Coal Baron Plans Colombia Expansion Defying Years of Low PricesAndrew Willis and Tim Loh
Murray Energy Corp. plans to increase output at the Colombian coal mines it bought from Goldman Sachs Group Inc. this month, betting it can lower costs enough to withstand the prospect of several more years of low prices.
The U.S. coal producer founded by Robert E. Murray intends to push up the annual output rate at the La Francia mine in northern Colombia to 3 million tons by the end of the year from about 2.5 million tons now, Murray said in a telephone interview Monday from his headquarters in St. Clairsville, Ohio.
The industry is in a “very distressed and dangerous condition,” with low prices set to last through the end of 2017, he said. “Murray Energy has done its planning to contend with and compete in this depressed market.”
The fourth-generation miner is expanding abroad as U.S. producers grapple with a glut of cheap natural gas that upended the fuel’s dominant position in power production, a trend being hastened by tougher environmental policies. At the same time, China has curtailed coal imports, catching some of Murray’s U.S. rivals off guard after they invested billions to increase their footprints earlier this decade when prices surged.
The 75-year-old, who is also the company’s chief executive officer, is the U.S. coal industry’s most outspoken critic of President Barack Obama. A denier of climate change, he’s a frequent guest on cable TV programs and at industry conferences where he regularly blasts Obama’s environmental policies that he views as anti-coal. In announcing the purchase of Goldman’s CNR unit in Colombia, he said things have gotten so bad that’s he’s now looking to international markets.
After tackling La Francia in Colombia, the company will evaluate El Hatillo, which isn’t producing, Murray said. It will then assess three undeveloped deposits acquired as part of the CNR deal, said Murray, who visited the mines last week.
CNR failed to comply with a Colombian government regulation requiring direct loading in ports from January 2014, rather than using barges and cranes. The current arrangement of trucking coal to the Carbosan terminal in Santa Marta port is unsustainable, Murray said.
“We are working on a number of potential possibilities to resolve this prohibitively costly situation,” he said. Building direct-loading facilities in CNR’s port is on the list, although that’s a “costly option,” he said.
A benchmark for steam coal delivered to Europe, Colombia’s main buyer, slumped 31 percent in the past year. Colombia’s coal output fell 3.5 percent to 22.4 million tons in the second quarter. As well as port constraints, CNR’s output was cut by a series of protests in recent years. There are no labor issues currently at the mines, Murray said.
While several producers have idled complexes, cut production or even filed for bankruptcy amid the coal slump, Murray has expanded through acquisitions. In late 2013, he bought the West Virginia operations of Consol Energy Inc. for $3.25 billion. Earlier this year, he bought a stake in rival Foresight Energy LP, which operates in Illinois.
Yet Murray, who says he plans to be the “last man standing” in U.S. coal, isn’t immune to the challenges facing the industry. In a presentation to bondholders this month, the closely held company lowered its 2015 earnings outlook, according to people with knowledge of the matter. Its bonds have tumbled this year, pushing up yields to 34 percent.
Murray said he’s hopeful that Obama’s environmental regulations will be rolled back under the next president.
“None of them were acted upon by Congress,” he said. “He did them all illegally.”
While he’s talked to candidates for the 2016 presidential race, he declined to name a favorite. He did, however, specify someone he doesn’t want to see in the White House.
“It has to be a Republican,” he said. “Hillary Clinton, the Democrat, has always said she would continue Obama’s policies.”
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