UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO_____________
COMMISSION FILE NO.: 0-26823
.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware | 73-1564280 |
(State or Other Jurisdiction of | (IRS Employer Identification No.) |
Incorporation or Organization) |
1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma 74119
(Address of Principal Executive Offices and Zip Code)
(918) 295-7600
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange On Which Registered |
Common Units representing limited partner interests | ARLP | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ | Accelerated Filer ☐ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☐ | |||
(Do not check if smaller reporting company) | ||||||
Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate value of the common units held by non-affiliates of the registrant (treating all executive officers and directors of the registrant, for this purpose, as if they may be affiliates of the registrant) was approximately $745,685,497 as of June 30, 2021, based on the reported closing price of the common units as reported on The NASDAQ Stock Market LLC on such date.
As of August 26, 2022, 127,195,219 common units were outstanding.
Auditor Details:
Grant Thornton LLP |
| 248 |
| Tulsa, Oklahoma |
Auditor Name | Auditor Firm ID | Auditor Location |
Ernst & Young LLP |
| 42 |
| Tulsa, Oklahoma |
Auditor Name | Auditor Firm ID | Auditor Location |
DOCUMENTS INCORPORATED BY REFERENCE: None
Explanatory Note
Alliance Resource Partners, L.P. ("we," "us," or "our") is filing this Amendment No. 1 on Form 10-K/A ("Amended Filing") in order to amend our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, originally filed on February 25, 2022 ("Original Filing"), to provide amended disclosures pursuant to correspondence with the staff (the “Staff”) of the Securities and Exchange Commission ("SEC") in connection with the Staff’s review of new property disclosure requirements for publicly traded mining companies recently implemented by the SEC and reflected in our Original Filing for the first time. The following items were impacted by these amended disclosures and are hereby amended and restated in their entirety:
● | Part I. Item 2. Properties – We (i) modified the disclosure of the coal pricing assumptions used by RESPEC in estimating the amount of coal mineral resources and reserves to provide the range of prices used for each coal basin or market region along with an explanation as to why different pricing ranges were used for estimating the Illinois Basin resources and reserves, (ii) added clarification that the estimates of coal mineral resources and reserves between the Henderson-Union and River View properties are distinct and separate despite their geographic overlap, and (iii) added explanations for the absence of mineral resource estimates for certain individual property disclosures. |
● | Part IV. Item 15. Exhibits and Financial Statement Schedules – We amended our technical report summaries contained in exhibits 96.1, 96.2, 96.3, 96.4 and 96.5 to address various requests by the SEC. |
We are also including currently dated certifications by our Chief Executive Officer and Chief Financial Officer as Exhibits 31.3 and 31.4 under Section 302 of the Sarbanes-Oxley Act of 2002, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended.
Other than as expressly set forth above and except with respect to certain conforming changes made to our exhibit index, this Amended Filing does not, and does not purport to, update or restate the information in the Original Filing or reflect any events that have occurred after the Original Filing. Moreover, the information included in this Amended Filing does not update or otherwise affect the financial statements filed as part of the Original Filing. This Amended Filing should be read in conjunction with the Original Filing and our other filings with the SEC.
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PART I
ITEM 2.PROPERTIES
Coal Mineral Resources and Reserves
Overview of Coal Properties
Our coal properties are located in the Illinois Basin and the Appalachia Basin. Our Illinois Basin properties are located in western Kentucky, southern Illinois, and southern Indiana. Our Appalachian properties are located in eastern Kentucky, Maryland, western Pennsylvania, and northern West Virginia. Mining operations on our coal properties consist of underground mines that produce bituminous coal that is sold to customers principally for electric power generation (thermal) and the production of steel (metallurgical). In addition to our coal mining operations, we also hold coal mineral interests that we lease/sublease to our operations or hold for lease/sublease to our operations or others. For a detailed overview of our coal mining operations and our coal royalty activities, please see "Item 1. Business—Coal Mining Operations" and "Item 1. Business—Mineral Interest Activities", respectively.
Evaluation and Review of Coal Mineral Resources and Reserves
Numerous uncertainties are inherent in estimating coal mineral resources and reserves, and the estimates are subject to change as additional information becomes available or circumstances change. Significant factors and assumptions related to the uncertainty in estimating coal mineral reserves and resources include:
● | geological and mining conditions, which may not be fully identified by available exploration data and/or differ from our experiences in areas where we currently mine; |
● | the percentage of coal in the ground ultimately recoverable; |
● | historical production from the area compared with production from other producing areas; |
● | the assumed effects of regulation and taxes by governmental agencies; |
● | future improvements in mining technology; and |
● | assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes, and development and reclamation costs. |
Each of the factors which impacts reserve and resource estimation may vary considerably from the assumptions used in making the estimation and, as a result, the estimates in this report may not accurately reflect the actual coal reserves and resources. Actual production, revenues and expenditures with respect to the coal reserves will likely vary from the assumptions used in these estimates, and these variances may be material. Government regulations and other pressures may result in closure of coal-fired electric generating plants earlier than assumed. Such changes would reduce the economic viability of our mining operations and could have a material adverse impact on our operations and financial results. Additionally, the estimates of coal reserves and resources may be adversely affected in future fiscal periods by the SEC's recent rule amendments revising property disclosure requirements for publicly traded coal mining companies, with which we are complying for the first time in this report.
Under SEC rules, a mineral resource is a concentration or occurrence of material of economic interest in or on the Earth's crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
The coal mineral resource and reserve estimates included in this Annual Report on Form 10-K were prepared by an independent, qualified engineering firm, RESPEC Company, LLC ("RESPEC"). We provided RESPEC with property control, mine plans, production, revenue, costs, capital, and other information considered by RESPEC in making their
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estimates. As part of our internal controls, our geologists and engineers review the integrity, accuracy, and timeliness of the data provided to RESPEC that they considered in calculating their coal mineral resource and reserve estimates. We also review the geologic data, mining assumptions, and methodology used by RESPEC to estimate our coal mineral resources and reserves. Our geologists and engineers also met with RESPEC periodically during the year to discuss the assumptions and methods used in the coal mineral resource and reserve estimation process.
RESPEC, an independent third-party engineering firm, does not own an interest in any of our properties and is not employed on a contingent basis. RESPEC's Technical Report Summaries for each of our material mining operations are included as exhibits to this Annual Report on Form 10-K.
Summary of Coal Mineral Resources and Reserves
Coal Mineral Resources
Most of our coal properties designated as mineral resources are of thickness, quality, and mineability similar to that of the mineral reserves, and all are proximal to existing infrastructure such as power, water, transportation, facilities, etc. However, we have not completed pre-feasibility or feasibility studies with respect to our coal properties designated as mineral resources, as is required to convert the mineral resources into mineral reserves. There is no certainty that all or any part of the mineral resources will be converted into mineral reserves.
The following table sets forth our coal mineral resources, exclusive of coal mineral reserves, at December 31, 2021:
Heat | |||||||||||||||||||||||
Resources (tons in | Content (Btus | Pounds SO2 per MMBtu | Resource Classification | Ownership | |||||||||||||||||||
millions) |
| per pound) |
| <1.2 |
| 1.2-2.5 |
| >2.5 |
| Measured |
| Indicated |
| Combined |
| Inferred |
| Owned |
| Leased |
| Total |
|
(1) | |||||||||||||||||||||||
Illinois Basin | |||||||||||||||||||||||
Dotiki (KY) |
| 12,100 |
| — |
| 2.3 |
| 73.7 |
| 51.2 |
| 24.8 |
| 76.0 |
| — |
| 27.6 |
| 48.4 |
| 76.0 | |
Henderson/Union (KY) |
| 11,450 |
| — |
| 3.2 |
| 520.3 |
| 175.4 |
| 286.0 |
| 461.4 |
| 62.1 |
| 74.6 |
| 448.9 |
| 523.5 | |
Sebree South (KY) |
| 11,750 |
| — |
| — |
| 43.5 |
| 22.1 |
| 16.8 |
| 38.9 |
| 4.6 |
| 0.3 |
| 43.2 |
| 43.5 | |
Hamilton County (IL) |
| 11,650 |
| 5.1 |
| 33.8 |
| 398.8 |
| 187.1 |
| 239.3 |
| 426.4 |
| 11.3 |
| 32.6 |
| 405.1 |
| 437.7 | |
Region Total |
| 5.1 | 39.3 | 1,036.3 | 435.8 | 566.9 | 1,002.7 | 78.0 | 135.1 | 945.6 | 1,080.7 | ||||||||||||
Appalachian Basin | |||||||||||||||||||||||
Mountain View (WV) |
| 13,200 |
| — |
| 0.5 |
| 6.3 |
| 2.1 |
| 4.5 |
| 6.6 |
| 0.2 |
| 1.7 |
| 5.1 |
| 6.8 | |
Penn Ridge (PA) |
| 12,500 |
| — |
| — |
| 78.0 |
| 21.9 |
| 53.2 |
| 75.1 |
| 2.9 |
| 78.0 |
| — |
| 78.0 | |
Region Total |
| — | 0.5 | 84.3 | 24.0 | 57.7 | 81.7 | 3.1 | 79.7 | 5.1 | 84.8 | ||||||||||||
Total |
| 5.1 | 39.8 | 1,120.6 | 459.8 | 624.6 | 1,084.4 | 81.1 | 214.8 | 950.7 | 1,165.5 | ||||||||||||
% of Total | 0.4% | 3.4% | 96.1% | 39.5% | 53.6% | 93.0% | 7.0% | 18.4% | 81.6% | 100.0% |
(1) | Combined resources are defined as measured plus indicated resources. |
At December 31, 2021, we had approximately 1.165 billion tons of coal mineral resources. Tonnages are reported on a clean recoverable basis with pricing based on available third-party forecasts and historical pricing adjusted for quality at the end of 2021 in a range from $36.27 to $51.26 per short ton in the Illinois Basin and from $42.68 to $66.27 per short ton in the Appalachian Basin, which are the prices used by RESPEC to estimate the amount of coal mineral resources. All resources are classified as underground mineable in the exploration stage.
Coal sales prices vary based on coal quality, access to transportation, and other factors at each location. In the Illinois Basin, we have coal resources that are not associated with coal reserves and have different factors affecting the coal sales price. In addition, we have coal reserves that do not have associated coal resources. As a result, the Illinois Basin resources and the Illinois Basin reserves have different price ranges.
Coal Mineral Reserves
Reserves are assigned to our active operations and are (1) currently in production, (2) economically viable, and (3) meet the other requirements to be considered reserves as defined by the SEC.
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The following table sets forth coal mineral reserve information, exclusive of the coal mineral resources above, at December 31, 2021, about our coal operations:
On December 31, 2021, we had approximately 547.1 million tons of coal mineral reserves. Tonnages are reported on a clean recoverable basis with pricing based on available third-party forecasts and historical pricing adjusted for quality at the end of 2021 in a range from $36.08 to $44.01 per short ton in the Illinois Basin and from $42.68 to $66.27 per short ton in the Appalachian Basin, which are the prices used by RESPEC to estimate the amount of coal mineral reserves. All reserves are classified as underground mineable in the production stage.
Coal sales prices vary based on coal quality, access to transportation, and other factors at each location. In the Illinois Basin, we have coal reserves that do not have associated coal resources. In addition, we have coal resources that are not associated with coal reserves and have different factors affecting the coal sales price. As a result, the Illinois Basin reserves and the Illinois Basin resources have different price ranges.
Mining Operations
The following table sets forth production and other data about our mining operations:
Tons Produced |
| ||||||||||||
Operations |
| Location |
| 2021 |
| 2020 |
| 2019 |
| Transportation |
| Equipment |
|
| (in millions) | ||||||||||||
Illinois Basin Operations | |||||||||||||
Dotiki (1) |
| Kentucky |
| — |
| — |
| 1.3 |
| CSX, PAL, truck, barge |
| CM | |
Warrior |
| Kentucky |
| 4.1 |
| 3.6 |
| 3.7 |
| CSX, NS, PAL, truck, barge |
| CM | |
River View |
| Kentucky |
| 9.9 |
| 9.4 |
| 11.3 |
| Truck, barge |
| CM | |
Hamilton County |
| Illinois |
| 4.9 |
| 2.6 |
| 5.9 |
| CSX, EVW, NS, barge |
| LW, CM | |
Gibson (North) (1) |
| Indiana |
| — |
| — |
| 1.8 |
| CSX, NS, truck, barge |
| CM | |
Gibson (South) |
| Indiana |
| 3.3 |
| 2.3 |
| 5.5 |
| CSX, NS, truck, barge |
| CM | |
Region Total |
| 22.2 |
| 17.9 |
| 29.5 | |||||||
Appalachian Basin Operations | |||||||||||||
MC Mining/Excel |
| Kentucky |
| 1.3 |
| 0.5 |
| 1.0 |
| CSX, truck, barge |
| CM | |
Mountain View |
| West Virginia |
| 1.5 |
| 1.8 |
| 2.1 |
| CSX, truck |
| LW, CM | |
Tunnel Ridge |
| West Virginia |
| 7.2 |
| 6.8 |
| 7.4 |
| CSX, NS, barge |
| LW, CM | |
Region Total |
| 10.0 |
| 9.1 |
| 10.5 | |||||||
TOTAL |
| 32.2 |
| 27.0 |
| 40.0 |
(1) | Closed |
CSX | - | CSX Railroad |
EVW | - | Evansville Western Railroad |
NS | - | Norfolk Southern Railroad |
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PAL | - | Paducah & Louisville Railroad |
CM | - | Continuous Miner |
LW | - | Longwall |
Individual Property Disclosures
We consider the following properties to be material based on multiple factors including, but not limited to, the property’s contribution to our overall business and financial condition. Please see Coal Mineral Resources and Coal Mineral Reserves sections above for information about the coal mineral resources and reserves held by these material properties. In addition to the following information, Technical Report Summaries for these material properties with additional information are included as exhibits to this Annual Report on Form 10-K.
Henderson/Union
The Henderson/Union Resources are located in Henderson and Union counties, Kentucky at 37°44'30"N, -87°46'07"W and currently have control in over 1,600 tracts encompassing over 127,000 acres. The property is controlled through both fee ownership and leases of the coal. Existing and proposed facilities are on controlled land. The coal mineral resources are controlled by Alliance Resource Properties. The base leases are with private owners and WKY CoalPlay or its subsidiaries, which are related parties. See "Item 8. Financial Statements and Supplementary Data—Note 21 – Related Party Transactions" for more information about our WKY CoalPlay transactions. These base leases generally provide for a term that can be extended until exhaustion of the leased coal. Local infrastructure is as follows:
Major Roads: Interstates 69 and US-60,
Railroads: None,
Airport: Evansville Regional Airport (EVV),
Town: Morganfield,
Docks: River View, Hamilton 1, UC Processing, on the Ohio River,
Water: Local municipalities and mine sources,
Electricity: Kentucky Utilities (KU),
Personnel: Regional.
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Description
The potential underground mine(s) would utilize room-and-pillar methods operating a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill possible permitting and development requirements. Multiple access points are available for development. Access is available from the active River View mine, which began production in 2009. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Access at the Hamilton and UC Coal, LLC sites are considered "brownfield" developments. Though some facilities and permitting are in place, significant upgrades to existing infrastructure and new construction would be needed to bring them into good working order that meets industry standards. The property associated with Henderson/Union has no book value as of December 31, 2021 but does have outstanding advanced royalties with WKY CoalPlay or its subsidiaries. See "Item 8. Financial Statements and Supplementary Data—Note 21 – Related Party Transactions" for more information about advanced royalties that Henderson/Union has with WKY CoalPlay.
Though there is geographic overlap between the Henderson-Union and River View properties, the resources and reserves of each are associated with different coal seams or, if in the same seam, are separated by existing mine works or geologic features into distinct areas. There is no overlap in the resource / reserve estimation.
History
The Henderson/Union property contains resources in four seams, the West Kentucky No. 11 (WKY11), the West Kentucky No. 9 (WKY9), the West Kentucky No. 7 (WKY7), and the West Kentucky No. 6 (WKY6). Island Creek Coal Company ("Island Creek") operated mines in the area and controlled a portion of the property. Under a joint venture, Texas Gas Service also controlled a large interest in the mineral rights. Lastly, Peabody Coal Corporation ("Peabody") and Patriot Coal Corporation ("Patriot") operated mines in the area and controlled a portion of the reserves. We consolidated control of the property through multiple transactions from 2005 through 2015. Island Creek operated the Ohio #11 and Uniontown #9 mines. Island Creek also operated the Hamilton #1 and #2 mines in Kentucky. Peabody and
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later Patriot operated the Camp complex and Highland mines to the southeast and east. Both the WKY9 and WKY11 seams were mined at these locations. No mining has occurred on the property in the WKY7 or WKY6 seams.
Approximately 1,050 exploration holes have been drilled within and adjacent to the Henderson/Union area to assess thickness and mineability of the WKY11, WKY9, WKY7, and WKY6 seams. From these holes, over 410 samples were collected and analyzed to determine coal quality characteristics. Also, over 150 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling. In general, all drilling has shown highly consistent coal seams of mineable thickness and quality for the high sulfur, thermal utility market.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Henderson/Union surface properties and coal leases. Documentation of such liens is of record in the Offices of the Henderson and Union County Clerks. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our revolving credit facility.
The Kentucky Department of Natural Resources ("KYDNR"), Division of Mine Permits ("DMP") is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining.
Geology and Reserves
Henderson/Union contains coal resources in four seams ranging in depths from about 100 to 750 feet. The table below summarizes mineral resources as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis | % Recovery | ||||||||||||||||
Resources |
| Tons (millions) |
| Thickness (ft) |
| % Ash |
| % Sulfur |
| Btu |
| lbs. SO2 |
| In-Seam |
| Prep Plant |
|
Henderson/Union | |||||||||||||||||
Measured Mineral Resources |
| 175.4 |
| 4.71 |
| 8.15 |
| 3.01 |
| 13,241 |
| 4.54 |
| 87.10 |
| 54.76 | |
Indicated Mineral Resources | 286.0 | 4.62 | 8.23 | 2.86 | 13,242 | 4.33 | 88.03 | 53.77 | |||||||||
Combined Mineral Resources | 461.4 | 4.66 | 8.20 | 2.92 | 13,241 | 4.41 | 87.67 | 54.14 | |||||||||
Inferred Mineral Resources |
| 62.1 |
| 4.48 |
| 8.16 |
| 2.60 |
| 13,321 |
| 3.91 |
| 89.66 |
| 52.14 |
River View
River View is located in Union County, Kentucky at 37°45'37"N, -87°56'42"W and currently has approximately 54,250 underground acres permitted. The mine is controlled through both fee ownership and leases of the coal. The coal mineral reserves are leased or held for lease to River View by Alliance Resource Properties. River View either owns or controls the surface properties upon which its facilities are located including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. The coal mineral reserves currently assigned to and controlled by River View are pursuant to a 2009 Coal Lease and Sublease Agreement from Alliance Resource Properties. The base leases are with private owners and generally provide for a term that can be extended until exhaustion of the leased coal. Local infrastructure is as follows:
Major Roads: Interstates 69 and US-60,
Railroads: None,
Airport: Evansville Regional Airport (EVV),
Town: Morganfield,
Docks: River View on the Ohio River,
Water: Uniontown Water Department and mine sources,
Electricity: Kentucky Utilities (KU),
Personnel: Regional.
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Description
The underground mine is currently in production using room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2009. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for River View as of December 31, 2021 was $199.3 million.
Though there is geographic overlap between River View and the Henderson-Union properties, the reserves and resources of each are associated with different coal seams or, if in the same seam, are separated by existing mine works or geologic features into distinct areas. There is no overlap in the resource / reserve estimation.
History
Island Creek operated mines in the area and controlled a portion of the property. Under a joint venture, Texas Gas Service also controlled a large interest in the mineral rights. Lastly, Peabody and Patriot operated mines in the area and controlled a smaller portion of the reserves. We consolidated control of the property through multiple transactions from 2005 through 2015. Island Creek operated the Ohio #11 and Uniontown #9 mines to the west of River View. Island Creek also operated the Hamilton #1 and #2 mines to the southwest. Peabody and later Patriot operated the Camp complex and Highland mines to the southeast and east. Both the WKY9 and WKY11 seams were mined at these locations.
Approximately 630 exploration holes penetrate the WKY11 seam and about 450 holes penetrate the WKY9 seam within and adjacent to the River View resource/reserve area to assess thickness, quality, and mineability of the seams. River View has drilled over 80 holes on the property to supplement the historic data. Also, over 300 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling.
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Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain River View surface properties and coal leases. Documentation of such liens is of record in the Office of the Union County Clerk. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the Union County Clerk. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
The KYDNR, DMP is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
River View extracts coal underground from the West Kentucky No. 11 and No. 9 seams at depths ranging from 200 to 500 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis | % Recovery | ||||||||||||||||
Reserves |
| Tons (millions) |
| Thickness (ft) |
| % Ash |
| % Sulfur |
| Btu |
| lbs. SO2 |
| In-Seam |
| Prep Plant |
|
River View | |||||||||||||||||
Proven Mineral Reserves |
| 117.8 |
| 4.69 |
| 7.57 |
| 3.13 |
| 13,284 |
| 4.71 |
| 86.46 |
| 53.80 | |
Probable Mineral Reserves |
| 96.8 |
| 4.60 |
| 7.71 |
| 3.11 |
| 13,235 |
| 4.71 |
| 86.24 |
| 52.19 | |
Total Mineral Reserves | 214.6 | 4.65 |
| 7.63 | 3.12 | 13,262 | 4.71 | 86.36 | 53.07 |
Due to the level of geologic certainty, all resources were classified as either measured or indicated and were converted to reserves. There were no inferred resources associated with the property.
The River View mine had 223.3 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Normal course adjustments are associated with numerous slight changes in the geologic model.
Hamilton
Hamilton, a longwall mine located in Hamilton County, Illinois at 38°10'12”N, -88°36'47"W, currently has approximately 10,500 underground acres and 1,300 surface acres permitted. The mine property is controlled through both fee ownership and leases of the coal. The coal mineral reserves and resources are leased or held for lease to Hamilton by Alliance WOR Properties, LLC ("Alliance WOR Properties"), a subsidiary of Alliance Resource Properties. Hamilton either owns or controls the surface properties upon which its facilities are located including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. Hamilton (or Alliance WOR Properties) currently controls approximately 53,348 acres of coal mineral reserves and resources and subsidence rights, and 1,400 acres of surface properties. The underlying base coal leases are with private owners and are comprised of a large number of leases originally taken by AMAX Coal Company and Old Ben Coal Company ("Old Ben") in the mid to late 1970’s and early 1980’s (the "Old Ben Leases"), leases acquired by Consolidation Coal Company in the late 1980’s (the "Consol Leases"), and
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subsequent leases taken directly by White Oak Resources, LLC or affiliated companies and/or Alliance WOR Properties. Local infrastructure is as follows:
Major Roads: Interstates 64,
Railroads: CSX and EVW,
Airport: Evansville Regional Airport (EVV),
Towns: McLeansboro and Mt. Vernon,
Docks: Mount Vernon on the Ohio River,
Water: Hamilton County Water District and mine sources,
Electricity: Wayne-White Electric Co-op (WWEC),
Personnel: Regional.
Description
The underground mine is currently in production using longwall and room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2014. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Hamilton as of December 31, 2021 was $347.1 million.
History
There were no previous operations on the Hamilton reserves property prior to our predecessor, White Oak Resources LLC, who began construction of the mine in 2011.
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Over 180 exploration holes have been drilled in the Hamilton reserve area by other companies to assess thickness, quality, and mineability of the Herrin and Harrisburg seams. White Oak Resources LLC drilled over 90 holes in the reserve area starting in 2008. Also, over 70 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Hamilton surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Hamilton County Clerk. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our revolving credit facility.
The Consol Leases are encumbered by an overriding royalty payable to Sustainable Conservation, Inc. ("Sustainable") in the amount of the greater of $0.25 per ton or 0.75% of the average sales realization price received per ton, which sums can be credited against approximately $481,000.00 previously paid to Sustainable for the assignment of the Consol Leases.
The Illinois Department of Natural Resources, Land Reclamation Division is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
Hamilton extracts coal underground from the Herrin (Illinois No.6) seam at depths ranging from 900 to 1100 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis | % Recovery | ||||||||||||||||
Reserves |
| Tons (millions) |
| Thickness (ft) |
| % Ash |
| % Sulfur |
| Btu |
| lbs. SO2 |
| In-Seam |
| Prep Plant |
|
Hamilton County | |||||||||||||||||
Proven Mineral Reserves |
| 57.6 |
| 6.37 |
| 8.04 |
| 2.81 |
| 13,407 |
| 4.20 |
| 86.71 |
| 53.85 | |
Probable Mineral Reserves |
| 70.9 |
| 6.63 |
| 7.99 |
| 2.83 |
| 13,423 |
| 4.21 |
| 86.82 |
| 57.34 | |
Total Mineral Reserves | 128.5 | 6.52 |
| 8.01 | 2.82 | 13,416 | 4.21 | 86.77 | 55.78 |
Resources associated with Hamilton County are provided in the Coal Mineral Resources table above.
The Hamilton mine had 125.0 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Normal course adjustments are associated with numerous slight changes in the geologic model.
Gibson South
Gibson South is located in Gibson County, Indiana at 38°18'22"N, 87°42'30"W and currently has approximately 23,350 underground acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Gibson South holds rights to approximately 21,600 gross acres of coal. Leases generally have an initial term with automatic extensions for as long as mining operations are conducted within a described area. Local infrastructure is as follows:
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Major Roads: Interstates 69 and 64,
Railroads: CSX and NS,
Airport: Evansville Regional Airport (EVV),
Town: Princeton,
Docks: Mount Vernon on the Ohio River,
Water: Gibson Water, Inc. and well water,
Electricity: Western Indiana Energy REMC,
Personnel: Regional.
Description
The underground mine is currently in production using room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2014. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Gibson South as of December 31, 2021 was $118.8 million.
History
In November 1997, pursuant to (a) Assignment of Underground Coal Leases, (b) Partial Assignment of Underground Coal Leases and (c) Special Corporate Warranty Deed, Old Ben conveyed to MAPCO Land & Development Corporation various coal leases and fee coal interests within a large property boundary located in Gibson County, Indiana. MAPCO Land & Development Corporation changed its name to MAPCO Coal Land & Development Corporation, and MAPCO Coal Land & Development Corporation merged into Alliance Properties, LLC (“Alliance Properties”) effective August 4, 1999.
Old Ben ran large exploration programs across multiple years to examine thickness, mineability, and quality, drilling a total of 137 holes. Another 73 holes were drilled in the western area of the property by owners of an adjacent mine.
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After the original Old Ben acquisition, Alliance Properties and Gibson County Coal continued to acquire additional coal leases and fee coal interests in the area. In addition, beginning in or around 2006, the leases originally acquired from Old Ben began to expire by their terms, and Alliance Properties/Gibson County Coal began a program of either amending the expiring leases or entering into new, direct leases with the coal owners. Alliance Properties merged into Gibson County Coal on February 19, 2018.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Gibson County Coal surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Recorder of Gibson County, Indiana. Please read "Item 8. Financial Statements and Supplementary Data – Note 8 – Long-term Debt" for more information on our revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the Recorder of Gibson County, Indiana. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
The Indiana Department of Natural Resources, Division of Reclamation is responsible for oversight of active coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
Gibson South extracts coal underground from the Springfield (Indiana No.5) seam at depths ranging from 450 to 650 feet. The table below summarizes mineral reserves as of 12/31/21 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis | % Recovery | ||||||||||||||||
Reserves |
| Tons (millions) |
| Thickness (ft) |
| % Ash |
| % Sulfur |
| Btu |
| lbs. SO2 |
| In-Seam |
| Prep Plant |
|
Gibson South | |||||||||||||||||
Proven Mineral Reserves |
| 44.2 |
| 6.10 |
| 6.97 |
| 1.92 |
| 13,506 |
| 2.84 |
| 95.05 |
| 74.87 | |
Probable Mineral Reserves |
| 8.4 |
| 5.46 |
| 7.91 |
| 2.33 |
| 13,349 |
| 3.49 |
| 93.39 |
| 72.12 | |
Total Mineral Reserves | 52.6 | 6.00 |
| 7.12 | 1.98 | 13,482 | 2.94 | 94.79 | 74.44 |
Due to the level of geologic certainty, all resources were classified as either measured or indicated and were converted to reserves. There were no inferred resources associated with the property.
The Gibson South mine had 54.7 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Normal course adjustments are associated with numerous slight changes in the geologic model.
Tunnel Ridge
Tunnel Ridge, located at 40°09’17" N, -80°39’26"W, is an underground longwall mine in the Pittsburgh No. 8 seam of coal, and currently has approximately 20,890 underground acres permitted. The mine property is controlled through both fee ownership and leases of the coal. The vast majority of the coal mined and to be mined by Tunnel Ridge is leased from the Joseph W. Craft III Foundation and the Kathleen S. Craft Foundation. Please read "Item 8. Financial Statements and Supplemental Data - Note 21 – Related Party Transactions" for additional information on this lease. Tunnel Ridge
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either owns or controls the surface properties upon which its facilities are located, including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. Local infrastructure is as follows:
Major Roads: Interstate 70,
Railroads: None,
Airport: Pittsburgh International Airport (PIT),
Town: Wheeling,
Docks: Tunnel Ridge on the Ohio River,
Water: Ohio County Water District and mine sources,
Electricity: American Electric Power (AEP), West Penn Power (WPP)
Personnel: Regional.
Description
The underground mine is currently in production using longwall and room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2010. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Tunnel Ridge as of December 31, 2021 was $238.8 million.
History
Valley Camp Coal Company ("Valley Camp") operated mines on the property prior to Tunnel Ridge's operations.
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Valley Camp drilled 24 exploration holes in and adjacent to the reserve area to check thickness, quality, and mineability of the Pittsburgh No. 8 seam. Tunnel Ridge accounts for over 80 of the remaining holes. Also, Tunnel Ridge has collected over 600 channel samples to supplement the exploration drilling.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Tunnel Ridge surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please read "Item 8. Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
Tunnel Ridge is located on the West Virginia / Pennsylvania State boundary, operating in each state. As such, regulatory requirements must be met pertaining to mining facilities located in each state.
For operations in West Virginia, the West Virginia Department of Environmental Protection ("WVDEP") is the regulatory authority over mining activities. Within the WVDEP, the Division of Mining and Reclamation is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
For operations in Pennsylvania, the Pennsylvania Department of Environmental Protection (PADEP) is the regulatory authority over mining activities. Within the PADEP, the Bureau of District Mining Operations is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
Geology and Reserves
Tunnel Ridge extracts coal underground from the Pittsburgh No.8 seam at depths ranging from 300 to 800 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis | % Recovery | ||||||||||||||||
Reserves |
| Tons (millions) |
| Thickness (ft) |
| % Ash |
| % Sulfur |
| Btu |
| lbs. SO2 |
| In-Seam |
| Prep Plant |
|
Tunnel Ridge | |||||||||||||||||
Proven Mineral Reserves |
| 28.6 |
| 6.89 |
| 8.12 |
| 3.32 |
| 13,685 |
| 4.86 |
| 69.21 |
| 51.90 | |
Probable Mineral Reserves |
| 25.1 |
| 7.02 |
| 8.23 |
| 3.47 |
| 13,650 |
| 5.09 |
| 67.87 |
| 52.69 | |
Total Mineral Reserves | 53.7 | 6.95 |
| 8.17 | 3.39 | 13,669 | 4.97 | 68.58 | 52.27 |
Due to the level of geological certainty, all resources were classified as either measured or indicated and were converted to reserves. There are no inferred resources associated with the property.
