Utah Energy Office addresses mineral leasing trend concerns

By Sun Advocate

Current mineral leasing activity in Utah reflects the gradual consolidation of operators and the depletion of readibly mineable coal in Utah.
The trends suggest state and federal agencies should consider monitoring the economic, technological and regulatory conditions under which mines operate, indicated the Utah Energy Office’s latest coal review and production forecast.
Aside from existing leases, a diminishing number of larger tracts of coal are available for new production. But for most of the tracts, environmental studies and/or lease coal stipulations will require years of lead-time.
According to the state offices, it is important to note that Utah’s high mine productivity relies upon modern longwall equipment that is viable only with large, relatively clean coal seams.
A number of coal operators and consumers have expressed concerns about the lack of tracts large enough to support economical longwall mining while yielding coal sufficiently low in sulfur and sodium.
The fact that the leasing and permitting process is complex, time-consuming and often subject to severe restrictions on surface facilities leaves operators with the relatively constrained option of extending existing underground operations.
Three tracts of Utah School and Institutional Trust Lands Administration (SITLA) land are of growing interest: the Muddy, North Horn and Cottonwood.
The tracts were transferred in part to SITLA as a result of coal reserves exchanged during the creation of the Grand Staircase Escalante National Monument.
The transfer agreement provided that SITLA would collect $13 million in coal royalty payments on the Cottonwood tract before reversion to federal control.
For the North Horn tract, 100 million tons of coal could be extracted before the property reverts to the federal government.
For the Muddy, in combination with a newly leased Dugout Canyon tract, the tonnage total would be 34 million before reversion.
Environmental data are being gathered on the North Horn and Muddy tracts, explained the state energy office.
There is a question whether a formal environmental impact study (EIS) would be invoked under provisions of the National Environmental Policy Act (NEPA); however, at the very least, such work would have to be done as part of any mine plan approval.
Three years of baseline environmental evaluation should become available by spring or determining what stipulations would appear in lease agreements between mine operators and SITLA, the office reported.
EIS compilation for the Muddy tract is being expedited on behalf of Canyon Fuel Company’s interest in smoothing the eventual transition from the Sufco mine as reserves in the Pines area are gradually depleted.
The Grand Staircase exchange agreement does not preclude the United States Bureau of Land Management from simultaneously leasing other coal reserves, particularly if doing so could create parcel aggregations large enough for efficient longwall mining, added the state energy office.
The Cottonwood tract, located in the Trail Mountain area, began as a 1991 lease by application (LBA) by PacifiCorp for the company’s now-closed Trail Mountain mine, with access to occur through the Deer Creek.
Coal would be carried across the canyon to the old Cottonwood mine loadout.
More recently, industry speculation suggests that PacifiCorp owner Scottish Power may be reconsidering the mining assets, perhaps focusing more closely on the company’s core business of generating power, indicated the state energy office.
Genwal was outbid by PacifiCorp for the Mill Fork tract and will need a replacement for the diminishing Crandall Canyon reserves.
Concern has been raised that mining the Cottonwood tract could affect the integrity of Joes Valley dam.
Seismic shaking or “bouncing” routinely results as underground coal is removed and the roof is allowed to collapse as the miners’ retreat.
A draft U.S. Forest Service EIS will be released in 2004 that evaluates various options for dealing with the risk, added the coal review and forecast report compiled by the Utah Energy Office.
Unlike Cottonwood and Muddy, North Horn is not adjacent to existing facilities and will require an entirely new mine operation as well as more development lead-time.
Tonnage and royalty estimates were made at an earlier time when less was known about the reserves, noted the state energy office. It is possible that, due to a variety of geologic, environmental and evolving market factors, these tracts may be able to produce more or less than the amounts provided by the agreement.
The Cottonwood coal tract was conveyed to SITLA by a federal land exchange in 1998. The tract reverts to federal control after $13 million in royalties are received by SITLA.
The North Horn coal tract was acquired by SITLA in 1998. The tract is of special interest because it is not captive to a mine and may attract greater competitive lease interest.
