Dark as a Dungeon
by
Dale Allen Pfeiffer

Introduction
In the wake of the recent mining tragedies in West Virginia, let’s take a second look at the coal mining industry. As the Twenty-First Century began, the prospect for coal was very bleak. Due to new environmental regulations, electric utilities were turning to cleaner burning natural gas, which was perceived to be cheap and abundant. Hundreds of new natural gas power plants were being built, and many older plants were being converted to natural gas.

Then natural gas prices surged upward as supplies became difficult to obtain. Overnight, the power companies awoke to the truth: natural gas may be abundant in the world, but in North America, production is already diminishing. On top of this, the electrical utilities had to compete for natural gas with the winter heating demand, and the market in natural gas was extremely sensitive to severe weather, whether it be a heat wave in the summer, an unusually cold winter, or hurricanes in the Gulf.

Suddenly, natural gas prices were rising and power utilities began scrambling for alternatives. Given the high price and long construction periods for nuclear plants, and the unreliability and unsuitability of renewables—as well as the problematic infrastructure and the low level of industrial production, the utilities turned back to coal. George Bush stepped in—ever the corporate benefactor—to remove restrictions on strip mining and emissions from coal-based electric generators, and a new boom was on. The price of coal more than doubled as hundreds of coal-burning plants replaced natural gas units on the drawing boards. The new coal boom will likely continue for the next twenty-five years or so before rising costs of mining, inaccessibility of deposits, and declining quality of the ore combine to depress production, resulting in the peak of North American coal production.

But for the present, industry is eager to rip up the Earth and exploit those miners.

King Coal
The world is witnessing the return of King Coal: powerful coal companies whose overarching concern is increased profitability. In 1984, the top five coal companies owned 24% of the market, but today that percentage has risen to in excess of 50%. While coal prices are trending upward, it is far more profitable for coal companies to expand by acquiring preexisting mines. In this way they avoid the headaches and expense of labor contracts, environmental regulations and siting, and building infrastructure from scratch. It is far easier to buy out smaller mining companies and then expand their operations. So the smaller companies lay the groundwork, but King Coal rakes in the profits.

The top ten coal companies operating in the US are:
1. Peabody Energy, with 16.5% of the 2003 US market.
2. Arch Coal, with 14% of the market.
3. Kennecott Energy, with 10.7% of the market.
4. Foundation Coal Holdings, with 5.9% of the market.
5. CONSOL Energy, with 5.5% of the market.
6. Massey Energy, with 3.7% of the market.
7. International Coal Group, with 3.1% of the market.
8. North American Coal, with 3% of the market.
9. Westmoreland Mining, with 2.6% of the market.
10. TXU, with 2.3% of the market.

All told, these ten companies controlled 67.3% of the US coal market in 2003, with the remaining 32.7% split up among the numerous small minnows these big fish will feed on over the years to come.

Note that this list is based upon data from 2003. There have undoubtedly been changes in the three years since. For example, International Coal Group (ICG) would undoubtedly stand much higher in the list today. The 3.1 market share quoted for ICG above is based wholly on their acquisition of bankrupt Horizon Natural Resources. ICG has also acquired the Anker Coal Group and CoalQuest. ICG bears attention as it is likely to continue climbing through the list of top coal companies.

International Coal Group is the latest creation of investor Wilbur L. Ross Jr.. Wilbur Ross is the man who built the International Steel Group by buying off dying companies such as Bethlehem, LTV, and Weirton Steel, making them profitable once more through exploitive labor techniques that would be the envy of Walmart. International Steel Group was then sold off at a major profit to the Mittel Group.

The Mittel Group is an international corporation, with controlling interest owned by the Indian-born Mittel family. Purchase of the International Steel Group made the Mittel Group the world’s number one steelmaker. Will a similar move be in store for US coal resources once Ross has built up ICG to the point that he can maximize his profits? It should be remarked how closely linked the steel industry is to the coal industry.

ICG is a 100% non-union corporation. It remains to be seen if Ross will succeed with some of the other profit enhancing tactics he employed in the steel industry, such as foisting off pension obligations onto the federal government.

International Coal Group’s prospectus states that they are the leading producer of coal in Northern and Central Appalachia, with other operations located in the Illinois Basin. As of January 1, 2005, ICG owned or controlled approximately 315 million tons of metallurgical quality coal reserves and approximately 572 million tons of steam coal reserves. Further, they owned or controlled approximately 707 million tons of coal resources. Reserves are the portion of a mineral deposit that can be economically extracted at the moment of reserve assessment. Resources are quantitatively known mineral deposits that are not economically viable at the moment. Metallurgical quality coal is coal that can be used for making coke, which is essential for iron smelting. Steam coal is primarily consumed by electrical utilities and industrial customers as the fuel for electricity generation.

The ICG stock prospectus also states that the company has a record of “recognized leadership in safety and environmental stewardship.” The prospectus further states that in 2004, the company’s injury rates were “below industry averages.” However, investigative reporter Ken Ward Jr. has noted in the Charleston Gazette that, “All of International Coal Group Inc.’s underground mines in West Virginia have accident rates that are worse than the national average, according to a new review of federal mine safety data.”

The company’s stock prospectus is so egregious that the AFL-CIO sent a letter of complaint urging the Securities & Exchange Commission to investigate the company and its founder, Wilbur L. Ross Jr., for misleading investors. ICG maintains that this letter of complaint is part of a union campaign against the corporation.

ICG should be watched very closely. If their Walmart-style exploitive tactics are allowed to go unchallenged, then they could undercut the coal mining industry just as Walmart undercut the retail industry. Other coal companies would be forced to adopt similar tactics just to stay competitive. The result for mine workers, the general public and the environment could well be disastrous.