The Tunnel Ridge mine had 64.0 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Tunnel Ridge Yearly Reserve Reconciliation |
| (millions) |
|
Tons as of December 31, 2020 |
| 64.0 |
|
Production | (7.2) | ||
Mine Plan Adjustment | (3.1) | ||
Tons as of December 31, 2021 | 53.7 |
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Oil & Gas Reserves
Our mineral interests are primarily located in three basins, which are also our areas of focus for future development. These include the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) Basins. At December 31, 2021, we had approximately 42,000 developed and undeveloped net acres held at a weighted average royalty of 17.0%. Our net acres standardized to 1/8th royalty equates to approximately 57,000 net royalty acres, including approximately 3,976 net royalty acres owned through our equity interest in AllDale III.
The following table presents our estimated net proved oil & gas reserves, including our share of reserves owned through our equity interest in AllDale III, as of December 31, 2021 based on the reserve report prepared by our internal engineering team. The reserve report has been prepared in accordance with the rules and regulations of the SEC. All of our proved reserves included in the reserve report are located in the continental United States.
(1) | Proved reserves of approximately 1,285 MBOE were attributable to noncontrolling interests as of December 31, 2021. |
(2) | Natural gas reserve volumes are converted to BOE based on a 6:1 ratio: 6 Mcf of natural gas converts to one BOE. |
Estimates of reserves as of December 31, 2021 were prepared using product prices equal to the unweighted arithmetic average of the first-day-of-the-month market price for each month in the period from January through December 2021. The average realized product prices weighted by production over the remaining lives of the properties are $63.57/Bbl for oil, $2.98/Mcf of natural gas and $21.13 per barrel of NGL. These prices are adjusted for energy content, associated average differential and transportation deducts by producing area to arrive at the net realized prices by product. For 2021, NGL prices averaged approximately 37% of the posted oil prices during the course of the year with an additional $3.49/Bbl deducted for transportation costs.
The following table summarizes our changes in proved undeveloped reserves (in MBOE):
As a mineral interest owner we have no transparency into or control over our operators' investments and operational progress to convert PUDs to proved developed producing reserves. We do not incur any capital expenditures or lease operating expenses in connection with the development of our PUDs, which costs are borne entirely by our operators. As a result, during the year ended December 31, 2021, we did not have any expenditures to convert PUDs to proved developed producing reserves. PUDs that have not been developed within two years of permitting are reviewed and removed from proved reserves as necessary. As of December 31, 2021 approximately 16.48% of our total proved reserves were classified as PUDs.
Evaluation and Review of Reserves
Numerous uncertainties are inherent in estimating reserve volumes and values, and the estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of the reserves may vary significantly from the original estimates.
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Under SEC rules, proved reserves are those quantities of oil & gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible–from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations–prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a "high degree of confidence that the quantities will be recovered." All of our proved reserves as of December 31, 2021 were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil & gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverable oil & gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods:
(1) | performance-based methods, |
(2) | volumetric-based methods and |
(3) | analogy. |
These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. The proved reserves for our properties were estimated by performance methods, analogy or a combination of both methods. Performance methods include, but may not be limited to, decline curve analysis, which utilized extrapolations of available historical production data. The analogy method was used where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate.
To estimate economically recoverable proved reserves and related future net cash flows, our engineering team considered many factors and assumptions, including the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and the SEC pricing requirements and forecasts of future production rates. To establish reasonable certainty with respect to our estimated proved reserves, the technologies and economic data used in the estimation of our proved reserves included production and well test data, downhole completion information, geologic data, electrical logs, and radioactivity logs.
Our 2021 year-end proved reserves were prepared by our internal engineering team. Our engineering team works to ensure the integrity, accuracy, and timeliness of the data used to calculate our estimated proved reserves. Approximately 95% of our total 2021 year end proved reserve estimates were audited by NSAI. Our engineering team met with NSAI periodically during the period covered by the above referenced reserve report to discuss the assumptions and methods used in the reserve estimation process. Our engineering team provided historical information to NSAI for our properties, such as oil & gas production, well test data, and realized commodity prices. Our engineering team also provided ownership interest information with respect to our properties. Our internal petroleum engineer, primarily responsible for overseeing the petroleum reserves preparation, has over 20 years of engineering and operations experience in the oil & gas sector and a Bachelor of Science in Petroleum Engineering.
The preparation of our proved reserve estimates are completed in accordance with our internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following:
● | review and verification of historical data, which is based on actual production as reported by our operators; |
● | verification of property ownership by our land department; |
● | review of all our reported proved reserves semi-annually including the review of all significant reserve changes and proved undeveloped reserves additions by our internal petroleum engineer; |
● | internally prepared reserve estimates compared to reserves audit by NSAI; |
● | review of changes in reserves semi-annually by our internal petroleum engineer and by senior management; and |
● | no employee's compensation is tied to the amount of reserves booked. |
NSAI, an independent third-party petroleum engineering firm, does not own an interest in any of our properties and is not employed on a contingent basis. When compared on a well-by-well basis, some of our estimates are greater and some are less than the NSAI estimates. NSAI is satisfied with our methods and procedures used to prepare the December 31, 2021 reserve estimates and future revenue, and noted nothing of an unusual nature that would cause NSAI to take
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exception with the estimates, in the aggregate, prepared by us. NSAI's audit report with the respect to our proved reserve estimates as of December 31, 2021 is included as an exhibit to this Annual Report on Form 10-K.
NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within NSAI, the technical persons primarily responsible for auditing the estimates meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
Acreage Concentration
Our mineral interests, which include both proved reserves discussed above and unproved reserves, are primarily located in three basins, which are also our areas of focus for future operator development. These include the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) Basins. Below is a chart reflecting our gross, net mineral and net royalty acreage associated with our mineral interests in each of our primary basins as of December 31, 2021.
| Developed Acreage | Undeveloped Acreage |
| ||||||||||||||||
| Gross |
| Net Mineral |
| Net Royalty |
| Gross |
| Net Mineral |
| Net Royalty |
| |||||||
Basin | |||||||||||||||||||
Permian Basin | 249,660 | 5,345 | 6,930 | 525,983 | 14,574 | 19,431 | |||||||||||||
Anadarko Basin | 142,311 | 5,106 | 7,282 | 294,826 | 10,905 | 15,538 | |||||||||||||
Williston Basin | 113,579 | 1,834 | 2,399 | 113,437 | 1,803 | 2,369 | |||||||||||||
Other | 27,885 | 863 | 1,086 | 37,821 | 1,525 | 1,887 | |||||||||||||
Total | 533,435 | 13,148 | 17,697 | 972,067 | 28,807 | 39,225 |
Oil & Gas Production Prices and Production Costs
For the year ended December 31, 2021, 46.8% of our production and 70.0% of our oil & gas revenues were related to oil production and sales, respectively. The following table sets forth information regarding production of oil & gas and certain price and cost information for each of the periods indicated:
Year Ended December 31, | ||||||||||
2021 | 2020 | 2019 | ||||||||
Production: | ||||||||||
Oil (MBbls) | 825 | 948 | 741 | |||||||
Natural gas (MMcf) | 3,490 | 3,635 | 3,664 | |||||||
Natural gas liquids (MBbls) | 357 | 337 | 364 | |||||||
BOE (MBbls) | 1,764 | 1,892 | 1,716 | |||||||
Average Realized Prices: | ||||||||||
Oil (per Bbl) | $ | 66.84 | $ | 39.04 | $ | 54.30 | ||||
Natural gas (per Mcf) | $ | 3.85 | $ | 1.52 | $ | 2.01 | ||||
Natural gas liquids (per Bbl) | $ | 28.51 | $ | 9.08 | $ | 20.17 | ||||
BOE (MBbls) | $ | 44.65 | $ | 24.10 | $ | 32.02 | ||||
Unit cost per BOE: | ||||||||||
Production and ad valorem taxes | $ | 4.46 | $ | 2.64 | $ | 4.82 |
Productive Wells
As of December 31, 2021, 6,572 gross productive horizontal wells and 4,167 gross productive vertical wells were located on the acreage in which we have a mineral interest. Of our productive horizontal wells, 965 are considered natural gas wells, while the remaining 5,607 primarily produce oil. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. We do not own any material working interests in any wells. Accordingly, we do not own any net wells.
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Drilling Results
As a holder of mineral interests, we generally are not provided with information as to whether any wells drilled on the acreage associated with our mineral interests are classified as exploratory or as developmental wells. We are not aware of any dry holes drilled on the acreage associated with our mineral interests during the relevant period.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(3) and (c) The exhibits listed below are filed as part of this annual report.
Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
3.1 | Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P. | 8-K | 000-26823 17990766 | 3.2 | 07/28/2017 | |||||||||||
3.2 | Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P. | 10-K | 000-26823 583595 | 3.2 | 03/29/2000 | |||||||||||
3.3 | Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P. | 8-K | 000-26823 17990766 | 3.6 | 07/28/2017 | |||||||||||
3.4 | Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P. | S-1/A | 333-78845 99669102 | 3.8 | 07/23/1999 | |||||||||||
3.5 | Certificate of Formation of Alliance Resource Management GP, LLC | S-1/A | 333-78845 99669102 | 3.7 | 07/23/1999 | |||||||||||
3.6 | 10-K | 000-26823 18634680 | 3.9 | 02/23/2018 | ||||||||||||
3.7 | 8-K | 000-26823 1883834 | 3.3 | 06/06/2018 | ||||||||||||
3.8 | 8-K | 000-26823 1883834 | 3.4 | 06/06/2018 | ||||||||||||
3.9 | 8-K | 000-26823 1883834 | 3.5 | 06/06/2018 | ||||||||||||
3.10 | 8-K | 000-26823 1883834 | 3.7 | 06/06/2018 | ||||||||||||
4.1 | 8-K | 000-26823 17990766 | 3.2 | 07/28/2017 |
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Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
4.2 | 8-K | 000-26823 17798539 | 4.1 | 04/24/2017 | ||||||||||||
4.3 | Form of 7.500% Senior Note due 2025 (included in Exhibit 4.2). | 8-K | 000-26823 17778550 | 4.1 | 04/24/2017 | |||||||||||
4.4 | 10-K | 000-26823 22677260 | 4.4 | 02/25/2022 | ||||||||||||
10.1 | Amendment and Restatement of Letter of Credit Facility Agreement dated October 2, 2010. | 10-Q | 000-26823 11823116 | 10.1 | 05/09/2011 | |||||||||||
10.2 | 10-Q | 000-26823 1782487 | 10.25 | 11/13/2001 | ||||||||||||
10.3 | 10-Q | 000-26823 02827517 | 10.32 | 11/14/2002 | ||||||||||||
10.4 | 10-Q | 000-26823 1782487 | 10.26 | 11/13/2001 | ||||||||||||
10.5 | 10-Q | 000-26823 1782487 | 10.27 | 11/13/2001 | ||||||||||||
10.6 | 10-K | 000-26823 583595 | 10.3 | 03/29/2000 | ||||||||||||
10.7 | 10-K | 000-26823 583595 | 10.4 | 03/29/2000 | ||||||||||||
10.8(1) | Amended and Restated Alliance Coal, LLC 2000 Long-Term Incentive Plan | 10-K | 000-26823 04667577 | 10.17 | 03/15/2004 | |||||||||||
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Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
10.9(1) | First Amendment to the Alliance Coal, LLC 2000 Long-Term Incentive Plan | 10-K | 000-26823 04667577 | 10.18 | 03/15/2004 | |||||||||||
10.10(1) | 10-K | 000-26823 583595 | 10.12 | 03/29/2000 | ||||||||||||
10.11(1) | S-8 | 333-85258 02595143 | 99.2 | 04/01/2002 | ||||||||||||
10.12(1) | Alliance Resource Management GP, LLC Deferred Compensation Plan for Directors | S-8 | 333-85258 02595143 | 99.3 | 04/01/2002 | |||||||||||
10.13 | Guaranty by Alliance Resource Partners, L.P. dated March 16, 2012 | 10-Q | 000-26823 12825281 | 10.3 | 05/09/2012 | |||||||||||
10.14(2) | 10-Q | 000-26823 12825281 | 10.1 | 05/09/2012 | ||||||||||||
10.15(2) | 10-Q/A | 000-26823 12947715 | 10.2 | 07/05/2012 | ||||||||||||
10.16 | 10-K | 000-26823 09647063 | 10.35 | 03/02/2009 | ||||||||||||
10.17 | 10-Q | 000-26823 061017824 | 10.1 | 08/09/2006 | ||||||||||||
10.18 | 10-Q | 000-26823 061017824 | 10.2 | 08/09/2006 | ||||||||||||
10.19(1) | 10-K | 000-26823 07660999 | 10.50 | 03/01/2007 | ||||||||||||
10.20(1) | 10-K | 000-26823 08654096 | 10.50 | 02/29/2008 | ||||||||||||
10.21(1) | First Amendment to the Alliance Coal, LLC Short-Term Incentive Plan | 10-K | 000-26823 07660999 | 10.52 | 03/01/2007 |
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Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
10.22(1) | Second Amendment to the Alliance Coal, LLC Short-Term Incentive Plan | 10-K | 000-26823 08654096 | 10.53 | 02/29/2008 | |||||||||||
10.23(1) | 10-K | 000-26823 09647063 | 10.52 | 03/02/2009 | ||||||||||||
10.24(1) | 10-K | 000-26823 11645603 | 10.40 | 02/28/2011 | ||||||||||||
10.25(1) | 10-K | 000-26823 11645603 | 10.42 | 02/28/2011 | ||||||||||||
10.26 | 10-Q | 000-26823 09811514 | 10.1 | 05/08/2009 | ||||||||||||
10.27(2) | 10-Q | 000-26823 091164883 | 10.2 | 11/06/2009 | ||||||||||||
10.28 | 10-K | 000-26823 10638795 | 10.49 | 02/26/2010 | ||||||||||||
10.29 | 10-Q | 000-26823 101000555 | 10.1 | 08/09/2010 | ||||||||||||
10.30 | 10-Q | 000-26823 101000555 | 10.2 | 08/09/2010 | ||||||||||||
10.31 | 8-K | 000-26823 141277053 | 10.1 | 12/10/2014 | ||||||||||||
10.32 | Sale and Contribution Agreement, dated as of December 5, 2014, among Alliance Resource | 8-K | 000-26823 141277053 | 10.2 | 12/10/2014 |
26
Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
Operating Partners, L.P., as seller and AROP Funding, LLC, as buyer | ||||||||||||||||
10.33 | 8-K | 000-26823 141277053 | 10.3 | 12/10/2014 | ||||||||||||
10.34 | 8-K | 000-26823 141277053 | 10.4 | 12/10/2014 | ||||||||||||
10.35 | 8-K | 000-26823 151198024 | 10.1 | 11/04/2015 | ||||||||||||
10.36(1) | 10-K | 000-26823 161460619 | 10.46 | 02/26/2016 | ||||||||||||
10.37 | First Amendment to the Receivables Financing Agreement, dated as of December 4, 2015 | 10-Q | 000-26823 161634229 | 10.1 | 05/10/2016 | |||||||||||
10.38 | Second Amendment to the Receivables Financing Agreement, dated as of February 24, 2016 | 10-Q | 000-26823 161634229 | 10.2 | 05/10/2016 | |||||||||||
10.39 | 10-Q | 000-26823 161634229 | 10.3 | 05/10/2016 | ||||||||||||
10.40 | Third Amendment to the Receivables Financing Agreement, dated as of December 2, 2016 | 10-K | 000-26823 17636362 | 10.45 | 02/24/2017 | |||||||||||
10.41 | Fourth Amendment to the Receivables Financing Agreement, dated as of November 27, 2017 | 10-K | 000-26823 18634680 | 10.47 | 02/23/2018 | |||||||||||
10.42 | Fifth Amendment to the Receivables Financing Agreement, dated as of January 17, 2018 | 10-K | 000-26823 18634680 | 10.48 | 02/23/2018 | |||||||||||
10.43 | Sixth Amendment to the Receivables Financing Agreement, dated as of June 19, 2018 | 10-Q | 000-26823 18994075 | 10.2 | 08/06/2018 | |||||||||||
27
Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
10.44 | Seventh Amendment to the Receivables Financing Agreement, dated as of January 16, 2019 | 10-K | 000-26823 19624803 | 10.52 | 02/22/2019 | |||||||||||
10.45 | 10-K | 000-26823 19624803 | 10.53 | 02/22/2019 | ||||||||||||
10.46 | 10-K | 000-26823 19624803 | 10.54 | 02/22/2019 | ||||||||||||
10.47 | 10-K | 000-26823 19624803 | 10.55 | 02/22/2019 | ||||||||||||
10.48 | 10-K | 000-26823 19624803 | 10.56 | 02/22/2019 | ||||||||||||
10.49 | 10-K | 000-26823 19624803 | 10.57 | 02/22/2019 | ||||||||||||
10.50 | 10-K | 000-26823 19624803 | 10.58 | 02/22/2019 | ||||||||||||
10.51 | 10-Q | 000-26823 19997858 | 10.1 | 08/05/2019 | ||||||||||||
10.52 | Eighth Amendment to the Receivables Financing Agreement, dated as of October 22, 2019. | 10-Q | 000-26823 191192460 | 10.2 | 11/05/2019 | |||||||||||
10.53 | 10-K | 000-26823 20636450 | 10.61 | 02/20/2020 | ||||||||||||
28
Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
10.54 | 8-K | 000-26823 20711345 | 10.1 | 03/13/2020 | ||||||||||||
10.55 | Fifth Amendment to the Alliance Coal and Restated Alliance Coal, LLC 2000 Long-Term Incentive Plan. | 8-K | 000-26823 201385345 | 10.1 | 12/14/2020 | |||||||||||
10.56 | Ninth Amendment to the Receivables Financing Agreement, dated as of January 15, 2021. | 10-K | 000-26823 21663570 | 10.64 | 02/23/2021 | |||||||||||
10.57 | Tenth Amendment to the Receivables Financing Agreement, dated as of January 14, 2022. | 10-K | 000-26823 22677260 | 10.57 | 02/25/2022 | |||||||||||
14.1 | Code of Ethics for Principal Executive Officer and Senior Financial Officers | 10-K | 000-26823 13656028 | 14.1 | 03/01/2013 | |||||||||||
16.1 | 8-K | 000-26823 21695057 | 16.1 | 03/01/2021 | ||||||||||||
21.1 | 10-K | 000-26823 22677260 | 21.1 | 02/25/2022 | ||||||||||||
23.1 | 10-K | 000-26823 22677260 | 23.1 | 02/25/2022 | ||||||||||||
23.2 | 10-K | 000-26823 22677260 | 23.2 | 02/25/2022 | ||||||||||||
23.3 | 10-K | 000-26823 22677260 | 23.3 | 02/25/2022 | ||||||||||||
23.4 | þ | |||||||||||||||
31.1 | 10-K | 000-26823 22677260 | 31.1 | 02/25/2022 | ||||||||||||
31.2 | 10-K | 000-26823 22677260 | 31.2 | 02/25/2022 | ||||||||||||
29
Incorporated by Reference | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| SEC |
| Exhibit |
| Filing Date |
| Filed | ||||
31.3 | þ | |||||||||||||||
31.4 | þ | |||||||||||||||
32.1 | 10-K | 000-26823 22677260 | 32.1 | 02/25/2022 | ||||||||||||
32.2 | 10-K | 000-26823 22677260 | 32.2 | 02/25/2022 | ||||||||||||
95.1 | 10-K | 000-26823 22677260 | 95.1 | 02/25/2022 | ||||||||||||
96.1 | Henderson/Union Resources SEC S-K 1300 Technical Report Summary dated July 2022. | þ | ||||||||||||||
96.2 | River View Mine SEC S-K 1300 Technical Report Summary July 2022. | þ | ||||||||||||||
96.3 | Hamilton Mine SEC S-K 1300 Technical Report Summary dated July 2022. | þ | ||||||||||||||
96.4 | Gibson South Mine SEC S-K 1300 Technical Report Summary dated July 2022. | þ | ||||||||||||||
96.5 | Tunnel Ridge Mine SEC S-K 1300 Technical Report Summary dated July 2022. | þ | ||||||||||||||
99.1 | Report of Netherland, Sewell & Associates, Inc., dated January 7, 2022 | 10-K | 000-26823 22677260 | 99.1 | 02/25/2022 | |||||||||||
101 | Interactive Data File (Form 10-K for the year ended December 31, 2021 filed in Inline XBRL). | 10-K | 000-26823 22677260 | 101 | 02/25/2022 | |||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL). | þ |
* Filed herewith.
30
(1) | Denotes management contract or compensatory plan or arrangement. |
(2) | Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act, as amended, and the omitted material has been separately filed with the SEC. |
31
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in Tulsa, Oklahoma, on August 26, 2022.
ALLIANCE RESOURCE PARTNERS, L.P. | ||||
By: | Alliance Resource Management GP, LLC | |||
its general partner | ||||
/s/ Joseph W. Craft III | ||||
Joseph W. Craft III | ||||
President, Chief Executive | ||||
Officer and Chairman | ||||
32
Exhibit 23.4 Consent of RESPEC Company, LLC RESPEC Company, LLC hereby consents to the filing and use by Alliance Resource Partners, L.P. (the "Partnership"), in connection with the Partnership's Annual Report on Form 10-K for the year ended December 31, 2021, and any amendments thereto, and to the incorporation by reference in the Partnership's Registration Statements on Forms S-8 (Nos. 333-165168 and 333-85258) and Form S-3ASR (333-263016) of the Technical Report Summaries prepared by us, dated July 2022. We hereby further consent to the use of our name in those filings and any amendments thereto. RESPEC Company, LLC By: /s/ Michael Ricci Name: Michael Ricci Title: Principal Engineer Dated: August 26, 2022 |
Exhibit 31.3
CERTIFICATION
I, Joseph W. Craft III certify that:
1. | I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Alliance Resource Partners, L.P.; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. |
| |
Date: August 26, 2022 | |
| |
/s/ Joseph W. Craft III | |
Joseph W. Craft III | |
President, Chief Executive | |
Officer and Chairman | |
Exhibit 31.4
CERTIFICATION
I, Brian L. Cantrell, certify that:
1. | I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Alliance Resource Partners, L.P.; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. |
Date: August 26, 2022 | |
| |
/s/ Brian L. Cantrell | |
Brian L. Cantrell | |
Senior Vice President and | |
Chief Financial Officer | |
Exhibit 96.1
HENDERSON/UNION RESOURCES
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED FOR
Alliance Resource Properties, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
HENDERSON/UNION RESOURCES
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED BY
RESPEC
146 East Third Street
Lexington, Kentucky 40508
PREPARED FOR
Alliance Resource Properties, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
Project Number M0062.21001
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TABLE OF CONTENTS
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7.0 | EXPLORATION | 20 | ||
| 7.1 | DRILLING EXPLORATION | 20 | |
| 7.2 | HYDROGEOLOGIC INVESTIGATIONS | 20 | |
| 7.3 | Geotechnical Information | 21 | |
8.0 | SAMPLE PREPARATION, ANALYSES AND SECURITY | 22 | ||
| 8.1 | SAMPLE PREPARATION AND ANALYSIS | 22 | |
| 8.2 | QUALITY CONTROL/QUALITY ASSURANCE (QA/QC) | 23 | |
| 8.3 | OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION | 23 | |
9.0 | DATA VERIFICATION | 24 | ||
| 9.1 | SOURCE MATERIAL | 24 | |
| 9.2 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 24 | |
10.0 | MINERAL PROCESSING AND METALLURGICAL TESTING | 25 | ||
| 10.1 | ANALYTICAL PROCEDURES | 25 | |
| 10.2 | REPRESENTATIVE SAMPLES | 25 | |
| 10.3 | TESTING LABORATORIES | 25 | |
| 10.4 | OPINION OF QUALIFIED PERSON ON DATA ADEQUACY | 25 | |
11.0 | MINERAL RESOURCE ESTIMATES | 26 | ||
| 11.1 | DEFINITIONS | 26 | |
| 11.2 | LIMITING FACTORS IN RESOURCE DETERMINATION | 26 | |
| | 11.2.1 | Mineable Thickness | 26 |
| | 11.2.2 | Marketable Quality | 27 |
| | 11.2.3 | Government and Social Approval | 28 |
| 11.3 | CLASSIFICATION RESOURCES | 28 | |
| | 11.3.1 | Classification Criteria | 28 |
| | 11.3.2 | Use of Supplemental Data | 28 |
| 11.4 | ESTIMATION OF RESOURCES | 29 | |
| 11.5 | OPINION OF QUALIFIED PERSON | 30 | |
12.0 | MINERAL RESERVES ESTIMATES | 32 | ||
13.0 | MINING METHODS | 32 | ||
14.0 | PROCESSING AND RECOVERY METHODS | 32 | ||
15.0 | INFRASTRUCTURE | 32 | ||
16.0 | MARKET STUDIES | 32 | ||
17.0 | ENVIRONMENTAL | 32 | ||
18.0 | CAPITAL AND OPERATING COSTS | 32 | ||
19.0 | ECONOMIC ANALYSIS | 32 | ||
20.0 | ADJACENT PROPERTIES | 33 | ||
| 20.1 | WEST KENTUCKY NO. 11 SEAM | 33 | |
| 20.2 | WEST KENTUCKY NO. 9 SEAM | 33 |
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| 20.3 | WEST KENTUCKY NO. 7 SEAM | 33 | ||
| 20.4 | WEST KENTUCKY NO. 6 SEAM | 33 | ||
21.0 | OTHER RELEVANT DATA AND INFORMATION | 34 | |||
22.0 | INTERPRETATION AND CONCLUSIONS | 35 | |||
| 22.1 | INTERPRETATIONS AND CONCLUSIONS | 35 | ||
| 22.2 | RISKS AND UNCERTAINTIES | 35 | ||
23.0 | RECOMMENDATIONS | 36 | |||
24.0 | REFERENCES | 37 | |||
25.0 | RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT | 38 | |||
APPENDIX A RESOURCE MAP | A-1 |
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LIST OF TABLES
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LIST OF FIGURES
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1.0 EXECUTIVE SUMMARY
1.1PROPERTY DESCRIPTION
Alliance Resource Properties, LLC (ARP) has mineral interests in approximately 127,000 gross acres of coal resources in Union and Henderson Counties (HUR), Kentucky. The property is controlled through both fee ownership and leases of the coal. Surface facilities are controlled through ownership or lease.
1.2GEOLOGY AND MINERALIZATION
The West Kentucky No.6 seam (WKY6), West Kentucky No.7 seam (WKY7), West Kentucky No.9 seam (WKY9) and the West Kentucky No.11 seam (WKY11) are located in the Illinois Basin, more specifically the southeastern flank of the Illinois Basin. The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80,000 square miles, covering Illinois, southern Indiana, and western Kentucky. The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
1.3STATUS OF EXPLORATION
The HUR resource block has been extensively explored through drilling conducted by several companies. Drilling records are the primary dataset used in the evaluation of the reserve. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic information, and coal quality data.
1.4MINERAL RESOURCE ESTIMATES
This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. This information is used to create a resource model using Carlson’s Geology module, part of an established software suite for the mining industry. In addition to coal thickness and quality data, seam recovery is modeled. Classification of the resources is based on distances from drill data. Carlson then estimates in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, and resource classification boundaries. These results are exported to a database which then applies the appropriate percent ownership, mine recovery and seam recovery. Table 1-1 is a summary of the coal resources. None of the resources are converted to reserves.
Table 1-1. Summary of Controlled Coal Resources Estimates as of December 31, 2021
Seam | Controlled Recoverable (1,000 tons) |
WKY11 | 94,049 |
WKY9 | 109,766 |
WKY7 | 167,343 |
WKY6 | 152,304 |
Total Measured, Indicated & Inferred | 523,463 |
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1.5PERMITTING REQUIREMENTS
The Kentucky Department of Natural Resources (KYDNR), Division of Mine Permits (DMP) is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In conjunction with the KYDNR coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the Kentucky Department of Environmental Protection (KYDEP). KYDEP is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air or water quality.
1.6QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS
It is the Qualified Person’s (QP) opinion the risk of this resource is low. There is little risk of material impacts to the resource estimates. Access to the HUR is available from an active operation or through the redevelopment of inactive mine sites. Mining practices are well established.
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2.0 INTRODUCTION
2.1ISSUER OF REPORT
ARP has retained RESPEC Company, LLC (RESPEC) to prepare this Technical Report Summary (TRS) for the Henderson/Union Resource (HUR).
2.2TERMS OF REFERENCE AND PURPOSE
The purpose of this TRS is to support the disclosure in the annual report on Form 10-K of Alliance Resource Partners, L.P. (ARLP 10-K) of Mineral Resource and Mineral Reserve estimates for the HUR as of 12/31/2021. This report is intended to fulfill 17 Code of Federal Regulations (CFR) §229, “Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 – Regulation S-K,” subsection 1300, “Disclosure by Registrants Engaged in Mining Operations.” The mineral resource and mineral reserve estimates presented herein are classified according to 17 CFR§229.133 – Item (1300) Definitions.
Unless otherwise stated, all measurements are reported in U.S. imperial units and currency in U.S. dollars ($).
This TRS was prepared by RESPEC. No prior TRS has been filed with respect to the HUR.
2.3SOURCES OF INFORMATION
During the preparation of the TRS, discussions were had with several Alliance personnel.
The following information was provided by ARP and Alliance:
/ | Property History |
/ | Property Data |
/ | Laboratory Protocols |
/ | Sampling Protocols |
/ | Mining Methods |
/ | Processing and Recovery Methods |
2.4PERSONAL INSPECTION
No site visit was performed specifically regarding this report. However, the RESPEC QP is familiar with this resource area. The QP has been to several of the facilities multiple times for permitting projects related to the refuse plans, pond modifications, and slurry injection. The QP has visited the facilities associated with UC Processing. The QP generated an estimate of mine closure costs to determine the reclamation bond amount for those facilities. These facilities were inactive at the time of the last site visit. The QP has also been on-site at the UC Mining portal and the River View facilities that overlie the resource. The QP has not conducted a site visit of the Hamilton facilities associated with this resource.
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However, the QP is familiar with this resource area and the Hamilton facilities are not critical in the designation of these coal seams as resources.
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3.0 PROPERTY DESCRIPTION
3.1PROPERTY DESCRIPTION AND LOCATION
The HUR is located in Henderson and Union counties, Kentucky and covers approximately 173,000 underground acres. HUR has full or partial control of over 1,600 tracts encompassing over 127,000 gross acres. Though there is a geographic overlap with the existing River View operation, the resources are associated with different coal seams (WKY7 and WKY6) or, if the same seam (which occurs in the WKY11 and WKY9), separated by old works and geologic features into distinct areas. There is no overlap in the resource / reserve estimation. General locations for each resource area are:
West Kentucky No.11 Seam (WKY11)
/ | Hamilton 1 Area: 37°44’02” N, -88°02’00” W |
/ | Hamilton 2 Area: 37°41’25” N, -87°57’08” W |
/ | Corydon Area: 37°42’54” N, -87°46’13” W |
West Kentucky No.9 Seam (WKY9)
/ | 37°44’21” N, -87°40’30” W |
West Kentucky No.7 Seam (WKY7)
/ | 37°44’56” N, -87°56’17” W |
West Kentucky No.6 Seam (WKY6)
/ | 37°47’20” N, -87°44’16” W |
Figure 3-1 shows the general location of the HUR.
5
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Figure 3-1. General Location Map
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3.2MINERAL RIGHTS
Through a series of transactions in 2009, ARP acquired a significant portion of the HUR from affiliated companies consisting of owned and leased coal interests. Since that time, ARP has acquired significant additional coal properties and coal leases in Union and Henderson Counties from various companies and individuals. A portion of these properties represent the reserves for the River View Mine (RVM). The rest are held in the HUR for future development.
