value of coal in the ground

This Is an old article, as coal was trading at $20 / $30 a Tonne, when It was written. Its long winded but well worth the read. Im hopping that CCC can be the next SIR


Mineral Economics 2: The Value of Coal in the Ground

The value of coal on the ground is easy to assess; it is published in the Wall Street Journal, and can be viewed on a number of Web sites. Depending upon quality, it can sell for between $20 and $30 per ton. It is simply determined by how much the buyer is willing to pay, and the expenses incurred by the seller to produce and deliver it. However, the value of coal in the ground is a much trickier thing to determine. The price of coal in the ground depends upon four basic factors: 1) thickness of the seam, 2) quality of the coal, 3) location of the deposit, and 4) the ease of access to the property and seam.

The amount paid per ton of coal generally ranges from $0.50 to $3.00. The exact amount depends upon the four factors discussed above: seam thickness, coal quality, location of the deposit, and ease of access. A property with a shallow, six-foot thick coal seam, containing high quality coal that is close to markets and easy to access, might receive a royalty of $3.00. Royalties of $0.50 are paid for those properties with deep coal seams of marginal thickness, containing lower quality coals, and located significant distances from coal consumers. Royalties of $0.50, or even less, are also paid for coal properties that are owned by foolish people. These people failed to research the potential value of their property, or to get expert advice on how much their property is truly worth.
Seam Thickness

The thickness of a coal seam plays an important role in determining the value of a coal property. To start, the coal seam must be at least 24 inches thick to be considered for surface mining. It is not worth obtaining a permit, clearing the land, and then reclaiming, if the seam is of insignificant thickness. Beyond this limitation, thicker seams will always be more attractive than thin seams, all other factors being equal.

In deep mining, there must be at least 30 inches of coal for equipment and people to be able to work in the mine. Seams below 30 inches in thickness will normally not be considered for mining. In general, the thicker the coal, the easier it will be to produce and make a profit.

Finally, the coal must be free, or nearly free, of shale layers. Look at the continuous miner illustration and see how the mining height of the seam is confined to the thickest shale-free unit. Shale does not burn, it detracts from the heating value and results in excess ash left behind after the coal has burned. Seams that are free of shale layers are always the preference.

Coal Quality

The best coals are low in sulfur and high in heating value. Low sulfur coals contain less than 1% sulfur. These coals are highly desirable and sell for a premium price. However, coals with sulfur contents over 3% are very difficult to sell. They require processing or emissions cleaning to be burned within the limits of government regulations. These general rules on sulfur content and coal value hold in just about any area where coal is produced.

The heating value, or BTU content, of a coal depends mostly upon its rank, ranging from about 7200 BTU/pound for lignite, up to about 15500 BTU/pound for anthracite. Within an area as small as a couple of counties, the range of heading values to be found is generally quite limited. This is because the factors that determine the rank of a coal are generally regional in scale.

Location of the Deposit

The best location for a coal mine is right next to the facility that will burn the coal. This eliminates transportation charges, which can be significant when hauling a bulk commodity like coal. In general, the closer the coal property is to the coal consumer, the greater the value of that property.

A second factor about location is also important. That is the type of transportation that is available between the coal property and the coal consumer. The least expensive means of transportation is by barge on a navigable river. Railroad transportation is slightly more expensive than barge transportation, and truck transportation is the most expensive of all.

All other factors being equal, a coal property with a transportation advantage over competing producers will always command a premium price. However, even if barge or rail transportation is available, they will not be important considerations if the coal consumer does not have access to them.

Ease of Access

How easily a coal property can be reached and developed is very important in determining its value. Properties that are near paved roads, on flat land, and where the seam is shallow are easy to access. Remote locations, steep terrain, and extremely deep seams are the most difficult and expensive to develop.