North Horn contains one of the largest untapped coal reserves in the Wasatch Plateau, but may be tainted by high levels of sodium.
The BLM retains confidential data on North Horn coal which could aid in determining the market value of the mineral, indicated the energy office.
Coal beds in the North Horn extend further west than the tracts acquired by SITLA in the 1998 land swaps and present a target for potential future exchanges.
The Muddy coal tract was acquired by SITLA in 1998. The Muddy is located on the southern end of the Wasatch Plateau and may be captive to Sufco mine, operated by Canyon Fuel Company.
Canyon Fuel recently completed a series of exploration drill holes in anticipation of leasing.
SITLA plans to offer the tract for competitive bid for lease as other reserves in the area are depleted.
Aside from the Cottonwood, North Horn and Muddy, there are few other readily viable coal tracts available for near-term leasing in the Wasatch Plateau.
The situation could change if new technology allows confident mining at depths below current practice or about 2,800 feet of overburden.
Small tracts of coal in the San Pitch Mountains and Ferron Canyon area might be viable for exploitation, but only by continuous miner equipment.
Severe faulting and other geologic problems make longwall panels uneconomic.
SITLA controls more than 115,000 acres of coal-bearing land in Utah, which contains more than 607 million tons of recoverable coal.
Most of the active SITLA coal fields are in the Wasatch Plateau, totaling almost 31,000 acres.
An additional 11,650 acres of active fields are found in the Book Cliffs.
Inactive SITLA coal holdings are found in Northern Castle Valley, Joes Valley, Henry Mountains, Kolob, Alton and Kairparowits Plateau coal fields. The tracts total more than 72,000 acres and contain about 380 million tons of coal.
SITLA leases involve Crandall Canyon, Bear Canyon, Dugout Canyon and West Ridge, which are all active Utah mines.
A SITLA lease for the Soldier Canyon mine is no longer active, and the mine has been closed due to operational problems, pointed out the state energy office.
A recent lease to West Ridge augments the existing seven million tons in the tract under a previous option. The deal was part of an approved mine plan.
In addition, SITLA has unleased land in the Lila Canyon area of the Book Cliffs.
Other SITLA leases with Andalex are not yet in production at West Ridge mine due to environmental opposition that has resulted in additional review by the Utah Division of Oil, Gas and Mining.
Discussions between SITLA and various entities continue on a variety of potential new leases, but no new agreements have been announced.
A coal interest in the Dugout Canyon coal tract was acquired by SITLA pursuant to the Utah schools and federal land exchange in 1998.
The Dugout Canyon tract was offered for lease in late 1999 and a lease agreement with Canyon Fuel Company was reached in September 2001.
Development of the new portion of the Dugout Canyon mine may begin as early as 2005 with construction of entries, indicated the energy office.
Willow Creek contains the oldest active coal leases on Utah trust land.
Mines in the area have struggled with gassy conditions that have caused two fires on federal lands. The mines are now closed.
The West Ridge coal tract was acquired by SITLA t in 1998 by fee title. According to the energy office, the land will not revert to the federal government.
The Mill Fork coal tract was acquired in 1998. Only the mineral interest was acquired and reverts to the federal government after 22.3 million tons of coal have been produced.
In 1999, PacifiCorp successfully bid $25 million for the lease. Mill Fork contains two mineable seams, the Hiawatha and Blind Canyon.
PacifiCorp had plans to access the coal through the nearby Deer Creek mine, asserted Utah’s energy office.
The BLM and SITLA are in the process of reviewing resource recovery and protection plans submitted by PacifiCorp.
The federal coal lease was recently amended to improve access by abutting the property line against the Mill Fork tract. PacifiCorp continues to drill the property to better characterize its geology. Mining is expected to begin in 2004.
The Emery coal tract was created by aggregating SITLA sections received upon statehood with six non-SITLA sections acquired in 1984, totaling more than 5,400 acres of coal-bearing territory.
Drilling indicates up to 13 coal beds that are generally thin and may be high in ash, sulfur and moisture, concluded the state energy office.