The HUR are currently not assigned to an operation and are held at ARP through a mixture of fee ownership and leases. The base leases are with private owners and generally provide for a term that can be extended until exhaustion of the leased coal. The resource tonnages are adjusted to the percentage controlled for the tracts that ARP owns or leases less than 100%.
3.3SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS
ARLP’s revolving credit facility is secured by, among other things, liens against certain HUR surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of Union County and Henderson County clerks. Refer to the ARLP 10-K "Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt" for more information on the revolving credit facility.
The Kentucky Department of Natural Resources (KYDNR), Division of Mine Permits (DMP) is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In conjunction with the KYDNR coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the Kentucky Department of Environmental Protection (KYDEP). KYDEP is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air or water quality.
Most applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing. A significant portion of the HUR is currently permitted by various operating subsidiaries of Alliance Coal, LLC. Permits are held by River View Coal, LLC, Rough Creek Mining, LLC (the Hamilton sites), UC Mining, LLC, and UC Processing, LLC. Multiple mining permits held by the various entities include mining in the WKY9 and WKY11. While the WKY6 and WKY7 are not currently permitted, these coal seams can be added to the existing permits via revision(s). Further, the existing permits can be revised to include additional mining areas in the WKY9 and WKY11. Permit revisions to add the unpermitted seams as well as expansion of currently permitted seams historically have been obtained in a timely manner.
Surface affects necessary for resource extraction are currently permitted at the various mining sites. These permits include facilities such as a preparation plant, conveyors, access roads, water control structures, refuse disposal facilities, mine access portals, and other appurtenances necessary for each site. Existing infrastructure, including waste disposal, is adequate for the initial development of the HUR. Expanded mining activities would necessarily require additional surface disturbance. The existing permits may require revision to allow additional surface impacts.
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Expansion of a permit may require a water user inventory and additional baseline groundwater and/or surface water sampling. If required, these items are typically completed through the permitting process. Permit expansions that include additional surface disturbance may require additional bonds to be posted with the appropriate regulatory authority.
Permit expansion or revision may require additional water discharge points. This will require a permit modification to any existing KPDES permit(s). The addition of any coal preparation, conveyors, or roads may require a permit modification to any existing DAQ permit(s).
8
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4.0ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
4.1TOPOGRAPHY AND VEGETATION
The HUR is located in the Green River – Southern Wabash Lowlands physiographic region of Kentucky per USEPA. This region is unglaciated, consisting of broad, nearly level bottomlands and low hills. It is drained by meandering, low gradient streams and rivers with wide floodplains. The possible surface facilities and access points are located to the west-southwest of Henderson, KY, and to the south of the Ohio River. The elevation ranges across the HUR area between about 340 and 640 feet above mean sea level. The vegetation across the HUR area consists primarily of cropland, with some pastureland and woodland.
4.2ACCESSIBILITY AND LOCAL RESOURCES
The HUR contains resources in four coal seams: WKY6, WKY7, WKY9, and WKY11.
For the WKY6, the coal seam can be developed within the boundary of inactive facilities held by UC Mining (UCM). UCM (37°44’24” N, -87°46’08” W) is located at 550 Smith Rd, Waverly, KY 42462. It is accessible from Henderson, KY, via US-60 to Coburn Ln to Smith Rd, or from Waverly, KY, via US-60 to Hwy-760 to Coburn Ln to Smith Rd. Interstate 69 is a major transportation artery passing through Henderson, KY, about 13.6 miles due east of UCM. At its closest point, the Ohio River lies about 7.9 miles to the northeast of UCM. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 25 miles to the northeast of UCM across the Ohio River in Evansville, IN.
For the WKY7, the coal seam can be developed at the active facilities of the RVM (37°44’35” N, -87°53’19” W). It is accessible from Henderson, KY, via US-60 to KY-1180/KY-359 to KY-1179, or from Uniontown, KY, via KY-130 to KY-141 to KY-1179. Interstate 69 is a major transportation artery passing through Henderson, KY, about 20 miles due east of RVM. At its closest point, the Ohio River lies about 3.8 miles to the northeast. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 29 miles to the northeast of RVM (Portal 1) across the Ohio River in Evansville, IN.
For the WKY9, the coal seam can be developed at the inactive facilities at UCM. UCM (37°44’24” N, -87°46’08” W) is located at 550 Smith Rd, Waverly, KY 42462. It is accessible from Henderson, KY, via US-60 to Coburn Ln to Smith Rd, or from Waverly, KY, via US-60 to Hwy-760 to Coburn Ln to Smith Rd. Interstate 69 is a major transportation artery passing through Henderson, KY, about 13.6 miles due east of UCM. At its closest point, the Ohio River lies about 7.9 miles to the northeast of UCM, passing by Henderson, KY, and Uniontown, KY. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 25 miles to the northeast of UCM across the Ohio River in Evansville, IN.
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For the Hamilton 1 area of the WKY11, the coal seam can be developed at the inactive facilities of the Hamilton 1 Mine (H1M). H1M (37°43’34” N, -88°02’16” W) is located at 393 Hamilton Mine Rd, Morganfield, KY 42437. It is accessible from Uniontown, KY, via KY-360 to Minerva Limp Rd to Hite Speece Rd to Hamilton Mine Rd, or from Morganfield, KY, via KY-56 to KY-360 to Hwy 871 to Hite Speece Rd to Hamilton Mine Rd. Interstate 69 is a major transportation artery passing through Henderson, KY, about 28 miles due east of H1M. At its closest point, the Ohio River lies about 1.3 miles to the northwest of H1M, passing by Henderson, KY, and Uniontown, KY. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 37 miles to the northeast of H1M across the Ohio River in Evansville, IN.
For the Hamilton 2 area of the WKY11, the coal seam can be developed at the inactive facilities of the Hamilton 2 Mine (H2M). H2M (37°41’44” N, -88°00’24” W) is located at 651 KY-360, Morganfield, KY 42437. It is accessible from Uniontown, KY, via KY-360, or from Morganfield, KY, via KY-56 to KY-360. Interstate 69 is a major transportation artery passing through Henderson, KY, about 27 miles due east of H2M. At its closest point, the Ohio River lies about 4.0 miles to the northwest of H2M, passing by Henderson, KY, and Uniontown, KY. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 36 miles to the northeast of H2M across the Ohio River in Evansville, IN.
For the Corydon area of the WKY11, the coal seam can be developed at the inactive facilities at UCM. UCM (37°44’24” N, -87°46’08” W) is located at 550 Smith Rd, Waverly, KY 42462. I t is accessible from Henderson, KY, via US-60 to Coburn Ln to Smith Rd, or from Waverly, KY, via US-60 to Hwy-760 to Coburn Ln to Smith Rd. Interstate 69 is a major transportation artery passing through Henderson, KY, about 13.6 miles due east of UCM. At its closest point, the Ohio River lies about 7.9 miles to the northeast of UCM, passing by Henderson, KY, and Uniontown, KY. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 25 miles to the northeast of UCM across the Ohio River in Evansville, IN.
4.3CLIMATE
The HUR and surrounding Henderson, KY, area has four distinct seasons with average annual precipitation of 44.8 inches according to U.S. Climate Data. The average annual high temperature is 67°F and the average annual low temperature is 47°F. The average annual snowfall is 13 inches. The climate of the area would have little to no effect on possible underground and surface facilities. The mine facilities in this area have the ability to work year-round.
4.4INFRASTRUCTURE
The various mine sites that can be modified or redeveloped to access the HUR have the ability to source potable water from local water districts in the area, such as the Henderson County Water District and the Union County Water District. These facilities will have the ability to source water for underground operations from underground collection sources and other natural groundwater sources. Water used for coal processing on the surface can be sourced from the Ohio River. The present electricity providers in the area include Kenergy Corporation and Kentucky Utilities Company (KU). Employment in the area is competitive. However, RVM has been able to attract a mixture of skilled and unskilled labor with its competitive pay package and benefits and we expect new operations in the area
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will have the same ability to attract labor. We expect mine personnel will primarily come from the surrounding Kentucky counties of Union, Henderson, and Webster. Some mine personnel may come from southern Illinois counties just across the Ohio River. The city of Henderson, KY, lies to the east-northeast of the HUR. Its population is 27,981 according to the 2020 U.S. Census, making it the 10th most populous city in Kentucky. Henderson is the county seat of Henderson County, KY, it is part of the Evansville Metropolitan Area, and is considered the southernmost suburb of Evansville, IN. Most supplies can be trucked to any of the new mine facilities from regional vendors.
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5.0 | HISTORY |
5.1PRIOR OWNERSHIP
Island Creek Coal Company (ICCC), currently a subsidiary of CONSOL Energy Inc. (CONSOL), operated mines in the area and previously controlled a portion of the property. Under a joint venture with CONSOL, Texas Gas also controlled a large interest in the mineral rights. Peabody Energy Corporation and its successor, Patriot Coal Corporation (Peabody-Patriot), operated the Camp Complex (WKY9, WKY11) and Highland (WKY9, WKY11) mines in the area and previously controlled a portion of the resources. ICCC operated the Ohio #11 (WKY11), Uniontown #9 (WKY9), Hamilton #1 (WKY9), and Hamilton#2 (WKY9) mines.
5.2EXPLORATION HISTORY
5.2.1WEST KENTUCKY NO. 11 SEAM
Approximately 640 exploration holes penetrate the WKY11 within and adjacent to the HUR area to assess thickness, quality, and mineability of the seam. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal seam, and then cored to collect roof, coal, and floor samples. Most cores range from approximately 3 to 4 inches in diameter. Coal quality was analyzed on over 130 holes in the WKY11. Some later holes included geophysical logs to verify core thicknesses and strata in rotary intervals. ICCC and CONSOL drilled about 180 holes in the area from 1950 to 1997. Quality was analyzed for around 50% of the holes and the U-series has geophysical logs after 1986. Peabody-Patriot drilled over 380 holes intersecting the WKY11. Coal quality was analyzed on 40 holes, and some have geophysical logs. About 60 other holes were drilled by miscellaneous companies within the area which provide similar information as described above. River View has drilled 18 holes on the property to supplement the historical data. Over 50 oil and gas well geophysical logs have been interpreted to supplement the exploration information. The drilling and resultant geological data show a highly consistent coal seam of mineable thickness and quality for the thermal utility market.
5.2.2WEST KENTUCKY NO. 9 SEAM
Approximately 400 exploration holes penetrate the WKY9 within and adjacent to the HUR area to assess thickness, quality, and mineability of the seam. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal seam, and then cored to collect roof, coal, and floor samples. Most cores range from approximately 3 to 4 inches in diameter. Coal quality was analyzed on about 115 holes in the WKY9. Peabody-Patriot drilled over 340 holes intersecting the WKY9. Coal quality was analyzed on about 100 holes, and some have geophysical logs. About 60 other holes were drilled by miscellaneous companies within the area which provide similar information as described above. River View has drilled and analyzed 4 holes on the property to supplement the historical data. Further, about 30 oil/gas well geophysical logs have been interpreted to supplement the exploration information. The drilling and resultant geological data show a highly consistent coal seam of mineable thickness and quality for the thermal utility market.
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5.2.3WEST KENTUCKY NO. 7 SEAM
Over 170 exploration holes penetrate the WKY7 within and adjacent to the HUR area to assess thickness, quality, and mineability of the seam. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal seam, and then cored to collect roof, coal, and floor samples. Most cores range from approximately 3 to 4 inches in diameter. Coal quality was analyzed on over 100 holes in the WKY7. Some holes include geophysical logs which verify core thicknesses and strata in rotary intervals. ICCC and CONSOL drilled about 140 holes in the area from 1950 to 1997. Coal quality was analyzed for approximately 75% of the holes and there are geophysical logs for the holes drilled after 1986. About 20 holes were drilled by miscellaneous companies within the area which provide similar information as described above. River View has drilled 14 holes on the property to supplement the historical data. Over 130 oil/gas well geophysical logs have been interpreted to supplement the exploration information. The drilling and resultant geologic data show a highly consistent coal seam of mineable thickness and quality for the thermal utility market.
5.2.4WEST KENTUCKY NO. 6 SEAM
Over 80 exploration holes penetrate the WKY6 within and adjacent to the HUR area to assess thickness, quality, and mineability of the seam. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal seam, and then cored to collect roof, coal, and floor samples. Most cores range from approximately 3 to 4 inches in diameter. Coal quality was analyzed on about 60 holes in the WKY6. Some holes included geophysical logs which verify core thicknesses and strata in rotary intervals. ICCC and CONSOL drilled about 25 holes in the area from 1950 to 1997. Coal quality was analyzed for approximately 70% of the holes and there are geophysical logs for the holes drilled after 1986. Peabody-Patriot drilled over 25 holes intersecting the WKY6. Quality was analyzed on over 20 holes in these series, and some have geophysical logs. About 30 holes were drilled by miscellaneous companies within the area which provide similar information as described above. Over 70 oil/gas well geophysical logs have been interpreted to supplement the exploration information. The drilling and resultant geologic data show a highly consistent coal seam of mineable thickness and quality for the thermal utility market.
See Appendix A for a map showing all drill hole locations.
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6.0GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT
6.1REGIONAL GEOLOGY
The HUR includes the WKY11, WKY9, WKY7 and WKY6 seams located in the Illinois Basin, more specifically the southeastern flank of the Illinois Basin. The WKY11 correlates regionally to the Herrin No.6 seam and the WKY9 correlates regionally to the Springfield No.5 seam. The WKY7 correlates regionally to the Dekoven seam and the WKY6 correlates regionally to the Davis seam.
The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80,000 square miles, covering Illinois, southern Indiana and western Kentucky.
Primary coal-bearing strata, including the WKY11, WKY9, WKY7 and WKY6 are in formations of Pennsylvanian aged rocks, which were deposited about 325 to 290 million years ago. The Pennsylvanian System is characterized by many vertical changes in lithology. There are over five hundred distinct beds of shale, sandstone, sandy shale, limestone, and coal in the Pennsylvanian System in Illinois. Many beds are laterally extensive and can be correlated across much of the Illinois Basin because of their position in relation to distinct marker beds, such as coals and limestones.
Pennsylvanian rocks in the region consist of shale, sandstone, siltstone, coal, and limestone, and are largely alluvial or deltaic in origin. Sandstones and siltstones make up between 50 and 80 percent of the coal-bearing sequence, while shales make up between 20 and 40 percent.
The Carbondale formation, which is not defined in a particular Group, accounts for just a quarter of the rocks in the Pennsylvanian System in Kentucky. However, the Carbondale formation contains more than two-thirds of the coal resources in the state.
See Figure 6-1 for a stratigraphic column.
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Figure 6-1. Generalized Stratigraphic Column of Pennsylvanian Rocks in Kentucky
6.2LOCAL GEOLOGY
6.2.1WEST KENTUCKY NO. 11 SEAM
The immediate roof over the WKY11 reserve is a dark gray to black fossiliferous shale that averages about 0.5 feet thick, commonly called “gob”. Above the gob is the Providence Limestone. This
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limestone varies in thickness from zero to seven feet; but typically, is three to four feet thick. The West Kentucky No.12 (WKY12) seam occurs sporadically throughout the reserve above the Providence Limestone. The Providence Limestone and WKY12 are overlain by a silty gray shale of variable thickness and the Anvil Rock Sandstone (Anvil Rock). The Anvil Rock is the primary aquifer in the region. This sandstone is known to scour into the WKY11 immediate roof and in localized areas the WKY11. When this occurs water from the Anvil Rock may be released into the mine. Mining is avoided in areas where the Anvil Rock is within five feet of the WKY11. The floor of the WKY11 is predominantly a fireclay underlain by a limey claystone.
6.2.2WEST KENTUCKY NO. 9 SEAM
The immediate roof over a vast majority of the WKY9 reserve is a black, fissile shale, often containing fossils. This black shale generally ranges between one to two feet thick. The black shale is overlain by dark gray shale. The lower ten to twelve feet of the dark gray shale is very dark and often contains siderite nodules and bands. Above the gray shale are silty and sandy shales. Above the shale is a water-bearing sandstone that varies in thickness and extent. This sandstone can encroach on the immediate and main roof. When this occurs, ground control issues can occur and generally require additional roof support to maintain stability. The WKY9 is underlain by a soft underclay that is underlain by a limey claystone containing limestone nodules.
6.2.3WEST KENTUCKY NO. 7 SEAM
The WKY7 immediate roof varies between carbonaceous black shale, gray shale, or sandy shale. The immediate roof is overlain by sandstone, which can locally scour into the seam. The floor is generally a dark gray, silty claystone that is underlain by a sandy shale containing limestone nodules. In some areas of the WKY7, the claystone-shale immediate floor is replaced by sandstone.
6.2.4WEST KENTUCKY NO. 6 SEAM
The immediate roof for the WKY6 seam is typically a carbonaceous black shale ranging between one to two feet thick. Above this black shale is a dark gray shale with siderite nodules or a silty gray shale. The immediate floor is normally a sandy claystone.
See Figure 6-1 for a stratigraphic column and Figures 6-2 and 6-3 for geologic cross sections representing the local geology. See Appendix A for a plan view showing the locations of the cross sections.
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Figure 6-2. Geological Cross-Section A-A’
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Figure 6-3. Geological Cross-Section B-B’
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6.3PROPERTY GEOLOGY AND MINERALIZATION
The HUR includes the WKY11, WKY9, WKY7, and WKY6. The seams range between 100 and 800 feet in depth.
The HUR is bound to the north and west by the Ohio River and sets of northeast-southwest trending faults of the Rough Creek-Shawneetown system. The south is bound by previous mining and faulting. It is bound to the east by conditions related to the Anvil Rock sandstone (WKY11 only), as well as previous mining. In addition to these resource defining parameters, the WKY11, WKY7, and WKY6 resource areas are defined by areas where the coal is thin or absent. The coal-bearing strata dips gently to the north and east across the resource area.
The mineral deposit types in the HUR area are high volatile bituminous coal. The primary coal-bearing strata is of Carboniferous age, in the Pennsylvanian system.
The geologic model developed to explore the HUR is a bedded sedimentary deposit model. This is generally described as a continuous, non-complex, typical cyclothem sequence that follows a bedded sedimentary sequence. The geology continues to be verified as new data is received.
A stratigraphic column (Figure 6-1) and geologic cross sections (Figure 6-2 & Figure 6-3) representing the local geology, are included in this report.
6.4STRATIGRAPHY
6.4.1CARBONDALE FORMATION
The lower Carbondale Formation boundary is placed at the bottom of the Davis (WKY6) seam. When this coal is absent, the lower Carbondale is placed at the top of the Yeargins Limestone. The upper boundary is placed at the base of the Providence Limestone. Where this limestone is absent, it is placed at the top of the Herrin (WKY11) seam. The Carbondale Formation makes up about a quarter of the rocks in the Pennsylvanian System and contains two-thirds of the coal resources in Kentucky.
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7.0 EXPLORATION
7.1DRILLING EXPLORATION
The HUR has been explored extensively through drilling and information gathered by previous companies. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic data, and coal quality. This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. The drilling density on the controlled property is sufficient to identify and predict geological trends within the resource area.
The geologic database is supplemented using oil and gas well data from the petroleum industry. Oil and gas well geophysical logs are acquired from the Kentucky Geological Survey. The most common geophysical log available is the induction log, which has the spontaneous potential curve and various resistivity and conductivity curves. These logs are beneficial in identifying sandstones, coals, and shales. Though less common, geophysical logs that have natural gamma, density and resistivity curves are available. These logs are identified in the geologic database as a “high quality” well. These logs provide more detail and differentiate the strata within the lithology in greater detail. Oil and gas well data are used to verify thickness, identify faulting, and delineate areas with adverse mining conditions.
Drilling on the property has targeted the WKY11, WKY9, WKY7 and WKY6 seams and has been conducted using industry standard methods by a third-party contractor or a company owned drill rig using qualified personnel. Drilling methods include continuous diamond coring, mud rotary, air rotary and spot coring. Spot coring is a method that uses either mud or air rotary drilling to reach a specific depth, usually twenty or thirty feet above the target seam. Once this depth is reached, the drill string is removed, and the rig sets up for core drilling. The core barrel is advanced to the bottom of the hole where coring commences. Core is advanced to about ten feet below the target seam. Once drilling is completed on a hole, a suite of geophysical parameters is collected for the entire borehole. Parameters such as naturally occurring gamma, resistivity, high resolution density and caliper data are collected. This information is used to verify the driller’s log and the geologist’s log, and to verify the thickness of the coal and core recovery. The geophysical log is helpful if core isn’t collected, such as when only rotary drilling is conducted. The information from the geophysical log is used to determine coal thickness and identify critical strata in the boring.
Continuous coring on the property is generally limited to locations where potential shafts, slopes or other critical infrastructure will be located. All core is described by a geologist, photographed for future reference, and stored until no longer needed.
7.2HYDROGEOLOGIC INVESTIGATIONS
The Kentucky Department of Natural Resources (KDNR), Department of Mine Permits (DMP) requires a groundwater user survey to be conducted in and within 1,000’ of the permitted boundary. Issuance of the permit requires DMP to write a Cumulative Hydrologic Impact Assessment (CHIA). These items were completed for permitted areas within the HUR.
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7.3GEOTECHNICAL INFORMATION
No geotechnical data is available for the HUR area.
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8.0 SAMPLE PREPARATION, ANALYSES AND SECURITY
8.1SAMPLE PREPARATION AND ANALYSIS
Prior to sending samples to the laboratory for analysis, company representatives prepare samples for transport. This includes a sample request form, which has information such as sample ID, depths and requested analyses to be performed. The sample request form is placed securely inside the sample container. If the sample is rock core, the core remains sealed in plastic bags inside the core box provided by the drilling contractor. The core box is secured using heavy duty packing tape. Company representatives then arrange for sample pick up by a representative of the laboratory selected to perform the analyses. Rigorous quality control and quality assurance standards are strictly adhered to throughout the sampling and analysis process.
Sample analysis for the HUR is currently conducted by two laboratories: Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from the HUR. One laboratory is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.” SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03.
Both laboratories prepare, assay, and analyze samples in accordance with approved ASTM international standards. Previous drilling programs used Commercial Testing and Engineering, Dickinson Laboratories, and others for coal quality analyses.
Typical coal quality analyses include the following:
/ | Ultimate Analysis using ASTM Method D5373 for percent nitrogen, carbon and hydrogen and ASTM D3176 for the determination of percent oxygen. |
/ | Mineral Analysis of Ash using ASTM Method D4326 or D6349 for measuring percent silicon dioxide, aluminum dioxide, ferric oxide, calcium oxide, magnesium oxide, potassium oxide, sodium oxide, titanium dioxide, phosphorus pentoxide, magnesium dioxide, barium oxide, strontium oxide, sulfur trioxide. |
/ | Proximate Analysis using ASTM Method D5865 for the determination of thermal caloric value in BTU/LB. ASTM Method D3174/D7582 is used for the determination of percent ash. ASTM Method D4239 is used for measuring percent sulfur. Method D3175 is used to determine percent volatiles and ASTM D3172 is used to determine percentage of fixed carbon. Total Moisture is determined by ASTM Method D3302. |
/ | Ash Fusion Temperatures are determined using ASTM Method D1857, Sulfur Forms are determined using ASTM Method D2492 and Water-Soluble Alkalis are determined using ASTM Method C114 Mod. The Free Swelling Index is determined using ASTM Method D720. |
/ | The Hardgrove Grindability Index (HGI) is measured using ASTM Method D409 (M) and the percent Equilibrium Moisture is determined using ASTM Method D1412. |
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/ | Trace element analysis to include Antimony, Arsenic, Barium, Beryllium, Boron, Bromine, Cadmium, Chlorine, Chromium, Cobalt, Copper, Fluorine, Germanium, Iodine, Lead, Lithium, Manganese, Mercury, Molybdenum, Nickel, Selenium, Silver, Strontium, Thallium, Tin, Uranium, Vanadium, Zinc and Zirconium. ASTM Method D6357, D4208, D3761, D3684 or D6722 are typically used. |
Other parameters include Silica Value, Base/Acid Ratio, T250 Temperature, Slagging/Fouling Index, and Alkalis as Sodium Oxide, Dry basis.
The HUR has sufficient drilling across the extent of the resource to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling.
8.2QUALITY CONTROL/QUALITY ASSURANCE (QA/QC)
No significant disruptions, issues, or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that the quality assurance actions employed by these laboratories are adequate to provide reliable results for the requested parameters.
8.3OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION
No significant disruptions, issues, or concerns have ever arisen as a result of sample preparation. Therefore, it’s reasonable to assume that sample preparation, security, and analytical procedures in place are adequate to provide a reliable sample in which requested parameters can be analyzed.
The QP is of the opinion that the sample preparation, security, and analytical procedures for the samples supporting the resource estimation work are adequate for the statement of mineral resources. Results from different laboratories show consistency and nothing in QA/QC demonstrates consistent bias in the results.
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9.0 DATA VERIFICATION
9.1SOURCE MATERIAL
A detailed geologic database is maintained for the HUR and is used to develop several types of maps used to predict the mineability and coal quality of the WKY11, WKY9, WKY7 and WKY6. Data verification of the accuracy of this database is conducted on a regular basis by company engineers and geologists. This includes a detailed review of seam correlation, coal quality data, and lithologic information of all exploration drill holes.
RESPEC was provided with e-log data for all new holes or data obtained since 2016. RESPEC compared 20% of those e-logs to the Carlson database. RESPEC also verified the thickness and quality grids. As part of the verification process, a new thickness grid was created from the database, and that resultant grid compared to the HUR model using Carlson grid file utilities.
9.2OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
Based on the verification of the HUR data by the QP and the review of prior database audits, the QP deems the adequacy of the HUR data to be reasonable for the purposes of developing a resource model and estimating resources and subsequent reserves.
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10.0 MINERAL PROCESSING AND METALLURGICAL TESTING
10.1ANALYTICAL PROCEDURES
There is sufficient drilling across the extent of the HUR to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling.
10.2REPRESENTATIVE SAMPLES
The parameters analyzed for the HUR are adequate to define the characteristics necessary to support the marketability of the coal.
10.3TESTING LABORATORIES
The samples collected during previous drilling programs conducted by various companies were analyzed at various regional laboratories including Commercial Testing and Engineering and the Island Creek Coal Western Kentucky Division-laboratory.
Currently, samples are analyzed for the HUR by two laboratories, Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from the HUR. One laboratory is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03. Both laboratories provide unbiased, third-party results and operate on a contractual basis.
No significant disruptions, issues, or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that using these laboratories should provide assurance that the data processing and reporting procedures are reliable.
A series of washability tests were performed for the HUR to develop washability curves. These curves predict coal qualities and recoveries at different specific gravities. The results from the coal quality sampling program are adequate to determine the specification requirements for customers located in both the domestic and export markets.
10.4OPINION OF QUALIFIED PERSON ON DATA ADEQUACY
It is the opinion of the QP that the coal processing data collected from these analyses is adequate for modeling the resources for marketing purposes. All analyses are derived using standard industry practices by laboratories that are leaders in their industry.
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11.0 MINERAL RESOURCE ESTIMATES
11.1DEFINITIONS
A mineral resource is an estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.
Mineral resources are categorized based on the level of confidence in the geologic evidence. According to 17 CFR § 229.1301 (2021), the following definitions of mineral resource categories are included for reference:
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. An inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An inferred mineral resource, therefore, may not be converted to a mineral reserve.
An indicated mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. An indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource and may only be converted to a probable mineral reserve. As used in this subpart, the term adequate geological evidence means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty.
A measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. As used in this subpart, the term conclusive geological evidence means evidence that is sufficient to test and confirm geological and grade or quality continuity.
11.2LIMITING FACTORS IN RESOURCE DETERMINATION
Resources in the WKY6, WKY 7, WKY9, and WKY11 seams are delineated based on the following limitations:
/ | Mineable thickness |
/ | Marketable quality |
/ | Structural limits, such as faults or sandstone channels, existing mining, and subsidence protection zones |
/ | Government and social approval |
11.2.1MINEABLE THICKNESS
Thicknesses are extracted from the database to create a geologic model. Grids are created using an inverse distance algorithm using a weighting factor of three. The ranges of coal seam thickness within
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the resource area are as follows: WKY11 from 3.2 feet to 6.0 feet, WKY9 from 4.0 feet to 5.8 feet, WKY7 from 3.9 feet to 6.0 feet, and the WKY6 from 4.0 to 5.9 feet.
11.2.2MARKETABLE QUALITY
The primary source coal quality data is from core holes drilled for the purpose of coal exploration. The qualities that are of primary interest are ash, sulfur, and BTU. These qualities affect the value of the coal. The table below summarized the values and ranges of each in the geologic database. The range of critical qualities in the database indicates that the coal in all four seams is within marketable limits. The potential resource areas are considered to meet the quality standard and no further consideration or analyses of these parameters are made. All resource estimates include average anticipated values for ash, sulfur, and BTU.
Values in Table 11-1 are dry basis qualities based on laboratory analysis of core samples. Marketable qualities will reflect moisture and adjustments for plant variability.
Table 11-1. Qualities at 1.5 Specific Gravity – Dry Basis
Seam | Quality | Number of samples | Average | Minimum | Maximum | Standard Deviation |
WKY11 | Ash | 132 | 7.12 | 5.39 | 11.36 | 1.09 |
WKY11 | Sulfur | 132 | 3.24 | 2.59 | 4.22 | 0.30 |
WKY11 | BTU | 132 | 13,376 | 12,667 | 13,728 | 181.97 |
WKY9 | Ash | 128 | 8.78 | 7.19 | 10.71 | 0.74 |
WKY9 | Sulfur | 128 | 3.10 | 2.36 | 4.61 | 0.36 |
WKY9 | BTU | 128 | 13,191 | 12,857 | 13,575 | 146.26 |
WKY7 | Ash | 60 | 8.07 | 6.01 | 10.15 | 0.83 |
WKY7 | Sulfur | 60 | 2.38 | 1.08 | 3.16 | 0.40 |
WKY7 | BTU | 60 | 13,399 | 13,037 | 13,752 | 154.71 |
WKY6 | Ash | 35 | 7.61 | 5.99 | 9.38 | 0.88 |
WKY6 | Sulfur | 35 | 2.65 | 2.01 | 4.02 | 0.42 |
WKY6 | BTU | 35 | 13,483 | 13,062 | 13,902 | 189.93 |
Marketable qualities are expected to range around 7.2-9.0% ash, 2.5-3.2% sulfur, and 11,400-11,700 BTU.
Significant faulting is identified in the region and creates the boundary of the resource in some areas. Coal thicknesses throughout the entire resource area are considered to be of mineable thickness for the room and pillar methods.
The northern boundary for the seams in the resource is the Ohio River. The WKY6 resource is bound on the east by the Ohio River and on the south and southwest by the cutoff minimum mining thickness of four feet. The northwest boundary of the WKY6 resource is stopped to protect the overlying WKY7 resources.
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The WKY7 resource is bound on the north and west by the Ohio River. The southern boundary is defined by a set of faults running east-west. The eastern boundary is based on the cutoff minimum mining thickness of four feet.
The WKY9 resource is bound on the west by existing underground mine workings. The eastern boundary is the Henderson Channel, and the northwestern boundary is generally north-south faulting.
The WKY11 resource is bound on the west by the Ohio River and along the south by a set of mostly east-west faults. The eastern boundary is based on the cutoff minimum mining thickness of four feet.
There are several existing underground mines that limit the interior extent of the resource.
