterpillar Inc. cutting thousands of jobs. It also underscores how desperate the nation’s miners are to avoid going out of business. Alpha Natural Resources Inc., Patriot Coal Corp. and Walter Energy Inc. have sought bankruptcy protection this year as miners compete for a rapidly shrinking share of the U.S. power market.
Utilities are set to burn the least coal at power plants this year in a quarter-century.
Caterpillar’s truck production may fall by as much as 90 percent as the slump has customers using existing equipment for longer than ever, the company said Oct. 22. The biggest manufacturer of construction and mining machinery said in September that it would cut as many as 10,000 jobs over four years in response to the energy and mining slowdown.
“We haven’t seen that dramatic of an extension in the life cycles ever,” Caterpillar Chief Executive Officer Doug Oberhelman said Oct. 22. “Our trucks and fleet have continued to operate without replacement and frankly, with a very extended aftermarket and product support levels, as miners are doing what they need to do to reserve cash.”
In his 40 years of dealing mining equipment, Maurice Matson, owner of Matson Machinery Co. in Scott Depot, West Virginia, said he has never seen bargains so good. A 2006 CaterpillarD11R dozer once worth $325,000, for example, may sell for as little as $110,000.
Todd Cushman, international sales coordinator at Phillips Machine Service Inc. in Beckley, West Virginia, said used part sales spiked as much as 20 percent after the market soured. Closures and bankruptcies have since led to a supply glut.
Alliance said in January that it had agreed to buy mining equipment, coal reserves and the rights to some coal supply agreements from Patriot through subsidiaries.
“There is plenty of surplus equipment” in the market, Alliance Chief Executive Officer Joseph Craft said in a call with investors Oct. 27. “We still have equipment that we purchased from the Patriot transaction. It’s assisting us in our capital.”
Foresight Energy LP, an Illinois Basin producer that Murray holds a stake in, said Oct. 29 that access to Murray’s operations will allow it to cut repair and maintenance costs on equipment.
“Trucks are being cannibalized for parts,” Mike DeWalt, Caterpillar’s vice president of finance services, said Wednesday at the Goldman Sachs Industrials Conference in Boston, adding that mining trucks need to be rebuilt every few years.
It’s a thrifty strategy that coal miners may need to keep up through next year. The U.S. government has projected demand for the fuel will fall another 3 million tons. Which miners will supply that shrinking market will depend on who can produce at the lowest cost, Matson said.
“The silver lining,” Matson said, “is that some of your competitors shut.”