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Patriot Coal Warns of Possible Mine Layoffs in Western Kentucky

Last week, 670 coal miners at two large Western Kentucky mines were issued notices warning them that there could be mass layoffs early next year. Maybe. Federal law requires them to issue these notices under the Worker Adjustment and Retraining Notification Act (WARN) 60 days before any action, but the range of actual events could include anything from nothing to complete mine closures.

The mines in question are two large Patriot Coal mines—Highland and Dodge Hill. They’re the only mines the company operates in Western Kentucky. In a press release about the WARN notices, the company said multiple factors were causing the operations to be less competitive:
Low natural gas prices, together with EPA regulations designed to curtail low-cost coal-fueled energy, continue to drive down thermal coal prices, resulting in operating losses at many mines across the United States.  Management is evaluating various strategic options for Highland and Dodge Hill that may result in substantial workforce reductions within the next 60 days.
Though Eastern Kentucky coal has taken a pummeling over the past few years, shedding thousands of jobs, Western Kentucky coal employment and production have both slightly increased since 2000. That area of the state is part of the Illinois Basin, which has traditionally produced cheaper, higher-sulfur coal than what’s found in Central Appalachia.

Because Western Kentucky coal employment has held steady even while Eastern Kentucky mines have closed, the WARN notice came as a surprise to many. It could expire without any layoffs at all. That’s what happened earlier this week at some Alpha Natural Resources mines in West Virginia.

But if not, and layoffs or mine closures ensue, does this mark the beginning of a decline in Western Kentucky coal?

Analyst James Stevenson said no, not really. Stevenson is an analyst for IHS Global Insight. He said structurally, not much has changed. Power plants that want to continue to burn coal are switching to the cheaper Illinois Basin mines. But more and more coal mines in the region now longwall mines, which is a method of underground mining. And Patriot’s two operations use what’s known as a“continuous miner.”

“The only real structural thing is that a higher and higher percentage of mining in the Illinois Basin is coming from longwall mines,” Stevenson said. “If you have a continuous miner, that’s more expensive than longwall. And insofar as there’s kind of competition between Illinois Basin mines, a longwall will win every time.”

So, Patriot’s Highland and Dodge Hill mines are facing more competition from cheaper coal in their own basins. To add to that, Stevenson said barge rates are up, so it’s less feasible right now to try to send excess coal to Europe.

But overall, he said even if Highland and Dodge Hill close, he’s projecting an increased demand for Illinois Basin coal over the next decade.

“You’ll see perhaps some erosion in the more expensive Illinois Basin mines, but for the most part, the demand for Illinois Basin coal has been rising enough to keep all of them running,” he said. “Illinois Basin in aggregate is going to grow for the next 5-10 years. And then a decade or so of stability, and after that, decline. And that decline is driven by domestic retirements and decline of European coal demand.”

Even if the big-picture outlook hasn’t changed for Western Kentucky coal, if Patriot lays off workers at Highland and Dodge Hill, it’ll be a blow. Ironically, some of those coal miners were already laid off from Eastern Kentucky mines; Patriot held a series of job fairs in the eastern coalfields last year to actively recruit experienced miners for positions at the Highland Mine.


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