11.2.3GOVERNMENT AND SOCIAL APPROVAL
There are no known limitations to obtaining any required permits within the HUR area. There are several existing mining permits within the HUR area. Modifications or revisions may be required to any existing permits under which future coal operations are conducted within the HUR area. Historically, mining permits within the HUR area can be obtained, amended, or revised as needed. The public is notified of significant permitting actions and may participate in the permitting process.
11.3CLASSIFICATION RESOURCES
11.3.1CLASSIFICATION CRITERIA
The identified resources are divided into three categories of increasing confidence: inferred, indicated, and measured. The delineation of these categories is based on the distance from a known measurement point of the coal. The distances used are presented in USGS Bulletin 1450-B, “Coal Resource Classification System of the U.S. Bureau of Mines and U.S. Geological Survey.” These distances are presented in the Table 11-2.
Table 11-2. Coal Resource Classification System
Classification | Distance from measurement point |
Measured | <1,320’ |
Indicated | 1,320’ – 3,960’ |
Inferred | 3,960’ – 15,840’ |
These distances for classification division are not mandatory. However, these values have been used since 1976, have proven reliable in the estimation of coal resources, and are considered reasonable by the QP.
11.3.2USE OF SUPPLEMENTAL DATA
Due to the continuity of coal seams in the Illinois Basin, mineability limits are the most important factor in resource assessment. Information from oil and gas well e-logs in the vicinity are used as supplemental data to confirm thickness trends, identify structural limits, and characterize adverse geologic conditions. Coal thickness grids are generated from drill hole information, mine
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measurements, channel samples, and a subset of high-quality oil and gas well e-logs. These are data points in which the company has a high degree of confidence in thickness measurement. These are the data used to generate the model for planning. The combined information increases the overall reliability of the resource estimate, and all data points are included within the classification system.
11.4ESTIMATION OF RESOURCES
Resource estimates are based on a database of geologic information gathered from various sources. The sources of this data are presented in Section 7 of this report. Thickness and quality data are extracted from the database to create a model using Carlson’s Geology module. The model consists of a set of grids, generated using an inverse distance algorithm with a weighting factor of three. In addition to the thickness and quality data, seam recovery is modeled. Quality data and recovery rates are determined through a set of tests generating washability curves. The qualities and seam yield are based on a specific gravity of 1.5. This is consistent with the wash gravity at the nearby River View operation. The qualities and recovery at a 1.5 specific gravity are added as attributes to the applicable drill holes from which samples were collected. Those values are then modeled using Carlson, gridding these attributes using the inverse distance algorithm with a weighting factor of three.
Extraction of the resources is expected to be by room and pillar methods. The approved ground control plan in the adjacent mine results in a 48% mining recovery of the in-place reserves. This mining recovery is applied to the in-place coal estimates for the WKY11 and WKY9 seams. The mining recovery in the WKY7 and WKY6 seams is reduced to 46% to account for larger pillar sizes which will be required to provide adequate roof support at the increased depth of these seams.
The coal testing included density calculations. The average in-situ density of 82.6 lbs/cubic foot for these seams was used for resource estimation. This value is within the expected range of coal density.
All coal tonnages are reported as clean controlled coal. Carlson’s Surface Mine Module is used to estimate in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. The Carlson results are exported to a database, which then applies the appropriate percent ownership, mine recovery, and seam recovery. The basic calculation is:
Tons = Area * Thickness * Density * Mine Recovery * Seam Recovery * Percent Ownership
Table 11-3. Summary of Recoverable Coal Resources as of December 31, 2021
Reserve Category / Seam | Controlled Recoverable (1,000 tons) | Sulfur (%) | Ash (%) | BTU |
WKY11 Seam | ||||
Measured | 52,267 | 3.30 | 7.27 | 13,338 |
Indicated | 36,593 | 3.19 | 7.49 | 13,335 |
Inferred | 5,188 | 3.02 | 9.94 | 13,079 |
WKY11 Total | 94,049 | 3.24 | 7.50 | 13,323 |
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Values in Table 11-3 are based on a washed, dry basis.
The EIA reported the average weekly coal commodity spot price for Illinois Basin coal (the EIA price) on February 4, 2022, to be $75.50/ton (11,800 Btu, 5.0 lbs. SO2 basis). The reference price used in the economic analysis is $39.10 which is based on the QP's review of historical pricing realized by the adjacent River View operation and proprietary third-party coal price forecasts provided by Alliance. Mining and processing costs along with general and administrative costs were estimated. Table 11.4 shows the economic basis for the estimate of each seam in real 2021 U.S. dollars.
Table 11-4. Economic Basis for Estimates (US$/ton)
Seam | No.11 | No.9 | No.7 | No.6 |
Revenues | $39.10 | $39.10 | $39.10 | $39.10 |
Mining and Processing Costs | $31.93 | $29.82 | $30.58 | $31.49 |
General & Administrative Costs | $0.60 | $0.52 | $0.49 | $0.59 |
11.5OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the Resource estimate is low. Access to the HUR is available from an active operation or through the redevelopment of inactive mine sites. Mining practices for operations of the type anticipated are well established. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
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Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance, including HUR, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation |
» | Regulatory changes related to the Waters of the US |
» | Air quality standards |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewals to provide a higher percentage of electricity production, coal will continue to serve as baseload fuel source. US coal companies are also now more actively competing in the export market. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the resource.
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12.0 MINERAL RESERVES ESTIMATES
This section is not applicable. No reserves are reported.
13.0 MINING METHODS
Though no reserves are reported, conceptual underground mining operations would use room and pillar methods similar to other mines in the area.
14.0 PROCESSING AND RECOVERY METHODS
Though no reserves are reported, conceptional processing methods would use heavy media separation similar to other mines in the area.
15.0 INFRASTRUCTURE
This section is not applicable. No reserves are reported.
16.0 MARKET STUDIES
This section is not applicable. No reserves are reported.
17.0 ENVIRONMENTAL
This section is not applicable. No reserves are reported.
18.0 CAPITAL AND OPERATING COSTS
This section is not applicable. No reserves are reported.
19.0 ECONOMIC ANALYSIS
This section is not applicable. No reserves are reported.
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20.0 ADJACENT PROPERTIES
20.1WEST KENTUCKY NO. 11 SEAM
The Ohio 11 mine lies to the north and east of the WKY11 resources associated with the Hamilton areas, with the River View No.11 mine to the northeast. The Corydon resources are bounded by the closed Camp mines to the south and the closed Highland No.11 mine to the southwest. The active River View No.11 mine lies to the west.
20.2WEST KENTUCKY NO. 9 SEAM
The closed Highland No.9 mine lies to the west of the WKY9 resource area. The closed Camp mines lie to the southwest.
20.3WEST KENTUCKY NO. 7 SEAM
There are no adjacent mines or properties to the WKY7.
20.4WEST KENTUCKY NO. 6 SEAM
There are no adjacent mines or properties to the WKY6.
There are no active properties in the area other than the River View mine.
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21.0 OTHER RELEVANT DATA AND INFORMATION
All data relevant to the supporting studies and estimates of mineral resources have been included in the sections of this TRS. No additional information or explanation is necessary to make this TRS understandable and not misleading.
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22.0 INTERPRETATION AND CONCLUSIONS
22.1INTERPRETATIONS AND CONCLUSIONS
The QP has reached a conclusion concerning the HUR resource based on data and analysis summarized in this TRS that the coal seams have reasonable prospects for economic extraction when considering relevant factors such as cut-off grade, likely mining dimensions, location, and continuity, that, with the assumed and justifiable technical and economic conditions, are likely to, in whole or in part, become economically extractable. HUR contains an estimated 523.4 million clean tons of resources.
22.2RISKS AND UNCERTAINTIES
It is the QP’s opinion that risks to resource estimate are low. The analysis of the resources used the same methodology used in the past. Given the reliability of past mining plans within and adjacent to the resource area, it is a reasonable conclusion that future mining plans can be developed and executed. However, market uncertainty associated with government regulations could result in earlier retirements of coal-fired electric generating units and delay or prevent development of the HUR. This could negatively affect the demand and pricing for coal. Please refer to Alliance Resource Partners, L.P. Form 10-K 1A, for a complete listing of risk factors that may affect this resource.
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23.0 RECOMMENDATIONS
The recommendations for HUR are as follows:
/ | Continue acquiring mining rights where advantageous to do so |
/ | Continued maintenance of existing permits |
/ | Continue current exploration plan |
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24.0 REFERENCES
Greb, Stephen F; Williams, David A; and Williamson, Allen D. (1992)” Geology and Stratigraphy of the Western Kentucky Coal Field”. Kentucky Geological Survey Bulletin. 3
https://uknowledge.uky.edu/kgs_b/3
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25.0 RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT
Table 25-1 summarizes the information provided by the registrant for matters discussed in this report, as permitted under §229.1302(f) of the SEC S-K 1300 Final Rule.
Table 25-1. Summary of Information Provided by Registrant
| | |
Category | Report Item/ Portion | Disclose why the Qualified Person considers it reasonable to rely upon the registrant |
Macroeconomic trends | Section 19 | N/A This section is not applicable. No reserves are reported. |
Marketing information | Section 16 | N/A This section is not applicable. No reserves are reported. |
Legal matters | Section 17 | N/A This section is not applicable. No reserves are reported. |
Environmental matters | Section 17 | N/A This section is not applicable. No reserves are reported. |
Local area commitments | Section 17 | N/A This section is not applicable. No reserves are reported. |
Governmental factors | N/A | N/A |
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APPENDIX A
RESOURCE MAP
A-1 | |
Exhibit 96.2
RIVER VIEW MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED FOR
River View Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
RIVER VIEW MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED BY
RESPEC
146 East Third Street
Lexington, Kentucky 40508
PREPARED FOR
River View Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
Project Number M0062.21001
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| 8.1 | SAMPLE PREPARATION METHODS AND ANALYSIS | 20 | |
| 8.2 | QUALITY CONTROL/QUALITY ASSURANCE (QA/QC) | 21 | |
| 8.3 | OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION | 21 | |
9.0 | DATA VERIFICATION | 22 | ||
| 9.1 | SOURCE MATERIAL | 22 | |
| 9.2 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 22 | |
10.0 | MINERAL PROCESSING AND METALLURGICAL TESTING | 23 | ||
| 10.1 | ANALYTICAL PROCEDURES | 23 | |
| 10.2 | REPRESENTATIVE SAMPLES | 23 | |
| 10.3 | TESTING LABORATORIES | 23 | |
| 10.4 | RESULTS | 23 | |
| 10.5 | OPINION OF QUALIFIED PERSON ON DATA ADEQUACY | 24 | |
11.0 | MINERAL RESOURCE ESTIMATES | 25 | ||
| 11.1 | DEFINITIONS | 25 | |
| 11.2 | LIMITING FACTORS IN RESOURCE DETERMINATION | 25 | |
| | 11.2.1 | Mineable Thickness | 25 |
| | 11.2.2 | Marketable Quality | 26 |
| | 11.2.3 | Structural limits | 26 |
| | 11.2.4 | Government and Social Approval | 27 |
| 11.3 | CLASSIFICATION RESOURCES | 27 | |
| | 11.3.1 | Classification Criteria | 27 |
| | 11.3.2 | Use of Supplemental Data | 27 |
| 11.4 | ESTIMATION OF RESOURCES | 28 | |
| 11.5 | OPINION OF QUALIFIED PERSON | 28 | |
12.0 | MINERAL RESERVES ESTIMATES | 29 | ||
| 12.1 | DEFINITIONS | 29 | |
| 12.2 | KEY ASSUMPTIONS, PARAMETERS AND METHODS | 29 | |
| | 12.2.1 | Reserve Classification Criteria | 29 |
| | 12.2.2 | Non-Contiguous Properties | 29 |
| | 12.2.3 | Cut-Off Grade | 30 |
| | 12.2.4 | Market Price | 30 |
| 12.3 | MINERAL RESERVES | 30 | |
| 12.3.1 | Estimate of Mineral Reserves | 30 | |
| 12.4 | OPINION OF QUALIFIED PERSON | 31 | |
13.0 | MINING METHODS | 33 | ||
| 13.1 | GEOTECHNICAL & HYDROLOGICAL MODELS | 33 | |
| 13.2 | PRODUCTION RATES & EXPECTED MINE LIFE | 33 | |
| 13.3 | UNDERGROUND DEVELOPMENT | 36 | |
| 13.4 | EQUIPMENT FLEET, MACHINERY & PERSONNEL | 36 |
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| 13.5 | MINE MAP | 37 |
14.0 | PROCESSING AND RECOVERY METHODS | 38 | |
| 14.1 | PLANT PROCESS | 38 |
| 14.2 | ENERGY, WATER, PROCESS MATERIALS & PERSONNEL | 39 |
15.0 | INFRASTRUCTURE | 40 | |
16.0 | MARKET STUDIES | 43 | |
| 16.1 | MARKETS | 43 |
17.0 | ENVIRONMENTAL | 44 | |
| 17.1 | ENVIRONMENTAL STUDIES | 44 |
| 17.2 | WASTE DISPOSAL & WATER MANAGEMENT | 44 |
| 17.3 | PERMITTING REQUIREMENTS | 44 |
| 17.4 | PLANS, NEGOTIATIONS OR AGREEMENTS | 45 |
| 17.5 | MINE CLOSURE | 46 |
| 17.6 | LOCAL PROCUREMENT & HIRING | 46 |
| 17.7 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 46 |
18.0 | CAPITAL AND OPERATING COSTS | 47 | |
| 18.1 | CAPITAL COSTS | 47 |
| 18.2 | OPERATING COSTS | 49 |
19.0 | ECONOMIC ANALYSIS | 51 | |
| 19.1 | KEY PARAMETERS AND ASSUMPTIONS | 51 |
| 19.2 | ECONOMIC VIABILITY | 53 |
20.0 | ADJACENT PROPERTIES | 54 | |
21.0 | OTHER RELEVANT DATA AND INFORMATION | 55 | |
22.0 | INTERPRETATION AND CONCLUSIONS | 56 | |
| 22.1 | INTERPRETATIONS AND CONCLUSION | 56 |
| 22.2 | RISKS AND UNCERTAINTIES | 56 |
23.0 | RECOMMENDATIONS | 57 | |
24.0 | REFERENCES | 58 | |
25.0 | RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT | 59 | |
APPENDIX A MINE MAP | A-1 |
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LIST OF TABLES
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LIST OF FIGURES
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1.0 EXECUTIVE SUMMARY
1.1PROPERTY DESCRIPTION
River View Coal, LLC (River View) owns and operates the River View Mine (RVM). River View is a wholly owned subsidiary of Alliance Coal, LLC (Alliance). RVM is an underground coal mining operation located in Union County, Kentucky and currently has approximately 54,250 underground acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Surface facilities are controlled through ownership or lease.
1.2GEOLOGY AND MINERALIZATION
The West Kentucky No. 9 seam (WKY9) and the West Kentucky No. 11 seam (WKY11) are mined through room and pillar methods. The WKY9 and WKY11 are located in the Illinois Basin, more specifically the southeastern flank of the Illinois Basin. The WKY9 correlates regionally to the Springfield No. 5 coal and the WKY11 to the Herrin No. 6 coal. The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80,000 square miles, covering Illinois, southern Indiana, and western Kentucky. The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
1.3STATUS OF EXPLORATION
River View has extensively explored both the WKY11 and WKY9 through drilling it has conducted and previous developers. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which includes location, elevation, lithologic information, and coal quality data.
1.4MINERAL RESOURCE AND RESERVE ESTIMATES
This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal and predict coal quality for marketing purposes. This information is used to create a resource model using Carlson Software’s Geology module, part of an established software suite for the mining industry. In addition to coal thickness and quality data, seam recovery is modeled. Classification of the resources is based on distances from drill data. Carlson then estimates in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. These results are exported to a database which then applies the appropriate percent ownership, mine recovery and seam recovery. Table 1-1 is a summary of the coal reserves based on a 23-year life-of-reserve plan. All resources were converted to reserves. There are no resources exclusive of reserves.
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Table 1-1. Summary of Controlled Coal Reserve Estimates as of December 31, 2021
Reserve Category | Controlled Recoverable (1,000 tons) |
WKY9 | |
Proven | 51,865 |
Probable | 47,380 |
WKY9 Total | 99,245 |
WKY11 | |
Proven | 65,954 |
Probable | 49,432 |
WKY11 Total | 115,386 |
Total Reserves | 214,631 |
1.5CAPITAL AND OPERATING COST ESTIMATES
RVM is an on-going operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of historical operating performance. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation. Table 1-2 shows the estimated average capital and mining and processing costs for the life of reserve plan.
Table 1-2. Capital and Operating Costs
Category | Life of Reserve Estimate 2022-2044 |
Capital Costs | 851,755 |
Mining and Processing Costs | 7,856,132 |
TOTAL | 8,707,887 |
1.6PERMITTING REQUIREMENTS
Kentucky Department of Natural Resources (KYDNR), Division of Mine Permits (DMP) is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities and other incidental activities have been obtained and remain in good standing.
1.7QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS
It is the Qualified Person’s (QP) opinion the operating risks of the mine are low. The mining operation, processing facilities, and the site infrastructure are in place. Mining practices are well established. All
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required permits are issued and remain in good standing. Market risk is discussed in Section 16.1 and could materially impact resource and reserve estimates.
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2.0 INTRODUCTION
2.1ISSUER OF REPORT
River View has retained RESPEC Company, LLC (RESPEC) to prepare this Technical Report Summary (TRS). The RVM is operated by River View. River View is a wholly owned subsidiary of Alliance.
2.2TERMS OF REFERENCE AND PURPOSE
The purpose of this TRS is to support the disclosure in the annual report on Form 10-K of Alliance Resource Partners, L.P. (ARLP 10-K) of Mineral Resource and Mineral Reserve estimates for the RVM as of 12/31/2021. This report is intended to fulfill 17 Code of Federal Regulations (CFR) §229, “Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 – Regulation S-K,” subsection 1300, “Disclosure by Registrants Engaged in Mining Operations.” The mineral resource and mineral reserve estimates presented herein are classified according to 17 CFR§229.133 – Item (1300) Definitions.
Unless otherwise stated, all measurements are reported in U.S. imperial units and currency in U.S. dollars ($).
This TRS was prepared by RESPEC. No prior TRS has been filed with respect to the RVM.
2.3SOURCES OF INFORMATION
During the preparation of the TRS, discussions were had with several Alliance personnel.
The following information was provided by River View and Alliance:
/ | Property History |
/ | Property Data |
/ | Laboratory Protocols |
/ | Sampling Protocols |
/ | Topographic Data |
/ | Mining Methods |
/ | Processing and Recovery Methods |
/ | Site Infrastructure information |
/ | Environmental permits and related data/information |
/ | Historic and forecast capital and operating costs. |
2.4PERSONAL INSPECTION
A RESPEC QP and Alliance representative conducted a site visit on January 31, 2022. During the site visit, the RESPEC QP visited the preparation plant, the raw coal stockpile, the clean coal stockpile, barge loading facility, and the refuse impoundment.
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The mine access slope is located approximately three miles southeast of the preparation plant. The RESPEC QP viewed the slope, the shaft, and a raw coal stockpile at this location.
Discussions were held with the mine engineer regarding several items including permitting issues and the expansion of the current refuse disposal capacity.
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3.0 PROPERTY DESCRIPTION
3.1PROPERTY DESCRIPTION AND LOCATION
The RVM is located in Union County, Kentucky (37°45’37” N, -87°56’42” W) and currently has approximately 54,250 underground acres permitted. Though there is geographic overlap with the Henderson Union resource area, the resources are associated with different seams (West Kentucky No. 7 and West Kentucky No. 6) or, if the same seam (which occurs in the WKY11 and WKY9), separated by old works and geologic features into distinct areas. There is no overlap in the resource / reserve estimation.
Figure 3-1 shows the general location of the RVM.
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Figure 3-1. General Location Map
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3.2MINERAL RIGHTS
The coal reserves are leased or held for lease to the RVM by Alliance Resource Properties, LLC (ARP). River View has the right to extend the term of the lease through exhaustion of the reserves. The lease requires a production royalty to be paid to ARP for each ton of coal sold from RVM, and River View is required to comply with all terms of the underlying base leases from third parties held by ARP and subleased to River View, including the payment of all rents and royalties.
For some tracts, River View has partial control of mineral rights. The estimated saleable tonnage for each tract is reduced appropriately where control is less than 100%.
The raw coal produced from the RVM is transported by overland belt to the coal processing and loading facilities which include a barge loading facility on the Ohio River.
3.3SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS
ARLP’s revolving credit facility is secured by, among other things, liens against certain River View surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of Union County Clerk. Please refer to "Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt" of the ARLP 10-K for more information on the revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for ARLP’s accounts receivable securitization facility, evidenced by financing statement of record in the Office of Union County Clerk. Please refer to "Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt" of the ARLP 10-K for more information on the accounts receivable securitization facility.
Kentucky Department of Natural Resources (KYDNR), Division of Mine Permits (DMP) is responsible for oversight of active coal mining and reclamation activities. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
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4.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
4.1TOPOGRAPHY AND VEGETATION
The RVM is located in the Green River – Southern Wabash Lowlands physiographic region of Kentucky per USEPA. This region is unglaciated, consisting of broad, nearly level bottomlands and low hills. It is drained by meandering, low gradient streams and rivers with wide floodplains. The surface facilities and mine access are located just to the south of Uniontown, KY, which sits on the banks of the Ohio River. The elevation ranges across the mine permit area between 340 and 450 feet above mean sea level. The vegetation across the mine permit area consists primarily of cropland, with some pastureland and woodland.
4.2ACCESSIBILITY AND LOCAL RESOURCES
The primary shaft access (Portal 1 -37°44’35” N, -87°53’19” W) to RVM is located at 835 KY-1179, Waverly, KY 42462. It is accessible from Henderson, KY, via US-60 to KY-1180/KY-359 to KY-1179, or from Uniontown, KY, via KY-130 to KY-141 to KY-1179. The secondary shaft access (Portal 2 - 37°43’26” N, -87°51’04” W) to RVM is located at the intersection of KY-359 and KY-1179, Waverly, KY 42462. Interstate 69 is a major transportation artery passing through Henderson, KY, about 20 miles due east of the primary mine access. The town of Uniontown, KY, lies about 3.2 miles to the northwest of the mine, the town of Morganfield, KY, lies about 4.4 miles to the southwest of the mine, and the town of Waverly, KY, lies about 4.7 miles to the southeast of the mine. The Ohio River lies about 3.8 miles to the northwest of the primary mine access location, passing by Henderson, KY, and Uniontown, KY. Coal is transported by belt from the underground mine to the surface at the slope access (37°44’43” N, -87°53’40” W) located just northwest of the primary shaft access. The coal is transported by belt from the slope access to the mine’s processing and coal loading facilities (37°45’37” N, -87°56’42” W) located about 3.0 miles northwest of the slope access. From the processing facilities, the processed coal is transported by belt about 0.6 miles to the mine’s barge loading facility (37°46’07” N, -87°56’54” W) on the Ohio River (mile marker 843). The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 24 miles to the northeast of the mine across the Ohio River in Evansville, IN.
4.3CLIMATE
The RVM and surrounding Henderson, KY, area has four distinct seasons with average annual precipitation of 44.8 inches according to U.S. Climate Data. The average annual high temperature is 67°F and the average annual low temperature is 47°F. The average annual snowfall is 13 inches. The climate of the area has little to no effect on underground and surface operations at the mine. The mine operates year-round with exceptions for holiday and vacation shutdowns.
4.4INFRASTRUCTURE
The RVM gets its potable water from the Uniontown Water Department of Uniontown, KY. Water used for underground operations is reclaimed and filtered from underground collection sources. Water used
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for coal processing is sourced directly from the Ohio River and nearby tributaries. Electricity is provided by Kentucky Utilities (KU) through transmission lines leading from Morganfield, KY. Employment in the area is competitive. However, the mine has been able to attract a mixture of skilled and unskilled labor with its competitive pay package and benefits. Mine personnel primarily come from the surrounding Kentucky counties of Union, Henderson, and Webster and southern Illinois. The city of Henderson, KY, lies about 17.6 miles to the northeast of the mine. Its population is 27,981 according to the 2020 U.S. Census, making it the 10th most populous city in Kentucky. Henderson is the county seat of Henderson County, KY, it is part of the Evansville Metropolitan Area, and is considered the southernmost suburb of Evansville, IN. Most supplies are trucked to the mine from regional vendors.
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5.0 HISTORY
5.1PRIOR OWNERSHIP
Island Creek Coal Company (ICCC), currently a subsidiary of CONSOL Energy Inc. (CONSOL), operated mines in the area and controlled a portion of the property. Under a joint venture, Texas Gas Transmission controlled a large interest in the mineral rights. Peabody Energy Corporation (Peabody) and its successor, Patriot Coal Corporation, operated mines in the area and in the past controlled a portion of the reserves. ARP acquired control of the majority of the property through multiple transactions from 2005 to 2015. ICCC operated the Ohio #11 (WKY11) and Uniontown #9 (WKY9) mines to the west of the RVM. ICCC also operated the Hamilton #1 and Hamilton #2 mines in the WKY9 to the southwest. Peabody operated the Camp complex and Highland mine to the southeast and east, operating in the WKY11 and WKY9.
5.2EXPLORATION HISTORY
Approximately 630 exploration holes penetrate the WKY11 and about 450 penetrate the WKY9 within and adjacent to the RVM to assess thickness, quality, and mineability of the seams. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal(s), and then cored to collect roof, coal, and floor samples. Most cores range from approximately 3 to 4 inches in diameter. Coal quality was analyzed on nearly 160 holes in the WKY11 and nearly 150 holes in the WKY9. Some later holes included geophysical logs to verify core thicknesses and strata in rotary intervals. ICCC and CONSOL drilled over 150 holes in the area (U-series, TH-series) from 1950 to 1997. Quality was analyzed on over 80% of the holes and the U-series has geophysical logs after 1986. Peabody Coal and Patriot Coal drilled over 350 holes intersecting the WKY11 and over 200 holes intersecting the WKY9 in the B-series and C-series. Quality was analyzed on less than 40 holes for either seam and very few geophysical logs were provided during the acquisition of the property. Additionally, about 30 holes were drilled by miscellaneous/unknown companies within the area obtaining similar information as described above. River View has drilled over 80 holes (RV-series) on the property to supplement the historical data. Further, over 300 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling. In general, all drilling has shown highly consistent coal seams of mineable thickness and quality for the thermal utility market.
See Appendix A for a map showing all drill hole locations.
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6.0 GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT
6.1REGIONAL GEOLOGY
RVM extracts coal from both the WKY9 and the WKY11) located in the Illinois Basin, more specifically the southeastern flank of the Illinois Basin. The WKY9 correlates regionally to the Springfield No.5 coal and the WKY11 to the Herrin No. 6 coal. The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80,000 square miles, covering Illinois, southern Indiana, and western Kentucky.
Primary coal-bearing strata, including the WKY9 and WKY11, are in formations of Pennsylvanian aged rocks, which were deposited about 325 to 290 million years ago. The Pennsylvanian System is characterized by many vertical changes in lithology. There are over five hundred distinct beds of shale, sandstone, sandy shale, limestone, and coal in the Pennsylvanian System. Many beds are laterally extensive and can be correlated across much of the Illinois Basin because of their position in relation to distinct marker beds, such as coals and limestones.
Pennsylvanian rocks in the region consist of shale, sandstone, siltstone, coal, and limestone and are largely alluvial or deltaic in origin. Sandstones and siltstones make up between 50 and 80 percent of the coal-bearing sequence, while shales make up between 20 and 40 percent.
The Carbondale Formation accounts for just a quarter of the rocks in the Pennsylvanian System in Kentucky. However, it contains more than two-thirds of the coal resources in the state. The WKY11 and WKY9 are within the Carbondale Formation.
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Figure 6-1. Generalized Stratigraphic Column of Pennsylvanian Rocks in Kentucky
6.2LOCAL GEOLOGY
6.2.1WEST KENTUCKY NO. 11 SEAM
The immediate roof over the WKY11 is a dark gray to black fossiliferous shale that averages about 0.5 feet thick, commonly call “gob”. Above this is the Providence Limestone. This limestone varies in
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thickness from zero to as much as about seven feet; but is generally around 3 to 4 feet thick over much of the WKY11. Sporadically throughout the reserve, the very thin West Kentucky No. 12 seam occurs just above the Providence Limestone. This is overlain by a silty gray shale of variable thickness due to erosion from the overlying Anvil Rock sandstone (Anvil Rock). The Anvil Rock is the primary aquifer in the region. This sandstone is known to scour the immediate roof and, on some occasions, into the coal itself. When the sandstone comes into close proximity of the WKY11, there’s an increased risk of water inflow into the mine due to the Anvil Rock being an aquifer. In general, areas where the Anvil Rock is within five feet of the WKY11 are avoided during mining. The floor of the WKY11 is predominately a fireclay grading down into a limey claystone.
6.2.2WEST KENTUCKY NO. 9 SEAM
The immediate roof over a vast majority of the WKY9 is a black, fissile shale, often containing fossils. This black shale is generally from one to two feet thick. The black shale is overlain by dark gray shale. The lower ten to twelve feet is very dark and often contains siderite nodules and bands. Above the gray shale typically grades to a silty and eventually sandy shale. Above this is a water-bearing sandstone that varies in thickness and extent. This sandstone can encroach on the immediate and main roof. Under these conditions, ground control issues can occur and require additional support to maintain stability. The WKY9 is underlain by a soft underclay that grades to a limey claystone containing limestone nodules.
See Figure 6-1 for a stratigraphic column and Figures 6-2 and 6-3 for geologic cross sections representing the local geology. See Appendix A for a plan view showing the locations of the cross sections.
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Figure 6-2. Geological Cross-Section A-A’
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Figure 6-3. Geological Cross-Section B-B’
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6.3PROPERTY GEOLOGY AND MINERALIZATION
RVM extracts coal from both the WKY9 and the WKY11. The WKY11 is about 200 to 400 feet deep and the WKY9 is about 300 to 500 feet deep. The resource area is bounded by the Ohio River, the Rough Creek-Shawneetown Fault System, previous mining, and influences associated with mineability discussed above. Strata dip gently to the north and east across the property.
The WKY9 and WKY11 are consistent in thickness over their respective resource boundaries with each seam averaging 4.65 feet thick. On a 1.50 float, dry basis, the WKY9 averages about 8.5% ash, 3.0% sulfur, and 13,150 btu/lb. On a 1.50 float, dry basis, the WKY11 averages about 6.8% ash, 3.2% sulfur, and 13,400 btu/lb.
The mineral deposit type mined by RVM is a high volatile bituminous coal. The primary coal-bearing strata is of Carboniferous age, in the Pennsylvanian system.
The geologic model developed to explore the resource and reserve is a bedded sedimentary deposit model. This is generally described as a continuous, non-complex, typical cyclothem sequence that follows a bedded sedimentary sequence. The geology continues to be verified by an extensive drilling program.
A stratigraphic column (Figure 6-1) and geologic cross sections (Figure 6-2 & Figure 6-3) representing the local geology, are included in this report.
6.4STRATIGRAPHY
6.4.1CARBONDALE FORMATION
The WKY11 and WKY9 are within the Carbondale Formation. The Carbondale Formation makes up about a quarter of the rocks in the Pennsylvanian System; but it contains two-thirds of the coal resources in Kentucky.
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7.0 EXPLORATION
7.1DRILLING EXPLORATION
RVM has extensively explored both the WKY11 and the WKY9 through drilling it has conducted and through previous developers. Drilling records are the primary dataset used in the evaluation of the resource and reserve. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic data, and coal quality. This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. The drilling density on the controlled property is sufficient to identify and predict geological trends within the resource and reserve area.
