Warrior to invest $700m in new US met coal mine
Wednesday, May 4th, 2022
Warrior Met Coal announced that it was relaunching development of its Blue Creek reserves into a new longwall mine, located in Alabama near its existing mines.
Previously, the company delayed the development of the Blue Creek reserves, owing to uncertainty over Covid-19, as well as market conditions amid a labour strike at the time.
“Blue Creek is truly a world-class asset and our commitment to this new initiative demonstrates our continued, highly focused business strategy as a premium pure-play met coal producer,” said CEO Walt Scheller.
The Blue Creek development will be a single longwall mine and is expected to have the capacity to produce an average of 4.8-million short tons a year of premium high-vol A met coal over the first ten years of production.
Warrior noted it was one of the last remaining large-scale, untapped premium high vol A met coal reserves in the US.
Once fully developed, the company expects Blue Creek to increase Warrior’s yearly production capacity by 60% and expand its product portfolio to its global customers, by offering three premium hard coking coals that are expected to achieve the highest premium met coal prices in the seaborne markets.
The company will invest between $650-million and $700-million over the next five years to develop Blue Creek with expected spending in 2022 of about $45-million to begin the project.
CFO Dale Boyles said that Warrior would fund the 2022 capital expenditure requirement from internally generated cash flow and cash on hand.
“We plan to be opportunistic in evaluating funding alternatives for Blue Creek, which we view as manageable given our current liquidity position and ability to utilise existing free cash flow and equipment financing.”
Warrior’s strong cash flow generation and current available liquidity, as well as the ability to finance $120-million to $130-million of capital expenditures through equipment leases, allows the company to be opportunistic as it evaluates funding options for Blue Creek with the goal of maintaining an efficient and low-cost capital structure.
Using an assumed met coal price of $150 a metric ton, the projected net present value is about $1-billion over the life-of-mine (LoM) with a projected after-tax internal rate of return of nearly 30% and an expected payback of two years from initial longwall production.
Based on the current schedule, Warrior expects the first development tons from continuous miner units to occur in the third quarter of 2024 with the longwall scheduled to start up in the second quarter of 2026.
Warrior controls about 70-million short tons of recoverable reserves and 49-million short tons of resources at Blue Creek, which totals more than 119-million short tons. Warrior could acquire adjacent reserves that would increase total recoverable reserves at the mine. The inclusion of all coal reserves, resources, and adjacent properties would extend the LoM reserves to about 170-million short tons.
Under this expanded mine plan, Blue Creek is expected to have a mine life of about 50 years assuming a single longwall operation.