Mining officials hope for longer lease on life for West Elk Mine

Asking for county support

Officials from the West Elk Mine have asked the Gunnison County commissioners to support a number of initiatives that would extend the life of the Somerset, Colo. longwell mine. Mountain Coal Company, a subsidiary of Arch Coal, is seeking a royalty rate reduction on parts of its existing lease and pursuing lease modifications that would extend mine operations from 2019 until 2023.
Conditions encountered within the mine have made it more costly to conduct operations in some places, prompting the mine to ask the Bureau of Land Management for a reduction in the royalty rate to 5 percent from 8 percent. Mine officials met with the county commissioners at a work session on April 24 to explain the request.

“Under federal guidelines in the Mineral Leasing Act, companies such as ours can apply for a reduction in royalty rates paid on the coal produced if there is significant justification for it,” said Wendell Koontz, senior mine geologist at Mountain Coal.
“So the basic justification is the increase in production costs because of the geology? It becomes less financially viable unless you get a break?” asked Commissioner Hap Channell.  
“Correct,” Koontz said. He added that the financial impact of the reduction would be a loss of $3.1 million in federal royalties, and $1.75 million coming back to the state. While he could not provide exact numbers for Gunnison County—the state does not report how much money goes from each mine to each county—the change would allow the mine to expand elsewhere. “This break on the royalty rate will help us develop further east and do a greater resource recovery,” he continued.
“So it is perhaps an annual reduction in fees, but you get it over a longer period of time,” Channell confirmed.
According to data from the Mountain Coal Company, in 2011 the mine produced 5.9 million tons of coal, with a gross sales value of $204.1 million. Of that, $25.5 million went toward payments like property taxes, Colorado’s severance tax and federal royalties. The state of Colorado saw $12.4 million.
The West Elk Mine is also requesting modifications to existing coal leases from the U.S. Forest Service. In response to the 2009 application, the Forest Service issued a consent to lease in 2011 with a Finding of No Significant Impact (FONSI) after conducting an environmental assessment. That decision was immediately challenged by the environmental group EarthJustice, eventually leading to a decision to conduct a full Environmental Impact Statement.
Mine officials expect it will be at least a year before exploratory drilling can begin, but indicated that the modifications would allow the mine to recover an additional 26 million tons of coal—preserving 378 jobs and generating an estimated $74.9 million in royalties and $6 million in severance taxes.
Koontz asked the commissioners to write three letters of support, one for the lease modification, one for the rate reduction and one in support of the Colorado Roadless Rule, which allows temporary roads to be built for mining. The federal roadless rule would prohibit such construction and make the lease modifications impossible.
The Board of County Commissioners must wait to weigh in on the rate reduction until the state requests input, but they have added the consideration of draft letters regarding the Colorado Roadless Rule and the lease modifications to their next regularly meeting on Tuesday, May 1. They gave no indication of their level of support.