The geologic database is also supplemented using oil and gas well data from the petroleum industry. Oil and gas well geophysical logs are acquired from the Kentucky Geological Survey. The most common geophysical log available is the induction log, which has the spontaneous potential curve and various resistivity and conductivity curves on it. These logs are beneficial in identifying sandstones, coals and shales. Though less common, geophysical logs that have natural gamma, density and resistivity curves are available. These logs are identified in the geologic database as a “high quality” well. These logs provide much greater detail and can better differentiate between the various lithology. Oil and gas well data are used to verify thickness, identify faulting, and delineate areas with adverse mining conditions.
Exploration also includes channel sampling, mine sections from underground surveys, and underground geologic mapping conducted by geologists. Channel samples are samples collected from the coal seam within the coal mine. Once a suitable location is found within the mine, equal, representative portions of the coal seam are extracted using hand tools from the top of the seam to the bottom. The sample is placed within a heavy-duty plastic bag which is securely sealed with tape. The sample is then transported from the mine to the laboratory where they are analyzed.
Channel sample data and mine surveys are useful for thickness data and identifying any partings or anomalies within the coal seam. Underground geologic mapping is beneficial for identifying facies changes, poor roof trends, and supplementing hazards maps generated from drilling data.
RVM has adequate drilling to define geological trends within the resource and reserve area. Despite this, exploration continues to be added to the geologic database on an annual basis. This occurs when adverse or unexpected mining conditions arise or when it is necessary to better define other parameters of the resource and reserve.
Drilling on the property targets the WKY11 and the WKY9 and has been conducted using industry standard methods by a third-party contractor or a company owned drill rig using qualified personnel. A geologist or other company representative oversees all drilling conducted on the property. Drilling methods include continuous diamond coring, mud rotary, air rotary and spot coring. Spot coring is a method that uses either mud or air rotary drilling to reach a specific depth, usually twenty or thirty feet above the target seam. Once this depth is reached, the drill string is removed, and the rig sets up for core drilling. The core barrel is advanced to the bottom of the hole where coring commences. Core is
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advanced to about ten feet below the target seam. Once drilling is completed on a hole, a suite of geophysical parameters is collected. Parameters such as naturally occurring gamma, resistivity, high resolution density, and caliper data are collected. This information is used to verify the driller’s log, geologist’s description, and verify the thickness of the coal and core recovery. Also, the geophysical log is helpful when only rotary drilling is conducted. The information from the geophysical log is used to determine coal thickness and identify critical strata in the boring.
Continuous coring on the property is generally limited to locations where shafts, slopes or other critical infrastructure will be located. All core is described by a geologist, photographed for future reference, and stored until it is no longer needed.
7.2HYDROGEOLOGIC INVESTIGATIONS
Kentucky Department of Natural Resources (KDNR), Department of Mine Permits (DMP) requires a groundwater user survey to be conducted in and within 1,000 feet of the permitted boundary. Issuance of the permit needs DMP to write a Cumulative Hydrologic Impact Assessment (CHIA). Groundwater inflow associated with mining has historically not been a significant issue and is dealt with as it is encountered.
7.3GEOTECHNICAL INFORMATION
The rock mechanics data for the RVM is collected from core drilling as needed. Geotechnical data is derived from core sampling. Once the core is described and photographed by a geologist, the samples are prepared by a geologist or engineer and either an employee of RVM or a representative from the laboratory transports the sample to the geotechnical laboratory for analysis. The following parameters have been tested by a third-party laboratory:
/ | Uniaxial Compressive Strength using ASTM Standard D 7012 method |
/ | Brazilian Indirect Tensile Strength using ASTM Standard D 4543 and D 3967 methods |
/ | Point Load Index using ASTM Standard D 5731-05 |
/ | Moisture Content using ASTM Standard D2216-05 method |
/ | Moisture Sensitivity, ASTM Standard not applicable |
/ | Bulk Density, ASTM Standard not applicable |
/ | Specific Gravity, ASTM Standard not applicable |
Rock mechanics data have been analyzed by two laboratories throughout the years, Kot F. v. Unrug, Ph.D, D.Sc and Appalachian Mining Engineering/Geolab Materials Testing.
No significant disruptions, issues, or concerns have ever arisen as a result of sampling processing or laboratory error. Therefore, it’s reasonable to conclude that the quality assurance actions employed by these laboratories are adequate to provide reliable results for the requested parameters.
The results from the geotechnical sampling program are adequate to provide guidance for the design of ground control and other engineering applications.
Please see Appendix A for map depicting the location of all drill holes. Channel samples and mine sections are not shown on the map due to legibility concerns.
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8.0 SAMPLE PREPARATION, ANALYSES AND SECURITY
8.1SAMPLE PREPARATION METHODS AND ANALYSIS
Company representatives prepare samples for transport to the laboratory for analyses. This includes a sample request form that has information such as sample ID, depths, and requested analyses that is placed securely inside the sample container. If the sample is rock core, the core remains sealed in plastic bags and in the box provided by the drilling contractor. The box is secured using heavy duty packing tape. A channel sample is placed in a heavy-duty plastic bag. The bag is clearly labelled with the operation name, sample ID, and location where the sample was collected. Within the sample bag another, smaller plastic bag, contains a form that has the operation name, sample ID, date of sample collection, location where sample was collected and the requested analyses. Company representatives then arrange for sample pick up by a representative from the laboratory. Once the laboratory assumes possession of the sample, rigorous quality control and quality assurance standards are strictly adhered to.
RVM currently contracts with two laboratories, Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from the RVM. One laboratory is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03.
Both laboratories prepare, assay, and analyze samples in accordance with approved ASTM international standards. Previous drilling programs used Commercial Testing and Engineering, Dickinson Laboratories, and others for coal quality analyses.
Typical coal quality analyses include the following:
/ | Ultimate Analysis using ASTM Method D5373 for percent nitrogen, carbon and hydrogen and ASTM D3176 for the determination of percent oxygen. |
/ | Mineral Analysis of Ash using ASTM Method D4326 or D6349 for measuring percent silicon dioxide, aluminum dioxide, ferric oxide, calcium oxide, magnesium oxide, potassium oxide, sodium oxide, titanium dioxide, phosphorus pentoxide, magnesium dioxide, barium oxide, strontium oxide, sulfur trioxide. |
/ | Proximate Analysis using ASTM Method D5865 for the determination of thermal caloric value in BTU/LB. ASTM Method D3174/D7582 is used for the determination of percent ash. ASTM Method D4239 is used for measuring percent sulfur. Method D3175 is used to determine percent volatiles and ASTM D3172 is used to determine percentage of fixed carbon. Total Moisture is determined by ASTM Method D3302. |
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/ | Ash Fusion Temperatures are determined using ASTM Method D1857, Sulfur Forms are determined using ASTM Method D2492 and Water-Soluble Alkalis are determined using ASTM Method C114 Mod. The Free Swelling Index is determined using ASTM Method D720. |
/ | The Hardgrove Grindability Index (HGI) is measured using ASTM Method D409 (M) and the percent Equilibrium Moisture is determined using ASTM Method D1412. |
/ | Trace element analysis to include Antimony, Arsenic, Barium, Beryllium, Boron, Bromine, Cadmium, Chlorine, Chromium, Cobalt, Copper, Fluorine, Germanium, Iodine, Lead, Lithium, Manganese, Mercury, Molybdenum, Nickel, Selenium, Silver, Strontium, Thallium, Tin, Uranium, Vanadium, Zinc and Zirconium. ASTM Method D6357, D4208, D3761, D3684 or D6722 are typically used. |
Other parameters include Silica Value, Base/Acid Ratio, T250 Temperature, Slagging/Fouling Index, and Alkalis as Sodium Oxide, Dry basis.
The RVM has sufficient drilling to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. Occasionally, it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
8.2QUALITY CONTROL/QUALITY ASSURANCE (QA/QC)
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to conclude that the quality assurance actions employed by these laboratories are adequate to provide reliable results for the requested parameters.
8.3OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION
No significant disruptions, issues or concerns have ever arisen as a result of sample preparation and analysis. Therefore, it’s reasonable to assume that sample preparation, security, and analytical procedures in place are adequate to provide a reliable sample from which requested parameters can be analyzed.
The qualified person is of the opinion that the sample preparation, security, and analytical procedures for the samples supporting the resource estimation work are adequate for the statement of mineral resources. Results from different laboratories show consistency and nothing in QA/QC demonstrates consistent bias in the results
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9.0 DATA VERIFICATION
9.1SOURCE MATERIAL
The RVM maintains a detailed geologic database used to develop several types of maps used to predict the mineability and coal quality of both the WKY11 and the WKY9. Data verification of the accuracy of this database is conducted on a regular basis by company engineers and geologists. This includes a detailed review of seam correlation, coal quality data and lithologic information of all exploration drill holes to what is found in the database. The verification process also entails underground geologic mapping by a field geologist to verify the accuracy of compiled geologic models from drill hole data. Furthermore, maps generated from coal quality data are checked for accuracy against actual output from the preparation plant.
Alliance contracted Weir International (Weir) to conduct an audit of Alliance’s reserve estimates prepared under Industry Guide 7. Weir submitted its findings in a report dated July 23, 2015. Weir’s review included methodologies, accuracy of Carlson gridding, and drill hole data. A similar review was conducted by Weir in 2010. During the 2015 audit, 10% to 20% of the new drill hole data was reviewed and confirmed.
RESPEC was provided with e-log data for all new holes or data obtained in 2016 or more recently. RESPEC compared 20% of those e-logs to the Carlson database. RESPEC also verified the thickness and quality grids. As part of the verification process, a new thickness grid was created from the database, and that resultant grid compared to RVM’s model using Carlson grid file utilities.
9.2OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
Based on the verification of RVM data by the QP and review of prior databases audits, the QP deems the adequacy of RVM data to be reasonable for the purposes of developing a resource model and estimating resources and subsequent reserves.
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10.0 MINERAL PROCESSING AND METALLURGICAL TESTING
10.1ANALYTICAL PROCEDURES
The RVM has sufficient drilling across the extent of the property to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. Occasionally, it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
10.2REPRESENTATIVE SAMPLES
The parameters that RVM analyses are adequate to define the characteristics necessary to support the marketability of the coal.
10.3TESTING LABORATORIES
Previous drilling programs contracted with regional laboratories including Commercial Testing and Engineering or used in-house laboratory facilities (Island Creek Coal Western Kentucky Division).
Currently, RVM contracts with two laboratories, Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from the RVM. One laboratory is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03. Both laboratories provide unbiased, third-party results and operate on a contractual basis.
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that using these laboratories should provide assurance that the data processing and reporting procedures are reliable.
10.4RESULTS
The RVM performed a series of washability tests to develop washability curves. These curves predict coal qualities and recoveries at different specific gravities. The existing plant operates at a specific gravity of approximately 1.5 to 1.6. The results from the coal quality sampling program are adequate to determine the specification requirements for customers located in both the domestic and export markets.
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10.5OPINION OF QUALIFIED PERSON ON DATA ADEQUACY
It is the opinion of the QP that the coal processing data collected from these analyses is adequate for modeling the resources and reserves for marketing purposes. All analyses are derived using standard industry practices by laboratories that are leaders in their industry.
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11.0 MINERAL RESOURCE ESTIMATES
11.1DEFINITIONS
A mineral resource is an estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.
Mineral resources are categorized based on the level of confidence in the geologic evidence. According to 17 CFR § 229.1301 (2021), the following definitions of mineral resource categories are included for reference:
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. An inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An inferred mineral resource, therefore, may not be converted to a mineral reserve.
An indicated mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. An indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource and may only be converted to a probable mineral reserve. As used in this subpart, the term adequate geological evidence means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty.
A measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. As used in this subpart, the term conclusive geological evidence means evidence that is sufficient to test and confirm geological and grade or quality continuity.
11.2LIMITING FACTORS IN RESOURCE DETERMINATION
Resources in the WKY9 and WKY11 are delineated based on the following limitations:
/ | Mineable thickness |
/ | Marketable quality |
/ | Structural limits, such as faults or sandstone channels, existing mining, and subsidence protection zones |
/ | Government and social approval |
11.2.1MINEABLE THICKNESS
Thicknesses are extracted from the database to create a geologic model. Grids are created using an inverse distance algorithm using a weighting factor of three. The minimum WKY9 coal thickness in the database is 0 feet and the maximum thickness is 5.96 feet. The minimum WKY11 coal thickness in the
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database is zero feet with a maximum thickness of 6.55 feet. A minimum mineable thickness of four feet is used in defining the resources.
11.2.2MARKETABLE QUALITY
The primary source quality data is from core holes drilled for the purpose of coal exploration. The qualities that are of primary interest are ash, sulfur, and BTU. These qualities have limitations which affect the value of the coal. The table below summarized the values and ranges of each in the geologic database. The range of critical qualities in the database indicates that all the coal in the WKY9 and WKY11 seams is within marketable limits. The potential resource areas are considered to meet the quality standard and no further consideration or analyses of these parameters are made. All resource estimates include average anticipated values for ash, sulfur, and BTU.
Table 11-1. Qualities at 1.5 Specific Gravity – Dry Basis
Seam | Quality | Number of samples | Average | Minimum | Maximum | Standard Deviation |
WKY11 | Ash | 163 | 6.78 | 5.39 | 9.85 | 0.85 |
WKY11 | Sulfur | 163 | 3.19 | 2.19 | 4.31 | 0.31 |
WKY11 | BTU | 147 | 13,381 | 12,746 | 13,728 | 173 |
WKY9 | Ash | 162 | 8.53 | 6.74 | 11.96 | 0.77 |
WKY9 | Sulfur | 162 | 3.04 | 2.32 | 4.23 | 0.31 |
WKY9 | BTU | 146 | 13,181 | 12,639 | 13,450 | 161 |
Values in Table 11-1 are dry basis qualities and do not represent marketable qualities with moisture and adjustments for plant variability. Typical as received quality specifications for the RVM product (depending on mixture of WKY11 and WKY9 are approximately:
/ | BTU – 11,450 to11,600 |
/ | Moisture – 11.0% to 12.5% |
/ | Ash – 8.0% to 9.5% |
/ | Sulfur – 2.9% to 3.1% |
/ | Volatile Matter - 35% to 37% |
11.2.3STRUCTURAL LIMITS
The resources of both seams are limited to the north and the west by the Ohio River. There is a significant set of faults that are oriented SW-NE and NW-SE. These faults create the limiting boundary of the resources along the southern and western edges. A portion of the eastern boundary in the northeastern corner of the resource block is also defined by these faults. The Anvil Rock sandstone unit is present in the roof of the WKY11 seam. The seam is excluded from the resource when this stratum is within 5 feet of the WKY11 seam due to water concerns. This sandstone is described in section 6.2.1 of this report.
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An approximate 500’ buffer is maintained around existing underground mines in the WKY9 seam in the area: the Island Creek Coal Company Hamilton No. 2 Mine and the Island Creek Coal Company Uniontown No. 9 Mine.
An unmined block of both seams is left under a portion of the City of Morganfield.
11.2.4GOVERNMENT AND SOCIAL APPROVAL
There are no signification limitations to RVM obtaining the permits required. RVM holds the necessary permits to mine, process, and transport coal from this area. Historically, the company can amend, or revise permits as needed. The public is notified of significant permitting actions and may participate in the permitting process.
11.3CLASSIFICATION RESOURCES
11.3.1CLASSIFICATION CRITERIA
The identified resources are divided into three categories of increasing confidence: inferred, indicated, and measured. The delineation of these categories is based on the distance from a known measurement point of the coal. The distances used are presented in USGS Bulletin 1450-B, “Coal Resource Classification System of the U.S. Bureau of Mines and U.S. Geological Survey.” These distances are presented in Table 11-2.
Table 11-2. Coal Resource Classification System
Classification | Distance from measurement point |
Measured | <1,320’ |
Indicated | 1,320’ – 3,960’ |
Inferred | 3,960’ – 15,840’ |
These distances for classification division are not mandatory. However, these values have been used since 1976, have proven reliable in the estimation of coal resources, and are considered reasonable by the QP.
11.3.2USE OF SUPPLEMENTAL DATA
Due to the continuity of coal seams in the Illinois Basin, mineability limits are the most important factor in resource assessment. Information from oil and gas well e-logs in the vicinity are used as supplemental data to confirm thickness trends, identify structural limits, and characterize adverse geologic conditions. Coal thickness grids are generated from drill hole information, mine measurements, channel samples, and a subset of high-quality oil and gas well e-logs. These are data points in which the company has a high degree of confidence in thickness measurement. These are the data used by the company to generate the model for its internal planning. The combined information increases the overall reliability of the resource estimate, and all data points are included within the classification system.
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11.4ESTIMATION OF RESOURCES
Resource estimates are based on a database of geologic information gathered from various sources. The sources of this data are presented in Section 7 of this report. Thickness and quality data are extracted from the database to create a model using Carlson’s Geology module. The model consists of a set of grids, generated using an inverse distance algorithm with a weighting factor of three. In addition to the thickness and quality data, seam recovery is modeled. Quality data and recovery rates are determined through a set of tests generating washability curves. The current operation washes the run-of-mine coal at a specific gravity of 1.5 to 1.6. The qualities and plant yield are based on this specific gravity.
Section 12 presents the modifying factors considered in determining whether resources qualify as reserves. There are no resources exclusive of reserves for the RVM. Due to the level of geologic certainty, there are no inferred resources. All resources were classified as either measured or indicated and were converted to reserves.
11.5OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the resource estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including RVM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. |
/ | Environmental Matters |
/ | Greenhouse gas emission Federal or State regulations/legislation |
/ | Regulatory changes related to the Waters of the US. |
/ | Air quality standards |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewals to provide a higher percentage of electricity production, coal will continue to serve as baseload fuel source. US coal companies are also now more actively competing in the export market. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the resource.
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12.0 MINERAL RESERVES ESTIMATES
12.1DEFINITIONS
A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. Probable mineral reserves comprise the economically mineable part of an indicated and, in some cases, a measured mineral resource. Proven mineral reserves represent the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource.
12.2KEY ASSUMPTIONS, PARAMETERS AND METHODS
12.2.1RESERVE CLASSIFICATION CRITERIA
The WKY9 and WKY11 seams have historically been successfully mined at this location and throughout the Illinois coal basin. Several other mines in the region are currently operating in these seams. Resources are identified as described in Section 11 of this report based on geologic conditions, mineability, and marketability of the coal seam. The two critical factors in converting indicated and measured mineral resources into the mineral reserves are inclusion in an economically feasible mine plan and government approval through the various environmental and operational permits.
Table 17-1 presents the various state and federal environmental permits currently held by the operation. These include the surface mining permit (required for surface operations), air quality permits, and water discharge permits. Approval has already been granted for the required surface disturbance, construction and operation of the preparation facilities, coal refuse disposal, and coal transport. It is noted that not all the anticipated underground mining areas are currently covered under the SMCRA permit. Shadow areas (underground only areas) are extended using permit revisions. This is a common practice for underground operations in the Illinois Basin.
All the identified resource is converted into the reserve classification.
12.2.2NON-CONTIGUOUS PROPERTIES
The operation currently has mineral rights to 2,472 properties yet to be mined. Some of these properties are non-contiguous. Securing additional mineral rights is a routine ongoing activity with an emphasis on obtaining rights to tracts to fill any gaps in the mine plan. Should the operation encounter a tract for which mineral rights cannot be obtained, modifications can be made to the mine plan to access controlled tracts. Due to the nature of the resource and the flexibility of the mining operation, isolated tracts are considered eligible for conversion to the Reserve Classification. It is also noted that due to the large number of tracts which define the reserve, should a controlled non-contiguous tract become isolated, it will not have a significant effect on the total reserve.
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12.2.3CUT-OFF GRADE
The coal bed consistently exhibits qualities that make the product marketable. No reduction is made to the resources or reserves due to quality.
12.2.4MARKET PRICE
The EIA reported the average weekly coal commodity spot price for Illinois Basin coal (the EIA price) on February 4, 2022, to be $75.50/ton (11,800 Btu, 5.0 lbs. SO2 basis). The reference price used in the economic analysis is $39.10 which is based on the QP’s review of historical pricing realized by RVM and proprietary third-party coal price forecasts provided by Alliance. The revenue projection in the economic analysis is based on this estimate of coal price and is assumed to be real 2021 US dollars.
12.3MINERAL RESERVES
12.3.1ESTIMATE OF MINERAL RESERVES
The existing plant operates at a specific gravity of approximately 1.5–1.6. The qualities and recovery at a 1.5 specific gravity are added as attributes to the applicable drill holes from which samples were collected. Those values are then modeled using Carlson, gridding these attributes using the inverse distance algorithm with a weighting factor of three.
The operation uses a room and pillar layout. The approved ground control plan results in a 48% mining recovery of the in-place reserves. The mining recovery applied to the in-place coal estimates the raw coal.
The coal testing included density calculations. The operation uses an average in-situ density of 82.6 lbs/cubic foot. This value is within the expected range of coal density.
All coal tonnages are reported as clean controlled coal. Carlson’s Surface Mine Module is used to estimate in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. The Carlson results are exported to a database, which then applies the appropriate percent ownership, mine recovery, and seam recovery. The basic calculation is:
Tons = Area * Thickness * Density * Mine Recovery * Seam Recovery * Percent Ownership
Table 12-1. Summary of Coal Reserves as of December 31, 2021
Reserve Category / Seam | Controlled Recoverable (1,000 tons) | Sulfur (%) | Ash (%) | BTU |
WKY11 Seam | ||||
Proven | 65,954 | 3.21 | 6.8 | 13,375 |
Probable | 49,432 | 3.19 | 6.94 | 13,335 |
WKY11 Total | 115,386 | 3.20 | 6.85 | 13,358 |
WKY9 Seam |
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Proven | 51,865 | 3.02 | 8.55 | 13,178 |
Probable | 47,380 | 3.06 | 8.58 | 13,133 |
WKY9 Total | 99,225 | 3.04 | 8.56 | 13,157 |
Total Reserves | 214,631 | | | |
Values in Table 12-1 are based on a washed, dry basis.
12.4OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the reserve estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including RVM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have potential to influence the economic extraction of the resource:
/ | Extension of permitted area – Not all the reserves are currently permitted. Underground operations in Kentucky have traditionally been able to extend the permitted shadow areas as needed. No change is anticipated in the issuance of these permit modifications. It is expected that the shadow area of the permit will be expanded as needed. |
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. Although there is competition from other underground operators for skilled labor, RVM has been successful in attracting and retaining skilled staff and has programs for training less experienced miners. Should RVM not be able to maintain as skilled a labor pool as anticipated, this could impact productivity. However, economic evaluation indicates RVM remains economic with modest downturns in productivity. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation may impact the domestic electric utility market which is a major customer for RVM coal. While many proposed changes have been suggested, the horizon for these changes severely impacting the market is anticipated to be beyond the current planning horizon supporting the reserve estimate. |
» | Regulatory changes related to the Waters of the US (WOTUS). The interpretation of the regulation and enforcement of the Clean Water Act with respect to the jurisdictional waters of the US has been modified multiple times through regulatory actions and court decisions. It is likely that further reinterpretation will occur. This could affect future modifications such as new or expanded stockpile areas, transportation areas, and refuse disposal areas. The coal industry has become experienced in adapting to these regulatory changes. |
» | Miscellaneous regulatory changes. The coal industry has been subjected to many changes in regulation and enforcement in the recent past. In addition to new |
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regulations related to greenhouse gas emissions and WOTUS, it is expected that further change will occur.
/ | Regional supply and demand – Although the US market has moved to natural gas and renewables to provide a higher percentage of electricity production, coal will continue to serve as baseload fuel source. US coal companies are also now more actively competing in the export market. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the reserve
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13.0 MINING METHODS
13.1GEOTECHNICAL & HYDROLOGICAL MODELS
Geotechnical models of RVM’s coal seams have been compiled using Carlson Software. Geologic information from drillholes, underground channel samples, and past reserve studies is entered into the database and used to build stratigraphic grid models. Attributes including coal thickness, depth, recovery percentage, and quality are some of the parameters utilized to accurately model the RVM reserve.
Data collection to support the models is performed as needed to ensure proper characterization of future mining areas. Core drilling is typically performed as needed to provide necessary geotechnical information for future permitting and design requirements. Underground channel sampling is performed concurrently with access being provided from development mining units. Laboratory analyses of both drill core and channel samples are performed in conjunction with collection and used to periodically update the geotechnical models. Commonly analyzed quality specifications include moisture, ash, sulfur, BTU, or other extended parameters when required.
No hydrologic models beyond the restrictions associated with the Anvil Rock sandstone have been developed in association with the mine plan. Water inflow is managed as encountered and mining is avoided within five feet of the Anvil Rock.
13.2PRODUCTION RATES & EXPECTED MINE LIFE
RVM has the capability to mine from both the WKY9 and WKY11. This is accomplished using the room and pillar mining method. There are currently ten operating split air super sections. This arrangement allows for the operation of two continuous miners simultaneously. Infrastructure within the mine includes conveyors, electrical equipment, ventilation, and equipment necessary for water distribution, and can support up to twelve super sections. Empirical data gathered from previous mining in the same coal seams while using similar equipment and mining practices is compiled and considered when forecasting production rates. Predictable adverse geologic conditions are also taken into account during production forecasting.
Planned production varies according to contracted sales volume and expectations of market conditions. Table 13.1 provides historic raw tons mined before processing, preparation plant recovery, and clean recoverable tons. The forecasted raw tons mined before processing, preparation plant recovery, and clean recoverable tons contained in the economic analysis are shown in Table 13.2.
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Table 13-1. Historic Production and Recovery (tons 1,000’s))
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Table 13-2. Life of Reserve Production Estimate (tons 1,000’s)
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | 2043 | 2044 |
Raw Tons | 17,522 | 17,579 | 17,632 | 17,596 | 17,770 | 17,451 | 17,759 | 18,149 | 19,179 | 19,395 | 19,251 | 18,866 | 18,489 | 18,119 | 17,757 | 17,401 | 17,053 | 16,712 | 16,378 | 16,050 | 15,729 | 15,415 | 9,372 |
Clean Recoverable Tons | 11,029 | 10,941 | 10,626 | 10,317 | 9,479 | 9,556 | 9,831 | 9,981 | 10,331 | 10,214 | 9,986 | 9,749 | 9,541 | 9,427 | 9,383 | 9,168 | 9,010 | 8,856 | 8,654 | 8,481 | 8,311 | 8,145 | 3,615 |
Recovery | 62.9% | 62.2% | 60.3% | 58.6% | 53.3% | 54.8% | 55.4% | 55.0% | 53.9% | 52.7% | 51.9% | 51.7% | 51.6% | 52.0% | 52.8% | 52.7% | 52.8% | 53.0% | 52.8% | 52.8% | 52.8% | 52.8% | 38.6% |
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Typical reserve recovery rates for the RVM range from 48%-56%. The recovery rate varies slightly based on the size of pillars left. Pillar size will vary throughout the reserve and typically range between 62’ x 62’ (80’ centers) and 47’ x 35’ (65’x 53’ centers). Coal thickness throughout RVM reserve averages 4.65’. Entries and crosscuts driven by the continuous mining machines average eighteen feet in width.
There are approximately 214.6M clean tons remaining in the RVM reserve to be mined within the controlled properties. The current life of reserve plan anticipates exhausting the reserve in 2044. The lifespan of the mine is dependent on many factors and may vary materially from current projections. Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including RVM, and the coal industry in general.
13.3UNDERGROUND DEVELOPMENT
The RVM currently operates within the specifications of the approved permits and certifications required by all local, state, and federal regulatory agencies. Some of these permits and certifications are as follows:
/ | Local: county road agreements, regulated drainage ditch permits |
/ | State: Underground permit boundary, surface affects permit, wastewater treatment permits, air permits, nuclear material license |
/ | Federal: ATF Explosives Permit, EPA injection permits, Army Corps of Engineers permits |
In addition to the above-mentioned permits, all mining regulations found in Part 30 of the Code of Federal Regulations (CFR) must be followed. The Mine Safety and Health Administration (MSHA) is the federal regulatory agency who oversees compliance with the CFR. Also, plans uniquely specific to the RVM are required to be submitted, reviewed, and approved by MSHA prior to mining. Some of the approved MSHA required mine plans include:
/ | Roof Control Plan |
/ | Ventilation Plan |
/ | Emergency Response Plan |
/ | Mine Emergency Evacuation and Fire Fighting Program Instruction Plan |
/ | Oil Well Mine Through/Around Plan |
13.4EQUIPMENT FLEET, MACHINERY & PERSONNEL
Underground equipment required at the RVM includes, but is not limited to:
/ | Continuous miner |
/ | Shuttle car |
/ | Double boom roof bolter |
/ | Truss bolter |
/ | Battery scoop |
/ | Fork trucks |
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/ | Personnel carrier (mantrip) |
/ | Feeder breaker |
/ | Road grader |
/ | Belt conveyor |
/ | Transformer/substation |
/ | Refuge Alternative chamber |
/ | Rock dusters |
/ | Miscellaneous dewatering pumps |
Surface equipment required at the RVM includes, but is not limited to:
/ | Dozers (various sizes) |
/ | Miscellaneous preparation plant equipment |
/ | End loader |
/ | Man and material hoisting equipment |
/ | Ventilation fan |
/ | Substation |
/ | Mobile crane |
/ | Belt conveyor |
/ | Tractor and dirt scraping pans |
/ | Side by side personnel carriers |
/ | Fresh water wells |
Personnel required to operate and maintain the RVM is generally obtained through the hiring of both skilled and unskilled workers from the immediate area. Salaried positions at RVM are made up of production managers, business managers, engineers, information technology, preparation plant operators, maintenance foreman, purchasing agents, and safety specialists. Hourly positions include equipment operators on the surface and underground, general laborers, dust sampling technicians, mechanics, examiners, warehouse clerks, etc. Total headcount numbers can vary depending on the market and demand for coal. Typical headcount ranges from between 750 to 950 workers, depending on the number of super sections operating.
13.5MINE MAP
Please see Appendix A for a plan view of the mine map.
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14.0 PROCESSING AND RECOVERY METHODS
14.1PLANT PROCESS
The plant consists of three (3) 1,000 raw tons per hour (tph) units with a total plant capacity of 3000 tph raw. Each unit consist of three circuits, a heavy media cyclone circuit (3”X1mm), a water only cyclone / spiral circuit (1mm X 100 mesh), and a flotation circuit (100mesh X 325mesh).
The heavy media (HM) cyclone circuit includes a heavy media sump, which is fed sized coal (3” X 1mm). The heavy media pump moves media and sized raw coal to the 48” heavy media cyclone. Heavy media cyclones make a gravity separation at a specific gravity of approximately 1.5 -1.6 (specific gravity is adjusted to meet the coal quality specification as needed). The heavy media cyclone overflow (clean coal) discharges from the cyclone to the clean coal flume boxes, to the clean coal drain, and rinse screens. The clean coal screens separate the coal into two sizes (plus ½” and minus ½”) and remove media from the clean coal before discharging. The plus ½” clean coal is drained, rinsed, and discharged as final product onto the clean coal collect conveyor. The minus ½” clean coal is discharged into clean coal centrifuges for additional dewatering. The dewatered coal is discharged onto the clean coal collect conveyor, and the effluent from the clean coal centrifuges is discharged to the dilute media sump. The heavy media cyclone underflow (refuse) discharges from the cyclone to the HM refuse flume boxes and to the refuse drain-and-rinse screens. The refuse drain-and-rinse screens remove the magnetite from the refuse prior to discharging directly to the refuse collecting conveyor. The media that is drained from the heavy media screens is piped back to the HM sump. Media that is rinsed at the drain and rinse screens is piped to a dilute sump and pumped to magnetic separators. The magnetic separators remove the magnetite and return it back to the heavy media sump. The effluent from the separators is reused in the plant as process water in the water only cyclone/spiral circuit. The specific gravity in the heavy media sump is regulated by a magnetite screw and magnetite bin or make-up water.
