The USA’s largest operator of longwall mines has signalled it will aggressively acquire "weaker" coal producers during "the worst coal market in recent memory" as it seeks to apply its lean and mean — but above all profitable — operating approach to more quality coal assets. CONSOL Energy president and chief executive officer J. Brett Harvey also indicated the company would continue to expand production at its longwall mines, already among the world’s largest, as it maintained its focus on productivity and cost improvements.

The very private Pittsburgh-headquartered CONSOL, formerly Consolidation Coal, became a publicly traded company at the end of April, 1999. It has 24 mines, located mainly east of the Mississippi River, and uses high-production longwalls at 13 of its underground mines — the highest number of longwalls operated by a US coal producer. CONSOL says it operates half of the USA’s 20 most productive longwall mines (producing 2.7 million tonnes per annum or more), and seven of the nation’s 20 largest underground coal mines.

Its total 1998 coal production was about 69 million tonnes. The company reported net income of $US40 million from its coal business for the six months ended June 30, 1999, down significantly on the $US106 million recorded for the same period in 1998. CONSOL said the drop was due to a decline in coal prices and an increase in its production costs.

In a recent presentation to investment analysts in the US, Harvey said coal demand in the US had risen through the 1990s and had actually increased its share of the overall domestic energy market despite growing environmental pressures on the use of some fossil fuels. At the end of last year it had 56.3% of the market, compared with 44.2% in 1978. However, demand early in 1999 was hit by a "confluence of factors", including warmer winter weather, low oil and gas prices, higher use of nuclear energy, and weak export markets. This had created the worst coal market in 10-15 years, causing inventories to rise and prices to be squeezed.

"At CONSOL Energy we reacted by idling several mines — generally smaller, less efficient mines," Harvey said. The strategy had seen the company’s inventories drop by more than 50% by the end of 1999. With a summer heatwave in the US helping to reduce customer stockpiles, oil and gas prices rebounding strongly, and continued strength in the US economy, the second half of 1999 produced more encouraging signs for CONSOL and the country’s other beleaguered coal miners.

Unlike some of America’s other big coal producers who exited the business, such as Cyprus Amax and ARCO, CONSOL sees opportunities to grow during difficult times.

"CONSOL Energy’s position is not unlike Alcoa’s in the aluminium business," Harvey said. "A strong player looking to acquire a weaker one. We’re looking to make significant acquisitions by taking advantage of our financial strength. And we’ve shown that we can create value in an acquisition."

Harvey gave the example of the Rochester & Pittsburgh Coal Company acquired late in 1998 for $US150 million. He said RPCC’s Mine No.84 in the Northern Appalachian region had become profitable under CONSOL’s management, the mine was among the largest and most productive underground complexes in the US, and contiguous reserves had also been acquired, boosting the mine’s projected lifespan from seven years to 30 years. The mine was expected to produce more than 5.4 million tonnes in 1999.

"Our operating strategy is straightforward," said Harvey. "Increase production from newer, large-scale mining complexes — we’re adjusting staff to be consistent with operating fewer, larger complexes — and reduce output from smaller, high-cost mines."

At CONSOL’s largest mining complex, Enlow Fork/Bailey, which takes coal from the Pittsburgh No.8 seam, four longwalls currently produce close to 20Mtpa of coal, up from less than 15Mtpa two years ago. Belying the massive increase in capacity, and underlining CONSOL’s approach to the coal business, the company’s capital expenditure at the two mines was reportedly less than $US150 million between 1994 and the end of 1998.