The water only/spiral circuit includes a raw coal sump, which is fed sized coal (1mm X 0). The raw coal pump moves water and raw coal to the water-only cyclones. The overflow from the water-only cyclones is clean coal and is piped to a clean coal classifying sump. The underflow is reprocessed using spiral concentrators. The spiral concentrators make three products, refuse, middlings, and clean coal. The clean coal is piped to the clean coal classifying sump. The middlings are piped back to the raw coal sump for reprocessing, and the refuse is piped to a high-frequency refuse screen for dewatering and discharged to the refuse collect conveyor. The clean coal collected in the clean coal classifying sump is pumped to 15” clean coal classifying cyclones. The clean coal classifying cyclones make a size separation of approximately 100 mesh. The underflow of the clean coal classifying cyclone is plus 100 mesh and is piped to clean coal sieves for dewatering. The dewatered coal is discharged to screenbowl centrifuges for further dewatering. The screenbowl centrate is recycled back to the clean coal sump and the main effluent is piped to the thickener. The overflow of the clean coal classifying cyclones and the water from the clean coal sieves is piped to an ultrafine sump.
The flotation circuit includes the ultrafine sump, which is fed sized coal (100 mesh X 0). The ultrafine sump will pump water and the 100 mesh X 0 material to the 6” deslime cyclones and will make a nominal separation at approximately 325 mesh. The plus 325 mesh (underflow) will discharge and feed flotation columns. The minus 325 mesh (reject) will discharge and be piped to the thickener. Chemical and air is
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added to the columns, and clean coal will exit the top of the columns and be piped to the screenbowl centrifuges. The refuse from the columns exits the columns and is piped to the thickener.
The thickener feed is mixed with anionic and/or cationic chemicals that aid in the settling of the solids. Settled solids are concentrated and fed to the thickener underflow pumps. The thickener underflow pumps, pump the concentrated refuse away to a slurry disposal site. The clarified water that overflows from the thickener is collected and transferred to a clarified water sump for reuse as process water throughout the plant.
14.2ENERGY, WATER, PROCESS MATERIALS & PERSONNEL
The RVM processing plant uses electrical energy from Kentucky Utilities, make-up water from the Ohio River and its nearby tributaries, magnetite, anionic and cationic chemicals, and frother for coal flotation. Potable water is provided by the Union County Water District. Labor consists of approximately 90 people hired from the local area.
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15.0INFRASTRUCTURE
RVM has two portals where men and materials are transported underground. Portal 1 is located at 835 State Route 1179, Waverly, KY 42462. Portal 2 is located at 4380 State Route 359, Waverly, KY 42462. All necessary utilities are in place and working. Electricity is sourced from a 69 KV line to multiple substations ranging in size from 10-14 MVA located at the prep plant and portal facilities. Water is provided by a combination of the Ohio River, underground sources, and the Union County Water District.
Coal is transported from the processing plant via conveyor belt to River View’s barge load out. The facility is capable of loading 30 barges a day for a total of 55,000 tons per day.
A fine refuse impoundment is located on the mine’s property. Once construction is completed, the embankment style impoundment will cover approximately 500 acres. The impoundment embankment is constructed of coarse refuse, creating storage space for fine refuse within the impoundment.
Figures 15-1 and 15-2 show the layout of RVM surface facilities.
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Figure 15-1. Infrastructure Layout: Prep Plant
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Figure 15-2. Location Map – Portal 1
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16.0 MARKET STUDIES
16.1MARKETS
RVM produces a high sulfur coal that is sold to the domestic and international thermal coal markets. Production from the RVM is shipped by barge via the Ohio River directly to customers or to various transloading facilities.
RVM participates in the Illinois Basin coal market, selling coal to a diverse customer base of various domestic utilities, industrial facilities, and Gulf Coast exporters. While coal demand in the US is expected to decline over the coming years, the Eastern US thermal coal demand in 2021 was over 190 million tons. With its low-cost position, exceptional location, and core domestic customer base, it is the QP’s opinion that RVM should continue to have adequate market opportunities for its product.
Table 16-1. Economic Analysis Coal Price
| | | Third Party Price Forecasts1 | | | |
Operation | 5-Year | Minimum | Maximum | Economic | Reserve Tons | |
RVM | Tons Sold3 | 9,880 | --- | --- | --- | 214,631 |
Price per ton2 | --- | $36.33 | $63.47 | $39.104 | --- |
1. | Proprietary third-party pricing forecast for 2022-2040 and 2022-2050, real 2021 dollars. |
2. | Price per ton is real 2021 dollars for the life of reserve economic analysis. |
3. | Tons reported in thousands. |
4. | The economic analysis coal price is based on the QP’s review of RVM historical pricing, EIA data, and proprietary third-party coal price forecasts. See Section 12.2.4 for additional details. |
The demand for the RVM coal is closely linked to the demand for electricity, and any changes in coal consumption by United States or international electric power generators would likely impact the RVM demand. The domestic electric utility industry accounts for approximately 91% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of competing fuels for power plants such as nuclear, natural gas, and fuel oil as well as alternative sources of energy.
Future environmental regulation of GHG emissions could also accelerate the use by utilities of fuels other than coal. In addition, federal and state mandates for increased use of electricity derived from renewable energy sources could affect demand for coal. Such mandates, combined with other incentives to use renewable energy sources such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal.
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17.0ENVIRONMENTAL
17.1ENVIRONMENTAL STUDIES
No standalone environmental studies have been conducted for the properties. However, as part of the state and federal permitting process, various environmental assessments have been conducted throughout the permitting process. As disturbances are proposed for the operation, all relevant local, state, and federal agencies are contacted to review the proposed project. Each agency reviews the project for impacts to lands, water, and ecology. All potential impacts have either been mitigated or avoided.
17.2WASTE DISPOSAL & WATER MANAGEMENT
Waste from the coal preparation process generates a fine refuse waste stream and a coarse refuse waste stream. Coarse and fine refuse is disposed of within the refuse impoundments located near the preparation facilities. There are two active impoundments at the site (RV West and RV South), with another impoundment in abandonment status (RV East). Conceptual designs have been completed for a fourth impoundment and the permitting / approval process is ongoing.
In addition to the refuse impoundments at the RVM facility, RVM is approved to dispose of fine refuse at the nearby Hamilton 1 impoundments. The Hamilton 1 site is idled except for fine refuse disposal from RVM into the existing impoundments.
At current production, the existing refuse impoundments are expected to provide coarse and fine refuse disposal for approximately ten years. The French Farm impoundment, once approved, will provide refuse storage for an additional eighteen years. Beyond the twenty-eight years of approved and pending refuse disposal areas, additional design and permitting will be required.
All runoff from the site is managed by sediment control structures including diversions, sumps, and sediment basins. Prior to discharge from the permitted areas, water must meet compliance standards as defined in the NPDES permits. Water samples at discharge locations are collected in accordance with the approved permit and analyzed by an independent laboratory. Any water that is substandard will either be recycled through the site or will be treated prior to discharge.
Water sampling timeframes and constituents are dictated by the approved NPDES permit and will continue through final bond release.
17.3PERMITTING REQUIREMENTS
KYDNR, DMP is responsible for oversight of active coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. The Division of Mine Reclamation and Enforcement (DMRE) is responsible for compliance verification and enforcement.
In addition to the state mining and reclamation laws, operators must comply with various other federal laws relevant to mining. The federal laws include:
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/ | Clean Air Act |
/ | Clean Water Act |
/ | Surface Mining Control and Reclamation Act |
/ | Federal Coal Mine Safety and Health Act |
/ | Endangered Species Act |
/ | Fish and Wildlife Coordination Act |
/ | National Historic Preservation Act |
/ | Archaeological and Historic Preservation Act |
In conjunction with the KYDNR coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the Kentucky Department of Environmental Protection (KYDEP). KYDEP is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air or water quality.
All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing. A listing of all current state mining permits is provided in Table 17-1. Permits generally require that the permittee post a performance bond in an amount established by the agency to provide assurance that any disturbance or liability created by the mining operations is properly restored to an approved post-mining land use and that all regulations and requirements of the permit are satisfied before the bond is returned to the permittee.
Table 17-1. Current State Permits
Regulatory Agency | Permit No. | Permitted Surface Area (Acres) | Permitted Underground Area (Acres) | Bond |
17.4PLANS, NEGOTIATIONS OR AGREEMENTS
New permits and certain permit amendments/revisions require public notification. The public is made aware of pending permits by advertisement in the local newspaper. A 30-day comment period follows the last advertisement date to allow the public to submit comments to the regulatory authority.
In certain instances, additional opportunities are provided to the public for comment. These instances include operations within 100 feet of a public road, operations within 300 feet of a dwelling, and operations within 300 feet of a public building, school, church, or community building. In all instances
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approval must be granted by the regulatory authority as well as individuals or groups who own or provide oversight for a particular facility.
17.5MINE CLOSURE
A detailed plan for reclamation activities upon completion of mining required at the properties has been prepared. Reclamation costs have been estimated based on internal project costs as well as publicly available heavy construction databases. Reclamation costs at the end of the year 2021 totaled approximately $12.5 million.
17.6LOCAL PROCUREMENT & HIRING
There are no commitments for local procurement or hiring. However, efforts are made to source supplies and materials from regional vendors. The workforce is likewise located in the regional area.
17.7OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
The approved permits and certifications are adequate for continued operation of the facility. Waste disposal facilities are in place for current mining operations, with plans to expand the disposal facilities in order to provide life of reserve storage. Water control structures are in place and function as required by regulatory agencies. In the QP’s opinion, the estimated reclamation liability is adequate to estimate mine closure and reclamation costs at the property.
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18.0 CAPITAL AND OPERATING COSTS
RESPEC reviewed capital and operating costs required for the coal mining operations at the RVM. Historic capital and operating expenditures were supplied to RESPEC by River View. The site is an operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of recent operating performance. The cost estimates are accurate to within +/-25%. RESPEC considers these cost estimates to be reasonable. All costs in this section are expressed in US dollars.
18.1CAPITAL COSTS
Capital costs were estimated with the costs classified as routine operating necessity (sustaining capital), capital required for major infrastructure additions or replacement. As discussed in Item 12.3, the reserve for RVM is 214.6M tons. The current production schedule estimates approximately 214.6M tons will be mined by 2044. The estimated capital costs for the reserve tons are provided in Table 18-1.
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Table 18-1. Capital Cost Estimate
Life of Reserve Estimate 2022-2044 (US$ 000's) | |||||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | 2043 | 2044 |
Routine Operating Necessity | 42,029 | 56,903 | 66,523 | 49,050 | 40,130 | 34,884 | 40,941 | 60,185 | 29,293 | 26,020 | 34,613 | 42,708 | 51,656 | 28,647 | 26,260 | 31,210 | 41,655 | 56,559 | 25,256 | 26,573 | 31,012 | 5,068 | 203 |
Major Infrastructure Investment | 3,803 | — | — | 575 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
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18.2OPERATING COSTS
Operating cost inputs for the life of reserve economic analysis such as labor, benefits, consumables, maintenance, royalties, taxes, transportation, and general and administrative expenses were based on recent operating data. A summary of the estimated operating costs, including depreciation expense (the Mining and Processing Cost) for the life of the reserve are provided in Table 18-2.
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Table 18-2. Operating Cost Estimate
Life of Reserve Estimate 2022-2044 (US$ 000's) | |||||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | 2043 | 2044 |
Cash Operating Costs | 293,953 | 293,331 | 293,367 | 289,435 | 288,287 | 286,778 | 289,954 | 292,643 | 299,436 | 297,190 | 292,861 | 290,823 | 287,870 | 285,347 | 283,171 | 280,343 | 277,812 | 275,331 | 272,696 | 270,235 | 267,863 | 265,505 | 119,561 |
Royalties | 23,363 | 22,142 | 22,316 | 22,357 | 17,840 | 16,393 | 17,122 | 19,966 | 22,467 | 22,737 | 22,229 | 21,702 | 21,238 | 20,984 | 20,886 | 20,406 | 20,055 | 19,712 | 19,262 | 18,877 | 18,499 | 18,129 | 8,046 |
Depreciation | 50,157 | 47,916 | 53,334 | 52,850 | 54,362 | 49,871 | 51,791 | 50,912 | 49,375 | 47,296 | 45,647 | 44,702 | 43,116 | 42,689 | 42,084 | 42,554 | 42,301 | 42,170 | 41,721 | 41,746 | 36,952 | 24,736 | 7,599 |
Mining and Processing Costs | 367,473 | 363,388 | 369,018 | 364,641 | 360,490 | 353,042 | 358,867 | 363,521 | 371,278 | 367,223 | 360,737 | 357,226 | 352,224 | 349,021 | 346,141 | 343,303 | 340,168 | 337,213 | 333,679 | 330,858 | 323,314 | 308,371 | 134,937 |
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19.0 ECONOMIC ANALYSIS
RESPEC completed an economic analysis based on the cash flow developed from the production plan and capital and operating costs previously discussed. The average per ton sold revenue estimate used for the life of reserve economic evaluation was $39.10.
19.1KEY PARAMETERS AND ASSUMPTIONS
The economic analysis has been based on production, revenue, capital, and operating costs estimates. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation. Table 19-1 provides the annual cash flow of the life of reserve economic analysis for RVM.
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Table 19-1. Pre-tax Cash Flow Summary
Life of Reserve Estimate 2022-2044 (US$ 000's) | |||||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | 2043 | 2044 |
Revenues | 429,196 | 427,755 | 415,475 | 403,409 | 370,610 | 373,659 | 384,402 | 390,276 | 403,932 | 399,361 | 390,450 | 381,188 | 373,050 | 368,601 | 366,867 | 358,454 | 352,282 | 346,274 | 338,378 | 331,610 | 324,978 | 318,478 | 143,388 |
Cash Operating Costs | (293,953) | (293,331) | (293,367) | (289,435) | (288,287) | (286,778) | (289,954) | (292,643) | (299,436) | (297,190) | (292,861) | (290,823) | (287,870) | (285,347) | (283,171) | (280,343) | (277,812) | (275,331) | (272,696) | (270,235) | (267,863) | (265,505) | (119,292) |
Royalties | (23,363) | (22,142) | (22,316) | (22,357) | (17,840) | (16,393) | (17,122) | (19,966) | (22,467) | (22,737) | (22,229) | (21,702) | (21,238) | (20,984) | (20,886) | (20,406) | (20,055) | (19,712) | (19,262) | (18,877) | (18,499) | (18,129) | (8,046) |
Capital Expenditures | (45,832) | (56,903) | (66,523) | (49,625) | (40,130) | (34,884) | (40,941) | (60,185) | (29,293) | (26,020) | (34,613) | (42,708) | (51,656) | (28,647) | (26,260) | (31,210) | (41,655) | (56,559) | (25,256) | (26,573) | (31,012) | (5,068) | (203) |
Working Capital Changes | (4,745) | 3,487 | 5,331 | 1,342 | 1,571 | (936) | 756 | 2,304 | (1,095) | 1,360 | 2,322 | 815 | 881 | (104) | 880 | 1,746 | 1,916 | 2,351 | (170) | 1,638 | 1,817 | 58 | 4,524 |
Cash Flow | 61,301 | 58,867 | 38,601 | 43,334 | 25,923 | 34,669 | 37,142 | 19,786 | 51,641 | 54,774 | 43,069 | 26,770 | 13,167 | 33,519 | 37,430 | 28,241 | 14,676 | (2,977) | 20,993 | 17,563 | 9,421 | 29,835 | 20,371 |
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19.2ECONOMIC VIABILITY
The economic viability of the operation is reliable based on various factors. This is an on-going operation and has already established the economic benefits outweigh the economic costs. The economic analysis utilized the same parameters and assumptions used in past financial models. Therefore, it is reasonable to expect similar benefits and costs. Since this is an on-going operation with no major up front capital expenditures, there is no calculation of NPV, internal rate of return or payback period of capital.
We have tested the economic viability of the life of reserve economic analysis by conducting sensitivity analysis with respect to the revenue and operating and capital cost. In the independent sensitivity analysis, the revenue was reduced by 8% and the operating and capital cost were increase by 9%. The summary of the sensitivity analysis is shown in Table 19.2.
Table 19-2. Sensitivity Analysis
Life of Reserve Estimate 2022-2044 (US$ 000’s) | ||||
Category | Annual Minimum | Annual Maximum | Annual Average | Total |
Revenue Reduced 8% - Cash Flow | (30,679) | 26,966 | 2,033 | 46,748 |
Operating & Capital Costs increased 9% - Cash Flow | (34,599) | 28,119 | 1,083 | 24,909 |
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20.0 ADJACENT PROPERTIES
The WKY11 mining is bounded to the west by old works of the Ohio #11 mine. Per the Kentucky Department of Mines and Minerals (KDMM), Ohio #11 produced from WKY11 from 1972 until 1996. The mine map shows very successful room and pillar extraction with a maximum annual production of just over 1.5 million tons in 1987. Per KDMM, The Highland 11 and Camp 11 mines were operated to the southeast by Peabody Coal. Highland 11 operated for only two years and mined less than a million tons. Camp 11 operated in the WKY11 until 1990 and then transitioned to the WKY9 seam. At peak production in the WKY11, it mined about 2.4 million tons in 1984. The mine maps show successful room and pillar extraction though influenced by faulting and some adverse conditions. Other small mines in the area operated in the early to middle of the 20th century with little known data beyond workings. Conditions at all mines in the area look to be good with some roof problems associated with roof water from the overlying sandstone as the mine moved to the east. Some faulting was encountered.
The WKY9 mining is bounded to the west by old works of the Uniontown mine of Island Creek. The mine was officially closed in 1971. KDMM records are unclear, but production may have peaked in 1967 at about 1.5 million tons. The Hamilton #2 mine lies to the southwest and produced from 1970 until 1992. Maximum production occurred from the WKY9 seam in 1990 at about 1.34 million tons. The Highland #9/Camp complex mines bound the reserve to the east, operating from about 1971 until 2014. Production peaked in about 2007 at 3.9 million tons. All mines show very successful room and pillar mining with only minor issues associated with faulting and roof conditions related to water from an overlying sandstone.
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21.0 OTHER RELEVANT DATA AND INFORMATION
All data relevant to the supporting studies and estimates of mineral resources and reserves have been included in the sections of this TRS. No additional information or explanation is necessary to make this TRS understandable and not misleading.
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22.0 INTERPRETATION AND CONCLUSIONS
22.1INTERPRETATIONS AND CONCLUSION
The QP has reached a conclusion concerning the RVM operation based on data and analysis summarized in this TRS that the operation is currently viable based on the reserves that remain, the economic benefits for RVM and the market needs of this product. RVM contains an estimated 214.6 million clean tons of reserves.
22.2RISKS AND UNCERTAINTIES
It is the QP’s opinion the mine operating risks are low. This is an on-going operation that has proven to be a viable and profitable business. The analyses of the reserves and resources used the same methodology the operation has used in the past. Given the reliability of past mining plans, it is a reasonable conclusion that future mining plans would continue to be reliable. However, market uncertainty associated with government regulations could result in earlier retirements of coal-fired electric generating units. This could negatively affect the demand and pricing for the RVM product. Please refer to Alliance Resource Partners, L.P. Form 10-K 1A, for a complete listing of risk factors that may affect this operation.
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23.0 RECOMMENDATIONS
The recommendations for RVM are as follows:
/ | Continue acquiring mining rights in the extended mine plan to support future production. |
/ | Continued research into a new impoundment location and commence negotiations with landowners as required. |
/ | Continue current exploration plan. |
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24.0 REFERENCES
Greb, Stephen F; Williams, David A; and Williamson, Allen D. (1992)” Geology and Stratigraphy of the Western Kentucky Coal Field”. Kentucky Geological Survey Bulletin. 3
https://uknowledge.uky.edu/kgs_b/3
Nalley S., LaRose, A. (2021). Annual Energy Outlook 2021 Press Release, U.S. Energy Information Administration (EIA). Accessed on February 4, 2022. Retrieved from https://www.eia.gov/outlooks/aeo/
U.S. Energy Information Administration (EIA). (2021). Coal Markets. Accessed on February 4, 2022. Retrieved from https://www.eia.gov/coal/markets/
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25.0 RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT
Table 25-1 summarizes the information provided by the registrant for matters discussed in this report, as permitted under §229.1302(f) of the SEC S-K 1300 Final Rule.
Table 25-1. Summary of Information Provided by Registrant
Category | Report Item/ Portion | Disclose why the Qualified Person considers it reasonable to rely upon the registrant |
Macroeconomic trends | Section 19 | NA |
Marketing information | Section 16 | The market trends were provided by River View personnel. The QP’s experience evaluating similar projects leads them to opine that the market trends are representative of the expected trends of an on-going coal mining operation in the United States |
Legal matters | Section 17 | The legal matters involving statutory and regulatory interpretations affecting the mine plan were provided by River View personnel. The QP’s experience with statutory and regulatory issues leads them to opine the mining plan meets all statutory and regulatory requirements of an on-going coal mining operation in the United States |
Environmental matters | Section 17 | The environmental permits and matters were provided by River View permitting group. The QP’s experience with permitting and environmental issues leads them to opine the information provided is representative of what is required of an on-going coal mining operation in the United States |
Local area commitments | Section 17 | N/A |
Governmental factors | N/A | N/A |
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APPENDIX A
MINE MAP
A-1 | | |
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Exhibit 96.3
HAMILTON MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED FOR
Hamilton County Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
HAMILTON MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED BY
RESPEC
146 East Third Street
Lexington, Kentucky 40508
PREPARED FOR
Hamilton County Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
Project Number M0062.21001
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TABLE OF CONTENTS
1.0 | EXECUTIVE SUMMARY | 1 | ||
| 1.1 | PROPERTY DESCRIPTION | 1 | |
| 1.2 | GEOLOGY AND MINERALIZATION | 1 | |
| 1.3 | STATUS OF EXPLORATION | 1 | |
| 1.4 | MINERAL RESOURCE AND RESERVE ESTIMATES | 1 | |
| 1.5 | CAPITAL AND OPERATING COST ESTIMATES | 2 | |
| 1.6 | PERMITTING REQUIREMENTS | 2 | |
| 1.7 | QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS | 2 | |
2.0 | INTRODUCTION | 3 | ||
| 2.1 | ISSUER OF REPORT | 3 | |
| 2.2 | TERMS OF REFERENCE AND PURPOSE | 3 | |
| 2.3 | SOURCES OF INFORMATION | 3 | |
| 2.4 | PERSONAL INSPECTION | 4 | |
3.0 | PROPERTY DESCRIPTION | 5 | ||
| 3.1 | PROPERTY DESCRIPTION AND LOCATION | 5 | |
| 3.2 | MINERAL RIGHTS | 7 | |
| 3.3 | SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS | 7 | |
4.0 | ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY | 8 | ||
| 4.1 | TOPOGRAPHY AND VEGETATION | 8 | |
| 4.2 | ACCESSIBILITY AND LOCAL RESOURCES | 8 | |
| 4.3 | CLIMATE | 8 | |
| 4.4 | INFRASTRUCTURE | 8 | |
5.0 | HISTORY | 10 | ||
| 5.1 | PRIOR OWNERSHIP | 10 | |
| 5.2 | EXPLORATION HISTORY | 10 | |
6.0 | GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT | 11 | ||
| 6.1 | REGIONAL GEOLOGY | 11 | |
| 6.2 | LOCAL GEOLOGY | 13 | |
| 6.3 | PROPERTY GEOLOGY AND MINERALIZATION | 17 | |
| 6.4 | STRATIGRAPHY | 17 | |
| | 6.4.1 | Kewanee Group | 17 |
7.0 | EXPLORATION | 18 | ||
| 7.1 | DRILLING EXPLORATION | 18 | |
| 7.2 | HYDROGEOLOGIC INVESTIGATIONS | 19 | |
| 7.3 | GEOTECHNICAL INFORMATION | 19 | |
8.0 | SAMPLE PREPARATION, ANALYSES AND SECURITY | 21 | ||
| 8.1 | SAMPLE PREPARATION AND ANALYSIS | 21 | |
| 8.2 | QUALITY CONTROL/QUALITY ASSURANCE (QA/QC) | 22 |
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| 8.3 | OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION | 22 | ||
9.0 | DATA VERIFICATION | 23 | |||
| 9.1 | SOURCE MATERIAL | 23 | ||
| 9.2 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 23 | ||
10.0 | MINERAL PROCESSING AND METALLURGICAL TESTING | 24 | |||
| 10.1 | ANALYTICAL PROCEDURES | 24 | ||
| 10.2 | REPRESENTATIVE SAMPLES | 24 | ||
| 10.3 | TESTING LABORATORIES | 24 | ||
| 10.4 | RESULTS | 24 | ||
| 10.5 | OPINION OF QUALIFIED PERSON ON DATA ADEQUACY | 24 | ||
11.0 | MINERAL RESOURCE ESTIMATES | 25 | |||
| 11.1 | DEFINITIONS | 25 | ||
| 11.2 | LIMITING FACTORS IN RESOURCE DETERMINATION | 25 | ||
| 11.3 | CLASSIFICATION RESOURCES | 27 | ||
| | 11.3.2 | Use of Supplemental Data | 27 | |
| 11.4 | ESTIMATION OF RESOURCES | 27 | ||
| 11.5 | OPINION OF QUALIFIED PERSON | 28 | ||
12.0 | MINERAL RESERVES ESTIMATES | 30 | |||
| 12.1 | DEFINITIONS | 30 | ||
| 12.2 | KEY ASSUMPTIONS, PARAMETERS AND METHODS | 30 | ||
| | 12.2.1 | Reserve Classification Criteria | 30 | |
| | 12.2.2 | Non-Contiguous Properties | 30 | |
| | 12.2.3 | Cut-Off Grade | 30 | |
| | 12.2.4 | Market Price | 31 | |
| 12.3 | MINERAL RESERVES | 31 | ||
| 12.3.1 | Estimate of Mineral Reserves | 31 | ||
| 12.4 | OPINION OF QUALIFIED PERSON | 32 | ||
13.0 | MINING METHODS | 34 | |||
| 13.1 | GEOTECHNICAL & HYDROLOGICAL MODELS | 34 | ||
| 13.2 | PRODUCTION RATES & EXPECTED MINE LIFE | 34 | ||
| 13.3 | UNDERGROUND DEVELOPMENT | 36 | ||
| 13.4 | MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL | 36 | ||
| 13.5 | MINE MAP | 37 | ||
14.0 | PROCESSING AND RECOVERY METHODS | 38 | |||
| 14.1 | PLANT PROCESS | 38 | ||
| 14.2 | ENERGY, WATER, PROCESS MATERIALS & PERSONNEL | 38 | ||
15.0 | INFRASTRUCTURE | 39 | |||
16.0 | MARKET STUDIES | 41 | |||
| 16.1 | MARKETS | 41 |
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17.0 | ENVIRONMENTAL | 42 |
| 17.1 | ENVIRONMENTAL STUDIES | 42 |
| 17.2 | WASTE DISPOSAL & WATER MANAGEMENT | 42 |
| 17.3 | PERMITTING REQUIREMENTS | 42 |
| 17.4 | PLANS, NEGOTIATIONS OR AGREEMENTS | 43 |
| 17.5 | MINE CLOSURE | 44 |
| 17.6 | LOCAL PROCUREMENT & HIRING | 44 |
| 17.7 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 44 |
18.0 | CAPITAL AND OPERATING COSTS | 45 | |
| 18.1 | CAPITAL COSTS | 45 |
| 18.2 | OPERATING COSTS | 47 |
19.0 | ECONOMIC ANALYSIS | 49 | |
| 19.1 | KEY PARAMETERS AND ASSUMPTIONS | 49 |
| 19.2 | ECONOMIC VIABILITY | 51 |
20.0 | ADJACENT PROPERTIES | 52 | |
21.0 | OTHER RELEVANT DATA AND INFORMATION | 53 | |
22.0 | INTERPRETATION AND CONCLUSION | 54 | |
| 22.1 | INTERPRETATIONS AND CONCLUSIONS | 54 |
| 22.2 | RISKS AND UNCERTAINTIES | 54 |
23.0 | RECOMMENDATIONS | 55 | |
24.0 | REFERENCES | 56 | |
25.0 | RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT | 57 | |
APPENDIX A MINE MAP | A-1 |
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LIST OF TABLES
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Table 1-1. Summary of Controlled Coal Reserve and Resources Estimates as of December 31, 2021 | 1 |
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Table 1-2. Capital and Operating Costs | 2 |
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Table 11-1. Qualities at 1.6 Specific Gravity – Dry Basis | 26 |
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Table 11-2. Coal Resource Classification System | 27 |
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Table 11-3. Summary of Resources as of December 31, 2021 | 28 |
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Table 11-4. Economic Basis for Estimates (US$/ton) | 28 |
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Table 12-1. Summary of Coal Reserves as of December 31, 2021 | 31 |
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Table 13-1. Historic Production and Recovery (tons 1,000) | 34 |
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Table 13-2. Life of Reserve Production Estimate (tons 1,000’s | 35 |
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Table 16-1. Economic Analysis Coal Price | 41 |
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Table 17-1. Current State Permits | 43 |
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Table 18-1. Capital Cost Estimate | 46 |
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Table 18-2. Operating Cost Estimate | 48 |
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Table 19-1. Pre-tax Cash Flow Summary | 50 |
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Table 19-2. Sensitivity Analysis | 51 |
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Table 25-1. Summary of Information Provided by Registrant | 57 |
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LIST OF FIGURES
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1.0 EXECUTIVE SUMMARY
1.1PROPERTY DESCRIPTION
Hamilton County Coal, LLC (HCC) owns and operates Hamilton Mine (Hamilton). HCC is a wholly owned subsidiary of Alliance Coal, LLC (Alliance). Hamilton is a longwall mine located in Hamilton County, Illinois and currently has approximately 10,500 underground acres and 1,300 surface acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Surface facilities are controlled through ownership or lease.
1.2GEOLOGY AND MINERALIZATION
The Herrin (Illinois No. 6) coal seam is mined through longwall and room and pillar methods. The Springfield seam (Illinois No. 5) underlies the Herrin seam and historically has been an economically mineable seam. These seams are in the Illinois Basin which is an interior cratonic basin that formed from numerous subsidence and uplift events. The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
1.3STATUS OF EXPLORATION
Hamilton has extensively explored the Herrin and Springfield seams through drilling conducted by HCC and previous developers. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which include location, elevation, detailed lithologic data and when available coal quality.
1.4MINERAL RESOURCE AND RESERVE ESTIMATES
This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. This information is used to create a resource model using Carlson’s Geology module, part of an established software suite for the mining industry. In addition to coal thickness and quality data, seam recovery is modeled. Classification of the resources is based on distances from drill data. Carlson then estimates in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. These results are exported to a database which then applies the appropriate percent ownership, mine recovery and seam recovery. Table 1-1 is a summary of the coal reserves based on the anticipated life-of-reserve plan and resources. All resources converted to reserves are removed from the resource estimate.
Table 1-1. Summary of Controlled Coal Reserve and Resources Estimates as of December 31, 2021
Seam | Reserves | Resources |
Herrin Seam | 128,536 | 161,643 |
Springfield Seam | --- | 276,042 |
Total | 128,536 | 437,685 |
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1.5CAPITAL AND OPERATING COST ESTIMATES
Hamilton is an on-going operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of historical operating performance. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation. Table 1-2 shows the estimated average capital costs and mining and processing costs for the life of reserve plan.
Table 1-2. Capital and Operating Costs
Category | Life of Reserve |
Capital Costs | 594,343 |
Mining and Processing Costs | 3,591,537 |
TOTAL | 4,185,880 |
1.6PERMITTING REQUIREMENTS
Illinois Department of Natural Resources (IDNR), Land Reclamation Division (LRD) is responsible for oversight of active coal mining and reclamation activities. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, related facilities and other incidental activities have been obtained and remain in good standing.
1.7QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS
It is the Qualified Person’s (QP) opinion that the mine operating risks are low. The mining operation, processing facilities, and the site infrastructure are in place. Mining practices are well established. All required permits are issued and remain in good standing. Market risk is discussed in Section 16.1 and could materially impact resource and reserve estimates.
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2.0 INTRODUCTION
2.1ISSUER OF REPORT
Hamilton has retained RESPEC Company, LLC (RESPEC) to prepare this Technical Report Summary (TRS). Hamilton is operated by HCC. HCC is a wholly owned subsidiary of Alliance.
2.2TERMS OF REFERENCE AND PURPOSE
The purpose of this TRS is to support the disclosure in the annual report on Form 10-K of Alliance Resource Partners, L.P. (ARLP 10-K) of Mineral Resource and Mineral Reserve estimates for the HCC as of 12/31/2021. This report is intended to fulfill 17 Code of Federal Regulations (CFR) §229, “Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 – Regulation S-K,” subsection 1300, “Disclosure by Registrants Engaged in Mining Operations.” The mineral resource and mineral reserve estimates presented herein are classified according to 17 CFR§229.133 – Item (1300) Definitions.
Unless otherwise stated, all measurements are reported in U.S. imperial units and currency in U.S. dollars ($).
This TRS was prepared by RESPEC. No prior TRS has been filed with respect to Hamilton.
2.3SOURCES OF INFORMATION
During the preparation of the TRS, discussions were had with several Alliance personnel.
The following information was provided by Alliance and HCC:
/ | Property history |
/ | Property data |
/ | Laboratory protocols |
/ | Sampling protocols |
/ | Topographic data |
/ | Mining methods |
/ | Processing and recovery methods |
/ | Site infrastructure information |
/ | Environmental permits and related data/information |
/ | Historic and forecast capital and operating costs. |
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2.4PERSONAL INSPECTION
A RESPEC QP and Alliance representative conducted a site visit on February 1, 2022. During the site visit, the RESPEC QP visited the preparation plant, the raw coal stockpile, the clean coal stockpile, the mine slope, the mine shaft, load-out structure, and the two refuse impoundments.
Discussions were held with the mine engineer regarding several issues including current markets, coal quality and products, the ability to hire employees, and the life-of-mine plan for refuse disposal.
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3.0 PROPERTY DESCRIPTION
3.1PROPERTY DESCRIPTION AND LOCATION
Hamilton (38.170008N, -88.613155W) is located in Hamilton County, Illinois and currently has approximately 10,500 underground acres and 1,300 surface acres permitted.
Figure 3-1 shows the general location of the Hamilton property.
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Figure 3-1. General Location Map
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3.2MINERAL RIGHTS
The coal properties are leased or held for lease to Hamilton by Alliance Resource Properties, LLC, or its wholly owned subsidiaries (ARP). HCC and ARP currently control approximately 53,348 acres of coal reserves and subsidence rights, and 1,400 acres of surface properties. The lease boundary encompasses properties in Township 4 South, Ranges 5, 6 and 7 East, and Township 5 South, Range 6 East in Hamilton County, Illinois. HCC has the right to extend the term of the lease through exhaustion of the reserves. The lease requires a production royalty to be paid to ARP for each ton of coal sold from Hamilton, and HCC is required to comply with all terms of the underlying base leases from third parties held by ARP and subleased to HCC, including the payment of all rents and royalties.
For some tracts, HCC has partial control of the mineral rights. The estimated saleable tonnage for each tract is reduced appropriately where control is less than 100%.
3.3SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS
ARLP’s revolving credit facility is secured by, among other things, liens against certain HCC surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Recorder of Hamilton County Clerk. Please refer to “Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt” of the ARLP 10-K for more information on the revolving credit facility.
The IDNR, LRD is responsible for oversight of active coal mining and reclamation activities. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
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4.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
4.1TOPOGRAPHY AND VEGETATION
Hamilton is located in the Southern Illinoisan Till Plain physiographic region of Illinois per USEPA. This region is glaciated, consists of partly dissected, flat to rolling till plains that become hillier to the south, where bedrock is closer to the surface. Low Illinoisan-age moraines occur. Major streams have broad floodplains. The surface facilities and mine access are located 6.4 miles to the northwest of McLeansboro, IL. The elevation ranges from 425 to 510 feet above mean sea level across the property. The vegetation across the mine area consists primarily of cropland, with some pastureland, deciduous forest, and mixed forest.
4.2ACCESSIBILITY AND LOCAL RESOURCES
The primary shaft access to Hamilton (38°10’16” N, 88°36’06” W) is located at 18033 County Road 500 E, Dahlgren, IL 62828. It is accessible from McLeansboro, IL, via State Route 142 N to County Road 500 E, and from Mount Vernon, IL, via State Route 142 S to County Road 500 E. Interstate 64 is a major transportation artery passing through the area, which lies about 6.6 miles due north of the mine. The town of McLeansboro, IL, lies about 6.4 miles to the southeast of the mine, the city of Mount Vernon, IL, lies about 19.3 miles to the northwest of the mine, and Rend Lake lies about 17 miles due west of the mine. Coal is transported by belt from the underground mine to the surface at the slope access (38°10’12” N, 88°36’48” W) located about 0.6 miles to the west of the primary shaft access. The coal is processed and loaded into railcars at the mine’s processing facilities (38°10’16” N, 88°37’18” W) located about 0.4 miles to the west of the slope access. Rail service is provided by Evansville Western Railroad (EVWR) with connection to CSX Transportation (CSX). The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 59 miles to the southwest of the mine in Evansville, IN.
4.3CLIMATE
Hamilton and surrounding McLeansboro, IL, area has four distinct seasons with average annual precipitation of 43.9 inches according to U.S. Climate Data. The average annual high temperature is 66°F and the average annual low temperature is 44°F. The average annual snowfall is 11 inches. The climate of the area has little to no effect on underground and surface operations at the mine. The mine operates year-round with exceptions for holiday and vacation shutdowns.
4.4INFRASTRUCTURE
Hamilton gets its potable and non-potable water from the Hamilton County Water District. Water used for coal processing is supplemented by non-potable water sourced from collection ponds and impoundments. Electricity is purchased from Hoosier Energy and is delivered by Wayne-White Counties Electric Cooperative (WWEC). The transmission lines are routed west from the WWEC substation, located southeast of McLeansboro, IL, then north to the mine through the town of Delafield, IL. Employment in the area is competitive. However, the mine has been able to attract a mixture of
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skilled and unskilled labor with its competitive pay package and benefits. Mine personnel primarily come from Hamilton County and surrounding counties in Southern Illinois. The city of Mount Vernon, IL, lies about 19.3 miles to the northwest of the mine. Its population is 14,600 according to the 2020 U.S. Census, making it the most populous city in the area. Most supplies are trucked to the mine from regional vendors.
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5.0 HISTORY
5.1PRIOR OWNERSHIP
There were no previous operations within the Hamilton reserve area prior to its predecessor, White Oak Resources LLC, (WOR) beginning construction in 2011.
5.2EXPLORATION HISTORY
Over 180 exploration holes have been drilled in the Hamilton reserve area by other companies to assess thickness, quality, and mineability of the Herrin and Springfield seams. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal, and then cored to collect roof, coal, and floor samples. Cores are typically 3 to 4 inches in diameter. Sampling of coal was undertaken on the majority of holes with coal quality analysis completed. Many of the holes include geophysical logs which are used to verify core thicknesses and strata. Old Ben Coal Company (OBCC) conducted an exploration program in the late 1970’s and early 1980’s. OBCC drilled 50 holes in the reserve area. Energy Plus drilled 16 holes in 2006 and performed geophysical logs and conducted coal quality sampling and analysis. White Oak Resources drilled over 90 holes in the reserve area starting in 2008, which provided additional coal quality, geophysical, and geotechnical data. 30 exploration holes were drilled by various other companies within the reserve area. Over 70 oil/gas well geophysical logs have been interpreted to supplement the exploration drilling. In general, all drilling has shown a highly consistent coal seam of mineable thickness and coal quality for the high sulfur, thermal utility market.
The drilling available in the HCC resource area consists of over 300 exploration holes. The majority were drilled by Inland Steel Coal Company, Consolidated Coal Company, OBCC, and various other companies. The available geophysical logs from oil and gas wells within the resource area have been interpreted to augment the exploratory drilling. In all, there are over 500 drillholes and over 150 oil wells within or adjacent to the HCC reserve and resource areas that show highly consistent coal seams of mineable thickness and quality for the thermal utility market.
See Appendix A for map showing all drill hole locations.
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6.0 GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT
6.1REGIONAL GEOLOGY
HCC extracts coal from the Herrin (Illinois No. 6) coal seam located in the Illinois Basin. The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80, 000 square miles, covering Illinois, southern Indiana, and western Kentucky.
Primary coal-bearing strata, including the Herrin and Springfield (Illinois No 5) seams, are in formations of Pennsylvanian aged rocks, which were deposited about 325 to 290 million years ago. The Pennsylvanian System is characterized by many vertical changes in lithology. There are over five hundred distinct beds of shale, sandstone, sandy shale, limestone, and coal in the Pennsylvanian System in Illinois. Many beds are laterally extensive and can be correlated across much of the Illinois Basin because of their position in relation to distinct marker beds, such as coals and limestones.
Pennsylvanian rocks in Hamilton County consist of shale, sandstone, siltstone, coal, and limestone. Pennsylvanian rocks are classified in Illinois in three groups, the McCormick, the Kewanee, and the McLeansboro. The Kewanee Group contains the most abundant reserves of coal. Within the Kewanee Group is the Carbondale formation. The Herrin and Springfield belong to this formation.
See Figure 6-1 for a stratigraphic column
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Figure 6-1. Generalized Stratigraphic Column of Pennsylvanian Rocks in Illinois
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6.2LOCAL GEOLOGY
Herrin Seam:
The immediate roof over a vast majority of the reserve is a black, fissile shale known as the Anna Shale. The Anna Shale is generally between one to two feet thick but can thicken to eight feet in some areas. The Anna Shale is overlain by a dark gray, fine grained, argillaceous limestone known as the Brereton Limestone. This limestone is commonly four to five feet thick. In some locations, this limestone is absent. This limestone member is critical in providing roof stability at Hamilton. The Energy Shale, a silty gray shale associated with over bank deposits of the Walshville paleochannel, can form the immediate roof in localized areas. The Energy Shale occurs in lenses and can cause roof instability, requiring additional support.
Springfield Seam:
The silty, gray Dykersburg Shale, ranges from zero to about four feet thick, and forms the immediate roof of the Springfield seam. When the Dykersburg Shale is absent, it is replaced by the black, brittle, Turner Mine Shale, which ranges from about one to three feet thick in the HCC resource area. The thin, argillaceous St. David Limestone lies above the Turner Mine Shale, ranging from zero to about three feet in thickness. The gray, silty Canton Shale separates the St. David Limestone from the Briar Hill (5a) coal seam and Vermillionville Sandstone. The Vermillionville Sandstone occurs in two distinct units which are separated by a shale or sandy shale zone. This water bearing sandstone can encroach on the immediate and main roof of the Springfield seam. In these areas, ground control issues associated with water and differential compaction can occur requiring additional support to maintain roof stability.
A stratigraphic column and a geologic cross sections representing the local geology found in the reserve are included in this report.
See Figure 6-1 for a stratigraphic column and Figures 6-2, 6-3, and 6-4 for geologic cross sections representing the local geology. See Appendix A for a plan view showing the locations of the cross sections.
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Figure 6-2. Geological Cross-Section A-A’
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Figure 6-3. Geological Cross-Section B-B’
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Figure 6-4. Geological Section C-C’
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6.3PROPERTY GEOLOGY AND MINERALIZATION
Hamilton extracts coal from the Herrin seam. The seam lies between 900 and 1100 feet deep and dips gently to the east/southeast. The seam varies in thickness over the reserve area from 5 feet to 9 feet. On a 1.60 float, dry basis, the Herrin seam averages 8.0% ash, 2.8% sulfur, and 13,420 btu/lb. The Herrin seam mineral deposit type (coal rank) is a high volatile bituminous B/C coal.
The Springfield seam underlies the Herrin seam by approximately 100 feet. This seam is extensively mined throughout the Illinois basin. On a 1.60 float, dry basis, the Springfield seam averages 8.1% ash, 1.7% sulfur, and 13,700 btu/lb. The Springfield seam mineral deposit type (coal rank) is a high volatile bituminous B/C coal.
The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
The geologic model developed to characterize the resource/reserve is a bedded sedimentary deposit model. This is generally described as a continuous, non-complex, typical cyclothem sequence that follows a bedded sedimentary sequence. The geology, including coal thickness and extent has been and continues to be verified by an extensive drilling program.
A stratigraphic column (Figure 6-1) and geologic cross sections (Figures 6-2, 6.-3, and 6-4), representing the local geology, are attached to this report.
6.4STRATIGRAPHY
6.4.1KEWANEE GROUP
The Kewanee Group is comprised of the Spoon and Carbondale Formations. The Kewanee can be correlated throughout the entire extent of the Illinois Basin. This group contains the best developed cyclothems and more than 99% of the mapped coal reserves in Illinois. The lateral continuity of the Kewanee Group is remarkably extensive, particularly in terms of lithologic units such as black shales, coals, and limestones. The Spoon Formation extends from the top of the Bernadotte Sandstone to the base of the Colchester (Illinois No.2) seam. The Carbondale Formation contains the principal economic coals in Illinois, including the Herrin and Springfield seams. The Carbondale extends from the base of the Colchester seam to the top of the Danville (Illinois No.7) seam.
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7.0 EXPLORATION
7.1DRILLING EXPLORATION
Hamilton has extensively explored the Herrin and Springfield seams through drilling conducted by HCC and previous developers. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which include location, elevation, detailed lithologic data and coal quality data. This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. The drilling density on the controlled property is sufficient to identify and predict geological trends within the resource area.
The geologic database is also supplemented using oil and gas well data from the petroleum industry. Oil and gas well geophysical logs are acquired from the Illinois Geological Survey. The most common geophysical log available is the induction log, which has the spontaneous potential curve and various resistivity and conductivity curves on it. These logs are beneficial in identifying sandstones, coals, and shales. Though less common, geophysical logs that have natural gamma, density and resistivity curves are available. These logs are identified in the geologic database as a “high quality” well. These logs provide much greater detail and can better differentiate between the various lithology. Oil and gas well data are used to verify thickness, identify faulting, and delineate areas with adverse mining conditions.
Exploration also includes channel sampling of mine sections from underground surveys and underground geologic mapping conducted by geologists. Channel samples are samples collected from the seam within the mine. Once a suitable location is found within the mine, equal representative portions of the coal seam are extracted using hand tools from the top of the seam to the bottom. The sample is placed within a heavy-duty plastic bag which is securely sealed with tape. The sample is then transported from the mine to the laboratory where the requested analyses are conducted.
Channel sample data and mine surveys are useful for thickness data and identifying any partings or anomalies within the coal seam. Underground geologic mapping is beneficial for identifying facies changes, poor roof trends, and supplementing hazard maps generated from drilling data.
Hamilton has adequate drilling to define geological trends within the resource/reserve area. Despite this, exploration continues to be added to the geologic database on an annual basis. This occurs when unexpected, adverse mining conditions arise or when it becomes necessary to better define the coal quality in areas that may lack sufficient information.
Drilling on the property targets the Herrin and Springfield coal seams and has been conducted using industry standard methods by a third-party contractor employing qualified personnel. A geologist or other company representative oversees all drilling conducted on the property. Drilling methods include continuous diamond coring, mud rotary, air rotary and spot coring. Spot coring is a method that uses either mud or air rotary drilling to reach a specific depth, usually twenty or thirty feet above the target seam. Once this depth is reached, the drill string is removed, and the rig sets up for core drilling. The core barrel is advanced to the bottom of the hole where coring commences. Core is advanced to about ten feet below the target seam. Once drilling is completed on a hole, a suite of geophysical parameters
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is collected for the entire borehole. Parameters such as naturally occurring gamma, resistivity, high resolution density and caliper data are collected. This information is used to verify the lithologic description, coal thickness, and core recovery. Also, the geophysical log is helpful if core isn’t collected, such as when only rotary drilling is conducted. The information from the geophysical log is used to determine coal thickness and identify critical strata in the boring.
Continuous coring on the property is generally limited to locations where shafts, fans or other critical infrastructure will be located. All core is described by a geologist, photographed for future reference, and stored until no longer needed.
7.2HYDROGEOLOGIC INVESTIGATIONS
Hydrologic investigations were conducted prior to developing the mining complex for the purpose of determining the amount of water that would be encountered during slope and shaft construction and longwall mining. The testing targeted three water-bearing sandstones located in the resource area, the Mount Carmel, the Trivoli, and the Anvil Rock. Two field techniques were employed to determine the hydrogeologic characteristics of these sandstones which were a double packer test and a bail test. Core samples from various core holes were taken to Oilfield Research, Inc. for porosity and permeability testing. IDNR, LRD requires a groundwater users survey in and within 1,000’ of the permitted boundary. Issuance of the permits need IDNR, LRD to write a Cumulative Hydrologic Impact Assessment (CHIA). Both items were completed for this site and indicated groundwater issues would not be significant and require any sort of aquifer characterization. Groundwater inflow associated with mining has historically not been a significant issue and is dealt with as encountered.
7.3GEOTECHNICAL INFORMATION
Rock mechanics data is collected from core drilling on an as needed basis. Geotechnical data is derived from core sampling. Once the core is described and photographed by a geologist, the samples are prepared by a geologist or engineer and a representative from the lab transports the sample to the geotechnical lab for analysis. The following parameters are tested by a third-party laboratory:
/ | Compressive Strength using ASTM Standard D7012 method |
/ | Indirect Tensile Strength using ASTM Standard D3967 method |
/ | Swelling Strain using the (International Society for Rock Mechanics) ISRM method |
/ | Slake Durability using ASTM Standard D4644 method |
/ | Water Content using ASTM Standard D2216 method |
/ | Atterberg Limits using ASTM Standard 4318 method |
All rock mechanics data are analyzed by either SGS Laboratories or Standard Laboratories, Inc. No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to conclude that the quality assurance actions employed by these laboratories is adequate to provide reliable results for the requested parameters.
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The results from the geotechnical sampling program are adequate to provide guidance for the design of ground control methods.
See Appendix A for a map depicting the location of all drill holes.
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8.0 SAMPLE PREPARATION, ANALYSES AND SECURITY
8.1SAMPLE PREPARATION AND ANALYSIS
Prior to sending samples to the laboratory for analysis, company representatives prepare them for transport. This includes a sample request form that has information such as sample ID, depths, and requested analyses that is placed securely inside the sample container. If the sample is rock core, the core remains sealed in plastic bags and in the box provided by the drilling contractor. The box is secured using heavy duty packing tape. If the sample is a channel sample, the sample is placed in a heavy-duty plastic bag. The bag is clearly labelled with the operation name, sample ID. and location where the sample was collected. Within the sample bag another, smaller plastic bag, contains a form that has the operation name, sample ID, date of sample collection, location where sample was collected, and the requested analyses. Company representatives then arrange for sample pick up by a representative from the laboratory. Once the laboratory takes possession of the sample rigorous quality control and quality assurance standards are strictly adhered to.
HCC contracts with two laboratories, Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from Hamilton. One lab is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03.
Both laboratories prepare, assay, and analyze samples in accordance with approved ASTM international standards.
Coal analysis typically includes some or all of the following:
/ | Ultimate Analysis using ASTM Method D5373 for percent nitrogen, carbon and hydrogen and ASTM D3176 for the determination of percent oxygen. |
/ | Mineral Analysis of Ash using ASTM Method D4326, D3682, or D6349 for measuring percent silicon dioxide, aluminum dioxide, ferric oxide, calcium oxide, magnesium oxide, potassium oxide, sodium oxide, titanium dioxide, phosphorus pentoxide, magnesium dioxide, barium oxide, strontium oxide, sulfur trioxide. |
/ | Proximate Analysis using ASTM Method D5865 for the determination of thermal caloric value in BTU/LB. ASTM Method D3174 is used for the determination of percent ash. ASTM Method D4239 is used for measuring percent sulfur. Method M-V3175 is used to determine percent volatiles and ASTM D3172 is used to determine percentage of fixed carbon. |
/ | Ash Fusion Temperatures are determined using ASTM Method D1857, Sulfur Forms are determined using ASTM Method D2492 and Water-Soluble Alkalis are determined using ASTM Method D8010. |
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/ | The Hardgrove Grindability Index (HGI) is measured using ASTM Method D409 (M) and the percent Equilibrium Moisture is determined using ASTM Method D1412. The Free Swelling Index is determined by ASTM Method D720. |
/ | Trace element analysis to include Antimony, Arsenic, Barium, Beryllium, Boron, Bromine, Cadmium, Chlorine, Chromium, Cobalt, Copper, Fluorine, Germanium, Lead, Lithium, Manganese, Mercury, Molybdenum, Nickel, Selenium, Silver, Strontium, Thallium, Tin, Vanadium, Zinc and Zirconium. ASTM Method D6357, D4208, D3761, or D6722 are typically used. |
Hamilton has sufficient drilling across the extent of the reserve to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, on occasion it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
8.2QUALITY CONTROL/QUALITY ASSURANCE (QA/QC)
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that using these laboratories should provide confidence that the quality assurance actions employed by these laboratories is adequate to provide reliable results for the requested parameters.
8.3OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION
No significant disruptions, issues or concerns have ever arisen as a result of sample preparation and analysis. Therefore, it’s reasonable to believe that sample preparation, security, and analytical procedures in place are adequate to provide a reliable sample in which requested parameters can be analyzed.
The qualified person is of the opinion that the sample preparation, security, and analytical procedures for the samples supporting the resource estimation work are adequate for the statement of mineral resources. Results from different laboratories show consistency and nothing in QA/QC demonstrates consistent bias in the results.
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9.0 DATA VERIFICATION
9.1SOURCE MATERIAL
Hamilton maintains a detailed geologic database used to develop several types of maps used to predict the mineability and coal quality of the Herrin (Illinois No. 6) coal seam and Springfield (Illinois No. 5) coal seam. Data verification of the accuracy of this database is conducted on a regular basis by company engineers and geologists. This includes a detailed review of drilling data, coal quality data and coal seam correlation of all exploration drill holes to what is found in the database. The verification process also entails underground geologic mapping by a geologist to field verify the accuracy of compiled geologic models from drill hole data. Furthermore, maps generated from coal quality data to predict the coal quality across the reserve are checked for accuracy against actual output from the preparation plant.
Alliance contracted Weir International (Weir) to conduct an audit of Alliance’s reserve estimates prepared under Industry Guide 7. Weir submitted its findings in a report dated July 23, 2015. Weir’s review included methodologies, accuracy of Carlson gridding, and drill hole data. A similar review was conducted by Weir in 2010. During the 2015 audit, 10% to 20% of the new drill hole data was reviewed and confirmed.
RESPEC was provided with e-log data for all new holes or data obtained in 2016 or more recently. RESPEC compared 20% of those e-logs to the Carlson database. RESPEC also verified the thickness and quality grids. As part of the verification process, a new thickness grid was created from the database, and that resultant grid compared to HCC’s model using Carlson grid file utilities.
9.2OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
Based on the verification of Hamilton data by the QP and review of prior database audits, the QP deems the adequacy of Hamilton data to be reasonable for the purposes of developing a resource model and estimating resources and subsequent reserves.
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10.0 MINERAL PROCESSING AND METALLURGICAL TESTING
10.1ANALYTICAL PROCEDURES
Hamilton has sufficient drilling across the extent of the reserve to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, on occasion it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
10.2REPRESENTATIVE SAMPLES
The parameters that HCC runs analyses on are adequate to define the characteristics necessary to support the marketability of the coal.
10.3TESTING LABORATORIES
HCC contracts with two laboratories, Standard Laboratories and SGS, North America, Inc.
Standard Laboratories has two facilities that analyze samples from the Hamilton mine. One lab is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from Senior Management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IED 17025. Their certification number is 3482.03. Both laboratories provide unbiased, third-party results and operate under a contractual basis.
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that using one these laboratories should provide assurance that the data processing and reporting procedures are reliable.
10.4RESULTS
HCC performed a series of washability tests to develop washability curves. These curves predict coal qualities and recoveries at different specific gravities. The existing plan operates at a specific gravity of approximately 1.5-1.65. The results from the coal quality sampling program are adequate to determine the specification requirements for customers located in both the domestic and export markets.
10.5OPINION OF QUALIFIED PERSON ON DATA ADEQUACY
It is the opinion of the QP that the coal processing data collected from these analyses is adequate for modeling the resources and reserves for marketing purposes. All analyses are derived using standard industry practices by laboratories that are leaders in their industry.
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11.0 MINERAL RESOURCE ESTIMATES
11.1DEFINITIONS
A mineral resource is an estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.
Mineral resources are categorized based on the level of confidence in the geologic evidence. According to 17 CFR § 229.1301 (2021), the following definitions of mineral resource categories are included for reference:
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. An inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An inferred mineral resource, therefore, may not be converted to a mineral reserve.
An indicated mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. An indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource and may only be converted to a probable mineral reserve. As used in this subpart, the term adequate geological evidence means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty.
A measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. As used in this subpart, the term conclusive geological evidence means evidence that is sufficient to test and confirm geological and grade or quality continuity.
11.2LIMITING FACTORS IN RESOURCE DETERMINATION
Resources in the Herrin and Springfield seams are delineated based on the following limitations:
/ | Mineable thickness |
/ | Marketable quality |
/ | Structural limits, such as faults or sandstone channels, existing mining, and subsidence protection zones |
/ | Government and social approval |
11.2.1MINEABLE THICKNESS
Thicknesses are extracted from the database to create a geologic model. Grids are created using an inverse distance algorithm using a weighting factor of three. The minimum Herrin coal thickness in the database is 3.75 feet and the minimum thickness in the expected mining area is 4.21 feet. The minimum
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Springfield coal thickness in the database is zero feet. The Springfield is missing at a single location in the southeastern limit of the resource.
11.2.2MARKETABLE QUALITY
The primary source of quality data is from core holes drilled for the purpose of coal exploration. The qualities that are of primary interest are ash, sulfur, and BTU. These qualities have limitations which affect the value of the coal. The table below summarized the values and ranges of each in the geologic database. The range of critical qualities in the database indicates that all the coal in the Herrin and Springfield seams is within marketable limits. The potential resource areas are considered to meet the quality standard and no further consideration or analyses of these parameters are made. All resource estimates include average anticipated values for ash, sulfur, and BTU.
Table 11-1. Qualities at 1.6 Specific Gravity – Dry Basis
Seam | Quality | Number of | Average | Minimum | Maximum | Standard |
Herrin | Ash | 149 | 8.12 | 5.94 | 11.63 | 0.74 |
Herrin | Sulfur | 149 | 2.85 | 1.48 | 4.39 | 0.34 |
Herrin | BTU | 149 | 13,334 | 12,811 | 13,629 | 127 |
Springfield | Ash | 358 | 8.19 | 5.05 | 16.16 | 1.57 |
Springfield | Sulfur | 357 | 1.96 | 0.41 | 4.07 | 1.01 |
Springfield | BTU | 357 | 13,391 | 11,578 | 13,939 | 275 |
Values in Table 11-1 are dry basis qualities based on laboratory analysis of core or channel samples. Marketable qualities reflect moisture and adjustments for plant variability. Typical as received quality specifications for the Hamilton product are approximately:
/ | BTU – 11,600 to 11,750 |
/ | Moisture – 11.0% to 12.0% |
/ | Ash – 7.5% to 9.0% |
/ | Sulfur – 2.4% to 2.8% |
/ | Volatile Matter - 34.0% to 37.0% |
11.2.3STRUCTURAL LIMITS
There are no geologic features limiting the resources. There are no known faults in the area.
There is an existing underground mine, the Wheeler Creek Mine, in the Springfield seam. This area is excluded from the resources. There are several well fields along the eastern edge of the resources. These wells do not exclude the areas from consideration as a resource. The density of the wells may prohibit the use of longwall mining.
The Herrin and Springfield seams lying under the community of McLeansboro are excluded from the resource estimate.
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11.2.4GOVERNMENT AND SOCIAL APPROVAL
There are no significant limitations to Hamilton obtaining the permits required. Hamilton holds the necessary permits to mine, process, and transport coal from this area. Historically, the company amends, or revises permits as needed. The public is notified of significant permitting actions and may participate in the process.
11.3CLASSIFICATION RESOURCES
11.3.1CLASSIFICATION CRITERIA
The identified resources are divided into three categories of increasing confidence: inferred, indicated, and measured. The delineation of these categories is based on the distance from a known measurement point of the coal. The distances used are presented in USGS Bulletin 1450-B, “Coal Resource Classification System of the U.S. Bureau of Mines and U.S. Geological Survey.” These distances are presented in the Table 11-2.
Table 11-2. Coal Resource Classification System
Classification | Distance from measurement point |
Measured | <1,320’ |
Indicated | 1,320’ – 3,960’ |
Inferred | 3,960’ – 15,840’ |
These distances for classification division are not mandatory. However, these values have been used since 1976, have proven reliable in the estimation of coal resources, and are considered reasonable by the QP.
11.3.2USE OF SUPPLEMENTAL DATA
Due to the continuity of coal seams in the Illinois Basin, mineability limits are the most important factor in resource assessment. Information from oil and gas well e-logs in the vicinity are used as supplemental data to confirm thickness trends, identify structural limits, and characterize adverse geologic conditions. Coal thickness grids are generated from drill hole information, mine measurements, channel samples, and a subset of high-quality oil and gas well e-logs. These are data points in which the company has a high degree of confidence in thickness measurement. These are the data used by the company to generate the model for its internal planning. The combined information increases the overall reliability of the resource estimate, and all data points are included within the classification system.
11.4ESTIMATION OF RESOURCES
Resource estimates are based on a database of geologic information gathered from various sources. The sources of this data are presented in Section 7 of this report. Thickness and quality data are extracted from the database to create a model using Carlson’s Geology module. The model consists of a set of grids, generated using an inverse distance algorithm with a weighting factor of three. In addition to the thickness and quality data, plant recovery is modeled. Quality data and recovery rates
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are determined through a set of tests generating washability curves. The current operation washes the run-of-mine coal at a specific gravity of approximately 1.50-1.65. The qualities and seam yield are based on this specific gravity.
Section 12 presents the modifying factors considered in determining whether resources qualify as reserves. Table 11.3 presents all resources. The tonnages are reported on a saleable basis and exclude resources that are converted to reserves.
Table 11-3. Summary of Resources as of December 31, 2021
Resource | Herrin Seam | Springfield Seam | Total |
Measured | 59,391 | 127,742 | 187,133 |
Indicated | 96,180 | 143,137 | 239,317 |
Inferred | 6,082 | 5,163 | 11,245 |
Total | 161,643 | 276,042 | 437,685 |
The EIA reported the average weekly coal commodity spot price for Illinois Basin coal (the EIA price) on February 4, 2022, to be $75.50/ton (11,800 Btu, 5.0 lbs. SO2 basis). The reference price used in the economic analysis is $36.27 which is based on the QP’s review of historical pricing realized by the Hamilton operation, proprietary third-party pricing forecasts, and the simple average of the EIA price as reported the first Friday of each month for the calendar years 2020 and 2021 (the 2-year average). Mining and processing costs along with general and administrative costs were estimated. Table 11.4 shows the economic basis for the estimate of each seam in real 2021 U.S. dollars.
Table 11-4. Economic Basis for Estimates (US$/ton)
Seam | Herrin | Springfield |
Revenues | $36.27 | $36.27 |
Mining and Processing Costs | $25.46 | $30.07 |
General & Administrative Costs | $0.52 | $0.59 |
11.5OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the resource estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices and costs are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including Hamilton, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. |
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/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation |
» | Regulatory changes related to the Waters of the US. |
» | Air quality standards |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the resource.
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12.0 MINERAL RESERVES ESTIMATES
12.1DEFINITIONS
A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. Probable mineral reserves comprise the economically mineable part of an indicated and, in some cases, a measured mineral resource. Proven mineral reserves represent the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource.
12.2KEY ASSUMPTIONS, PARAMETERS AND METHODS
12.2.1RESERVE CLASSIFICATION CRITERIA
The Herrin and Springfield seam have historically been successfully mined throughout the Illinois basin. Several other mines in the region are currently operating in these seams. Resources are identified as described in Section 11 of this report based on geologic conditions, mineability, and marketability of the coal seam. The two critical factors in converting indicated and measured mineral resources into the mineral reserves are inclusion in an economically feasible mine plan and government approval through the various environmental and operational permits.
Table 17-1 presents the various state and federal environmental permits currently held by the operation. These include the surface mining permit (required for surface operations), air quality permits, and water discharge permits. Approval has already been granted for the required surface disturbance, construction and operation of the preparation facilities, coal refuse disposal, and coal transport. It is noted that not all the anticipated underground mining areas are currently covered under the SMCRA permit. Shadow areas (underground only areas) are extended using permit revisions. This is common practice for underground operations in the Illinois Basin.
12.2.2NON-CONTIGUOUS PROPERTIES
The operation currently has mineral rights to 2,649 properties. Some of these properties are non-contiguous. Securing additional mineral rights is a routine ongoing activity with an emphasis on obtaining rights to tracts to fill any gaps in the mine plan. Should the operation encounter a tract for which mineral rights cannot be obtained, modifications can be made to the longwall panels as needed to avoid these tracts. Any modification to the mining plan would result in lower recovery within the reserve area.
12.2.3CUT-OFF GRADE
The coal bed consistently exhibits qualities that make the product marketable. No reduction is made to the resources or reserves due to quality.
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12.2.4MARKET PRICE
The EIA reported the average weekly coal commodity spot price for Illinois Basin coal (the EIA price) on February 4, 2022, to be $75.50/ton (11,800 Btu, 5.0 lbs SO2 basis). The reference price used in the economic analysis is $36.27 which is based on the simple average of the five-year actual Hamilton realization per ton, proprietary third-party pricing forecasts, and the simple average of the EIA Price as reported for the first Friday of each month for calendar years 2020 and 2021 (the 2-year average). The revenue projection in the economic analysis is based on this estimate of coal price and is assumed to be real 2021 US dollars.
12.3MINERAL RESERVES
12.3.1ESTIMATE OF MINERAL RESERVES
The existing plant operates at a specific gravity of approximately 1.50 to 1.65. The qualities and recovery at a 1.6 specific gravity are added as attributes to the applicable drill holes from which samples were collected. Those values are then modeled using Carlson, gridding these attributes using the inverse distance algorithm with a weighting factor of three.
The current operation uses the longwall mining method with continuous miner development. The approved ground control plan results in a 70% combined mining recovery of the in-place reserves. The typical mining recovery of 40% is used for continuous mining only areas.
The coal testing included density calculations. The operation uses an average in-situ density of 84.9 lbs/cubic foot for the Herrin seam and 86.18 lbs/cubic foot for the Springfield seam. These values are within the expected range of coal density.
All coal tonnages are reported as clean controlled coal. Carlson’s Surface Mine Module is used to estimate in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. The Carlson results are exported to a database, which then applies the appropriate percent ownership, mine recovery, and seam recovery. The basic calculation is:
Tons = Area * Thickness * Density * Mine Recovery * Seam Recovery * Percent Ownership
Table 12-1. Summary of Coal Reserves as of December 31, 2021
Reserve Category / Seam | Controlled Recoverable | Sulfur (%) | Ash (%) | BTU |
Herrin Seam | ||||
Proven | 57,635 | 2.82 | 8.04 | 13,406 |
Probable | 70,901 | 2.84 | 7.99 | 13,421 |
Herrin | 128,536 | 2.83 | 8.01 | 13,421 |
Total Reserves | 128,536 | | | |
Values in Table 12-1 are based on a washed, dry basis.
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12.4OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the reserve estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including Hamilton, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Extension of permitted area – Not all the Reserves are currently permitted. Underground operations in Illinois have traditionally been able to extend the permitted shadow areas as needed. No change is anticipated in the issuance of these permit modifications. It is expected that the shadow area of the permit will be expanded as needed. |
/ | Subsidence – HCC must obtain subsidence rights from surface owners in advance of longwall mining. |
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. Although there is competition from other underground operators for skilled labor, HCC has been successful in attracting and retaining skilled staff and has programs for training less experienced miners. Should HCC not be able to maintain as skilled a labor pool as anticipated, this could impact productivity. However, economic evaluation indicates Hamilton mine remains economic with modest downturns in productivity. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation may impact the domestic electric utility market, which is a major customer for Hamilton coal. While many proposed changes have been suggested, the horizon for these changes severely impacting the market is anticipated to be beyond the current planning horizon supporting the reserve estimate. |
» | Regulatory changes related to the Waters of the US (WOTUS). The interpretation of the regulation and enforcement of the Clean Water Act with respect to the jurisdictional waters of the US have been modified multiple times through regulatory actions and court decisions. It is likely that further reinterpretation will occur. This could affect future modifications such as new or expanded stockpile areas, transportation areas, and refuse disposal areas. The coal industry has become experienced in adapting to these regulatory changes. |
» | Miscellaneous regulatory changes. The coal industry has been subjected to many changes in regulation and enforcement in the recent past. In addition to new regulations related to greenhouse gas emissions and WOTUS, it is expected that further change will occur. The underground coal mining industry has proven adept at modifying operations to comply with these changes while continuing operations. |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
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The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the reserve
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13.0 MINING METHODS
13.1GEOTECHNICAL & HYDROLOGICAL MODELS
The underground mining permit issued by IDNR requires coreholes and their corresponding geotechnical sampling to be performed within the reserve area. The geotechnical data obtained from the coreholes is submitted to the IDNR as a requirement of an approved Subsidence Control Plan. Corehole density is sufficient to define coal quality parameters of the coal seam.
Hydrologic investigations were conducted prior to developing the mining complex for the purpose of determining the amount of water that would be encountered during slope and shaft construction and longwall mining. The testing targeted three water-bearing sandstones located in the resource area, the Mount Carmel, the Trivoli, and the Anvil Rock. Two field techniques were employed to determine the hydrogeologic characteristics of these sandstones which were a double packer test and a bail test. Core samples from various core holes were taken to Oilfield Research, Inc. for porosity and permeability testing.
13.2PRODUCTION RATES & EXPECTED MINE LIFE
HCC extracts coal from the Herrin seam utilizing the longwall and room and pillar method of underground mining. The dual-split ventilation system allows two continuous mining machines to operate on mains and submains. The sweep ventilation system allows one continuous miner to operate on the longwall gate entries. With the installation of a bleeder shaft and fan in each longwall district, the ventilation goes from the headgate to the tailgate of the longwall and to the inby bleeder shaft. Infrastructure within the mine includes conveyors, ventilation, power, fresh water, and compressed air systems, one longwall face and the associated development units. Longwall panels are approximately 1,400 feet wide and up to 18,770 feet in length.
Planned production varies according to contracted sales volume and expectations of market condition. Table 13.1 provides historic raw tons mined before processing, preparation plant recovery, and clean recoverable tons. The forecasted raw tons mined before processing, preparation plant recovery, and clean recoverable tons contained in the economic analysis are shown in Table 13.2.
Table 13-1. Historic Production and Recovery (tons 1,000)
Category | 2017 | 2018 | 2019 | 2020 | 2021 |
Raw Tons | 12,132 | 12,852 | 12,383 | 5,937 | 10,352 |
Clean Recoverable Tons | 6,129 | 6,299 | 5,889 | 2,623 | 4,939 |
Recovery | 50.5% | 49.0% | 47.6% | 44.2% | 47.7% |
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Table 13-2. Life of Reserve Production Estimate (tons 1,000’s
Life of Reserve Estimate 2022-2042 (tons 000's) | |||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 |
Raw Tons | 11,748 | 10,582 | 11,468 | 11,075 | 10,910 | 10,992 | 11,356 | 11,224 | 10,728 | 11,056 | 12,074 | 11,178 | 9,461 | 9,012 | 10,086 | 9,492 | 9,656 | 10,119 | 10,871 | 10,687 | 2,428 |
Clean Recoverable Tons | 5,632 | 5,544 | 6,289 | 6,270 | 6,224 | 6,252 | 6,322 | 6,709 | 6,445 | 6,186 | 6,511 | 6,119 | 6,358 | 6,428 | 6,957 | 6,850 | 6,335 | 6,484 | 6,836 | 6,258 | 1,529 |
Recovery | 47.9% | 52.4% | 54.8% | 56.6% | 57.0% | 56.9% | 55.7% | 59.8% | 60.1% | 55.9% | 53.9% | 54.7% | 67.2% | 71.3% | 69.0% | 72.2% | 65.6% | 64.1% | 62.9% | 58.6% | 63.0% |
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Typical reserve recovery rates for Hamilton range from 21%-100%. Pillar size varies throughout the reserve typically ranging between 232’ x 102’ (250’ centers) and 82’ x 82’ (100’ centers). Entries and crosscuts are driven approximately 18’ wide.
There are approximately 128.5 million clean tons remaining in the Hamilton reserve to be mined within the controlled properties. The current life of reserve plan anticipates exhausting the reserve in 2042. The lifespan of the mine is dependent on many factors and may vary materially from current projections. Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including Hamilton, and the coal industry in general.
13.3UNDERGROUND DEVELOPMENT
HCC currently operates within the specifications of the approved permits and certifications required by all local, state, and federal regulatory agencies. Some of these permits and certifications are as follows:
/Local:County Road agreements, regulated drainage ditch permits
/State:IDNR shadow boundary permit, IDNR surface affects permit, National Pollutant Discharge Elimination System permit, IDEM air permit, Illinois Environmental Protection Agency (IEPA) injection well permit
/ | Federal: Army Corps of Engineers section 404 (wetlands) permit, US NRC nuclear material license |
In addition to the above-mentioned permits, all applicable mining regulations found in Title 30 of the Code of Federal Regulations (CFR) must be followed. The Mine Safety and Health Administration (MSHA) is the federal regulatory agency who oversees compliance with the CFR. Also, plans uniquely specific to Hamilton are required to be submitted, reviewed, and approved by MSHA prior to mining. Some of the approved MSHA required mine plans include:
/ | Roof Control Plan |
/ | Ventilation Plan |
/ | Emergency Response Plan |
/ | Mine Emergency Evacuation and Fire Fighting Program Instruction Plan |
/ | Oil Well Mine Through/Around Plan |
13.4MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL
Underground equipment required at Hamilton includes, but is not limited to:
/ | Longwall Equipment; Shearer, Stageloader, Panline, Shields |
/ | Continuous miner |
/ | Shuttle car |
/ | Double boom roof bolter |
/ | Diesel scoop |
/ | Battery scoop |
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/ | Fork trucks |
/ | Personnel carrier (mantrip) |
/ | Feeder breaker |
/ | Road grader |
/ | Belt conveyor |
/ | Transformer/substation |
/ | Refuge Alternative chamber |
/ | Rock dusters |
/ | Miscellaneous dewatering pumps |
Surface plant and equipment required at Hamilton includes, but is not limited to:
/ | Dozers (various sizes) |
/ | Miscellaneous preparation plant equipment |
/ | End loader |
/ | Man and material hoisting equipment |
/ | Ventilation fan |
/ | Substation |
/ | Mobile crane |
/ | Belt conveyor |
/ | Tractor and dirt scraping pans |
/ | Side by side personnel carriers |
/ | Miscellaneous dewatering pumps |
Personnel required to operate and maintain Hamilton is generally obtained through the hiring of both skilled and non-skilled workers from the immediate area. Salaried positions at HCC are made up of production managers, business managers, engineers, information technology, preparation plant operators, maintenance foreman, purchasing agents, and safety specialists. Hourly positions include equipment operators on the surface and underground, general laborers, dust sampling technicians, mechanics, examiners, warehouse clerks, etc. Total headcount ranges between 220 to 350 workers, depending on the number of development units operating.
13.5MINE MAP
Please see Appendix A for a plan view of the mine map.
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14.0 PROCESSING AND RECOVERY METHODS
14.1PLANT PROCESS
HCC utilizes a heavy media, float/sink style preparation plant to separate marketable coal from refuse. The plant has a design feed capacity of 2,000 tons per hour (TPH). The plant is divided into two independent 1,000 TPH circuits, fed by two independent plant feed conveyors. Once in the plant, the run of mine (ROM) material passes over vibratory screens to be separated by size. Approximately 85% of all of the ROM material reports to the heavy media circuit as coarse material. Through the introduction of magnetite, a ferromagnetic naturally occurring mineral, the gravity of the ROM material solution within the heavy media circuit is manipulated to precisely control the float/sink point. The ROM material in the heavy media circuit is then pumped into a heavy media cyclone. The cyclonic action aids in the magnification of gravity, which allows for a faster and more precise separation between coal and rock. The clean coal, or product, produced by the heavy media cyclone is rinsed, dried, and collected by the clean coal conveyor to be shipped. The rock, or coarse refuse, produced by the heavy media cyclone is rinsed and sent to the refuse disposal area.
The 15% of material that makes up the fine circuit within the plant is also separated by gravity, but in a different manner. The fine ROM material reports to a series of classifying cyclones, spirals, and flotation columns to separate the coal from the fine refuse. Clean coal produced by the flotation columns and spirals is passed through screen bowl driers to remove excess moisture prior to being collected on the clean coal conveyor. Fine refuse from the same process is pumped to a static thickener. Once the fine refuse material has had sufficient time to settle to the bottom of the thickener, it is pumped away to be disposed of within the refuse impoundments.
14.2ENERGY, WATER, PROCESS MATERIALS & PERSONNEL
Energy for the underground mining and preparation plant operations is delivered through a 138kV transmission line to Hamilton’s 60MW substation located on site. The electricity is purchased from Hoosier Energy and is delivered by WWEC.
Hamilton gets its potable and non-potable water from the Hamilton County Water District. Water used for coal processing is supplemented by non-potable water sourced from collection ponds and impoundments.
The preparation plant uses readily available reagents and supplies. These are typically able to be competitively sourced from multiple vendors and are generally delivered to the mine by truck.
The preparation plant operates a flexible work schedule responding to mine production and market demands. A typical shift crew includes one salaried and eight hourly personnel with up to four crews to operate at full capacity.
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15.0INFRASTRUCTURE
Hamilton is located at 18033 County Road 500 E, Dahlgren, IL, 62828. (38°10’8” N, -88°36’26” W). It is accessible from County Road 1800 N via County Road 500 E via State Route 142 via County Road 2200 E via Interstate 64. Interstate 64, State Routes 142 and 242 are major transportation arteries in and out of the area. Most supplies are trucked to the mine from regional vendors. All necessary utilities are in place and working. Electricity is purchased from Hoosier Energy and delivered by WWEC. Water is provided by the Hamilton County Water District.
Coal is transported by the EVWR to the CSX or Alliance’s Mount Vernon Transfer Terminal (MVTT) on the Ohio River (mile marker 828). HCC's annual rail loadout capacity is approximately eight million tons and typically can load trains in 4 hours or less. MVTT (37°55’31” N, -87°51’46” W) is approximately 50 miles southeast of HCC. MVTT has the capabilities to transload eight million tons per year from rail to barge. MVTT ground storage is approximately 200,000 tons.
Two fine refuse impoundments are located on the mine’s property. Once construction is completed, the two embankment style impoundments will cover approximately 200 acres and 475 acres, respectively. The impoundment embankments are constructed of coarse refuse, creating storage space for fine refuse within the impoundment.
Figure 15-1 shows the layout of Hamilton surface facilities.
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Figure 15-1. Infrastructure Layout
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16.0 MARKET STUDIES
16.1MARKETS
Hamilton produces high sulfur coal that is sold to the domestic and international thermal coal markets. Production from Hamilton is transported to customers by rail via the EVWR with connection to CSX, Norfolk Southern Railway or the MVTT transloading facility for barge deliveries.
Hamilton participates in the Illinois Basin coal market, selling coal to a diverse customer base of various domestic utilities, industrial facilities, and exporters. While coal demand in the US is expected to decline over the coming years, the Eastern US thermal coal demand in 2021 was over 190 million tons.
Table 16-1. Economic Analysis Coal Price
| | | Third Party Price Forecasts1 | | | |
Operation | 5-Year Average 2017-2021 | Minimum | Maximum | Economic Analysis Coal Price2 | Reserve Tons | |
HCC | Tons Sold3 | 5,200 | — | — | — | 128,536 |
Price per ton2 | — | $32.42 | $60.06 | $36.274 | — |
1. | Proprietary third-party pricing forecast for 2022-2040 and 2022-2050, real 2021 dollars. |
2. | Price per ton is real 2021 dollars for the life of reserve economic analysis. |
3. | Tons reported in thousands. |
4. | The economic analysis coal price is based on the QP’s review of historical pricing realized by Hamilton and as reported by EIA and proprietary third-party coal price forecasts provided by Alliance. |
The demand for Hamilton coal is closely linked to the demand for electricity, and any changes in coal consumption by United States or international electric power generators would likely impact the TRM demand. The domestic electric utility industry accounts for approximately 91% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of competing fuels for power plants such as nuclear, natural gas, and fuel oil as well as alternative sources of energy.
Future environmental regulation of GHG emissions could also accelerate the use by utilities of fuels other than coal. In addition, federal and state mandates for increased use of electricity derived from renewable energy sources could affect demand for coal. Such mandates, combined with other incentives to use renewable energy sources such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal.
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17.0ENVIRONMENTAL
17.1ENVIRONMENTAL STUDIES
No standalone environmental studies have been conducted for the properties. As part of the state and federal permitting process, various environmental assessments have been conducted. As disturbances are proposed for the operation, all relevant local, state, and federal agencies are contacted to review the proposed project. Each agency reviews the project for impacts to lands, water, and ecology.
17.2WASTE DISPOSAL & WATER MANAGEMENT
The processing of the run-of-mine coal at Hamilton process generates fine and coarse refuse waste streams. The fine and course refuse are disposed of in the two onsite refuse impoundments. The coarse refuse is used to construct the impoundments’ embankments and the fine refuse is pumped to the pool areas created by the embankments. Additional permitting will be required to expand the refuse impoundments. The expansion areas will be constructed on controlled land adjacent to the existing refuse impoundments. In conjunction with the expansion area, the refuse impoundments may be increased by employing upstream construction methods.
All runoff from the site is managed by sediment control structures including diversions, sumps, and sediment basins. Prior to discharge from the permitted areas, water must meet compliance standards as defined in the NPDES permits. Water samples at discharge locations are collected in accordance with the approved permit and analyzed by an independent laboratory.
17.3PERMITTING REQUIREMENTS
IDNR, LRD is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to the state mining and reclamation laws, operators must comply with various other federal laws relevant to mining. The federal laws include:
/ | Clean Air Act |
/ | Clean Water Act |
/ | Surface Mining Control and Reclamation Act |
/ | Federal Coal Mine Safety and Health Act |
/ | Endangered Species Act |
/ | Fish and Wildlife Coordination Act |
/ | National Historic Preservation Act |
/ | Archaeological and Historic Preservation Act |
In conjunction with the IDNR coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the Illinois Environmental Protection Agency (IEPA). IEPA is responsible
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for permit issuance and compliance monitoring for all activities which have the potential to impact air or water quality.
Along with the IDNR and IEPA, a state interagency committee reviews permit applications for components applicable to a particular agency’s area of expertise. Agencies represented on this committee include Illinois Department of Agriculture, Illinois Department of Natural Resources/Office of Realty and Environmental Planning, Illinois Department of Natural Resources/Office of Water Resources, Illinois Environmental Protection Agency, and Illinois Historic Preservation Agency.
All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing. A listing of all current state mining permits is provided in Table 17-1. Mining Permits generally require that the permittee post a performance bond in an amount established by the agency to provide assurance that any disturbance or liability created by the mining operations is properly restored to an approved post-mining land use and that all regulations and requirements of the permit are satisfied before the bond is returned to the permittee.
Table 17-1. Current State Permits
Regulatory | Permit No. | Permitted | Permitted | Current Bond |
17.4PLANS, NEGOTIATIONS OR AGREEMENTS
New permits and certain permit amendments/revisions require public notification. The public is made aware of pending permits by advertisement in the local newspaper. Additionally, a copy of the application is retained at the county’s public library for the public to review. A 30-day comment period follows the last advertisement date to allow the public to submit comments to the regulatory authority.
In certain instances, additional opportunities are provided to the public for comment. These instances include operations within 100 feet of a public road, operations within 300 feet of a dwelling, and operations within 300 feet of a public building, school, church, or community building. In those instances, approval must be granted by the regulatory authority as well as individuals or groups who own or provide oversight for a particular facility.
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17.5MINE CLOSURE
A detailed plan for reclamation activities upon completion of mining required at the properties has been prepared. Reclamation costs have been estimated based on internal project costs as well as publicly available heavy construction databases. Reclamation costs at the end of the year 2021 totaled approximately $21.7 million.
17.6LOCAL PROCUREMENT & HIRING
There are no commitments for local procurement or hiring. However, efforts are made to source supplies and materials from regional vendors. The workforce is hired from the regional area.
17.7OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
The approved permits and certifications are adequate for continued operation of the facility. Waste disposal facilities are in place for current mining operations, with plans to expand the disposal facilities in order to provide life of reserve storage. Water control structures are in place and function as required by regulatory agencies. In the QP’s opinion, the estimated reclamation liability is adequate to estimate mine closure and reclamation costs at the property.
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18.0 CAPITAL AND OPERATING COSTS
RESPEC reviewed capital and operating costs required for the coal mining operations at Hamilton. Historic capital and operating expenditures were supplied to RESPEC by HCC. The site is an operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of recent operating performance. The cost estimates are accurate to within +/-25%. RESPEC considers these cost estimates to be reasonable. All costs in this section are expressed in real 2021 US dollars.
18.1CAPITAL COSTS
Capital costs were estimated with the costs classified as routine operating necessity (sustaining capital) and capital required for major infrastructure additions or replacement. As discussed in Item 12.3, the reserve for GSM is 128.5M tons. The current production schedule estimates approximately 128.5M tons will be mined by 2042. The estimated capital costs for the reserve tons are provided in Table 18-1.
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Table 18-1. Capital Cost Estimate
Life of Reserve Estimate 2022-2042 (US$000's) | |||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 |
Routine Operating Necessity | 41,789 | 30,658 | 21,819 | 23,467 | 47,393 | 30,239 | 32,383 | 20,164 | 33,680 | 36,255 | 21,922 | 26,657 | 27,643 | 32,251 | 34,127 | 18,417 | 21,022 | 20,765 | 33,303 | 33,985 | 6,404 |
Major Infrastructure Investment | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
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18.2OPERATING COSTS
Operating cost inputs for the life of reserve economic analysis such as labor, benefits, consumables, maintenance, royalties, taxes, transportation, and general and administrative expenses were based on recent operating data. A summary of the estimated operating costs, including depreciation expense (the Mining and Processing Cost) for the life of the reserve are provided in Table 18-2.
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Table 18-2. Operating Cost Estimate
Life of Reserve Estimate 2022-2042 (US$000's) | ||||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | |
Cash Operating Costs | 122,877 | 120,736 | 117,888 | 116,663 | 115,045 | 102,862 | 102,674 | 116,603 | 102,086 | 102,145 | 119,034 | 112,781 | 98,103 | 96,324 | 112,598 | 108,633 | 99,692 | 110,560 | 116,203 | 114,055 | 28,719 | |
Royalties | 29,385 | 29,819 | 33,804 | 33,688 | 33,440 | 33,595 | 33,969 | 36,050 | 34,633 | 33,238 | 34,982 | 32,876 | 34,160 | 34,539 | 37,380 | 36,804 | 34,037 | 34,840 | 36,730 | 33,624 | 8,214 | |
Depreciation | 44,600 | 42,674 | 40,283 | 28,451 | 32,390 | 33,007 | 35,881 | 30,895 | 29,288 | 26,993 | 28,084 | 29,105 | 31,084 | 35,247 | 34,959 | 29,237 | 25,599 | 25,461 | 26,559 | 29,564 | 26,085 | |
Mining and Processing Costs | 196,862 | 193,230 | 191,976 | 178,802 | 180,875 | 169,464 | 172,524 | 183,549 | 166,006 | 162,375 | 182,100 | 174,762 | 163,347 | 166,110 | 184,937 | 174,674 | 159,329 | 170,862 | 179,492 | 177,243 | 63,018 |
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19.0ECONOMIC ANALYSIS
RESPEC completed an economic analysis based on the cash flow developed from the production plan and capital and operating costs previously discussed. The average per ton sold revenue estimate used for the life of reserve economic evaluation was $36.27.
19.1KEY PARAMETERS AND ASSUMPTIONS
The economic analysis has been based on production, revenue, capital, and operating costs estimates. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation.
Table 19-1 provides the annual cash flow of the life of reserve economic analysis for Hamilton.
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Table 19-1. Pre-tax Cash Flow Summary
Life of Reserve Estimate 2022-2042 (US$000's) | |||||||||||||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 |
Revenues | 204,287 | 201,288 | 228,188 | 227,401 | 225,731 | 226,773 | 229,301 | 243,349 | 233,778 | 224,365 | 236,139 | 221,921 | 230,589 | 233,144 | 252,323 | 248,434 | 229,759 | 235,182 | 247,940 | 226,968 | 57,340 |
Cash Operating Costs | (122,877) | (120,736) | (117,888) | (116,663) | (115,045) | (102,862) | (102,674) | (116,603) | (102,086) | (102,145) | (119,034) | (112,781) | (98,103) | (96,324) | (112,598) | (108,633) | (99,692) | (110,560) | (116,203) | (114,055) | (28,719) |
Royalties | (29,385) | (29,819) | (33,804) | (33,688) | (33,440) | (33,595) | (33,969) | (36,050) | (34,633) | (33,238) | (34,982) | (32,876) | (34,160) | (34,539) | (37,380) | (36,804) | (34,037) | (34,840) | (36,730) | (33,624) | (8,214) |
Capital Expenditures | (41,789) | (30,658) | (21,819) | (23,467) | (47,393) | (30,239) | (32,383) | (20,164) | (33,680) | (36,255) | (21,922) | (26,657) | (27,643) | (32,251) | (34,127) | (18,417) | (21,022) | (20,765) | (33,303) | (33,985) | (6,404) |
Working Capital Changes | 13,282 | 3,165 | (6,245) | 570 | 3,000 | (2,074) | (168) | (773) | 1,626 | 1,504 | 212 | 1,802 | (218) | 985 | 1,159 | (193) | 1,832 | 1,316 | 2,085 | 2,301 | (8,628) |
Cash Flow | 23,518 | 23,239 | 48,432 | 54,153 | 32,853 | 58,003 | 60,107 | 69,759 | 65,006 | 54,232 | 60,413 | 51,409 | 70,465 | 71,015 | 69,378 | 84,387 | 76,840 | 70,332 | 63,788 | 47,605 | 5,375 |
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19.2ECONOMIC VIABILITY
The economic viability of the operation is reliable based on various factors. This is an on-going operation and has already established the economic benefits outweigh the economic costs. The economic analysis utilized the same parameters and assumptions used in past financial models. Therefore, it is reasonable to expect similar benefits and costs. Since this is an on-going operation with no major up front capital expenditures, there is no calculation of NPV, internal rate of return or payback period of capital.
We have tested the economic viability of the life of reserve economic analysis by conducting sensitivity analysis with respect to the revenue and operating and capital cost. In the independent sensitivity analysis, the revenue was reduced by 20% and the operating and capital cost were increased by 25%. The summary of the sensitivity analysis is shown in Table 19.2.
Table 19-2. Sensitivity Analysis
Life of Reserve Estimate 2022-2042 (US$ 000’s) | ||||
Category | Annual Minimum | Annual Maximum | Annual Average | Total |
Revenue Reduced 20% - Cash Flow | (17,339) | 34,700 | 9,890 | 227,467 |
Operating & Capital Costs increased 25% - Cash Flow | (24,994) | 43,423 | 12,183 | 280,199 |
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20.0 ADJACENT PROPERTIES
There are no active coal mines within 5 miles of Hamilton.
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21.0 OTHER RELEVANT DATA AND INFORMATION
All data relevant to the supporting studies and estimates of mineral resources and reserves have been included in the sections of this TRS. No additional information or explanation is necessary to make this TRS understandable and not misleading.
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22.0 INTERPRETATION AND CONCLUSION
22.1INTERPRETATIONS AND CONCLUSIONS
The QP has reached a conclusion concerning the Hamilton operation based on data and analysis summarized in this TRS that the operation is currently viable based on the resource and reserves that remain, the economic benefits for HCC and the market needs of this product. Hamilton contains an estimated 128.5 million clean tons of reserves.
22.2RISKS AND UNCERTAINTIES
It is the QP’s opinion that the mine operating risks are low. This is an on-going operation that has proven to be a viable and profitable business. The analysis of the reserves and resources used the same methodology the operation has used in the past. Given the reliability of past mining plans, it is a reasonable conclusion that future mining plans would continue to be reliable. However, market uncertainty associated with government regulations could result in earlier retirements of coal fired electric generating units. This could negatively affect the demand and pricing for the Hamilton product. Please refer to ARLP’s Form 10-K, Item 1A, for a complete listing of risk factors that may affect this operation.
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23.0 RECOMMENDATIONS
The recommendations for Hamilton are as follows:
/ | Continue acquiring mining rights in the extended mine plan to support future production. |
/ | Continued research into a new impoundment location and commence negotiations with landowners as required. |
/ | Continue current exploration plan |
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24.0 REFERENCES
Willman, Harold Bowen; Atherton, Elwood; Buschbach, T.C.; Collinson, Charles William; Frye, John Chapman; Hopkins, M.E.; Lineback, Jerry Alvin; Simon, Jack A.1975. Handbook of Illinois Stratigraphy. Urbana, IL: Illinois State Geological Survey
Nalley S., LaRose, A. (2021). Annual Energy Outlook 2021 Press Release, U.S. Energy Information Administration (EIA). Accessed on December 17, 2021. Retrieved from
https://www.eia.gov/outlooks/aeo/
U.S. Energy Information Administration (EIA). (2021). Coal Markets. Accessed on December 17, 2021. Retrieved from https://www.eia.gov/coal/markets/
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25.0 RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT
Table 25-1 summarizes the information provided by the registrant for matters discussed in this report, as permitted under §229.1302(f) of the SEC S-K 1300 Final Rule.
Table 25-1. Summary of Information Provided by Registrant
Category | Report Item/ Portion | Disclose why the Qualified Person considers it reasonable |
Macroeconomic trends | Section 19 | N/A |
Marketing information | Section 16 | The market trends were provided by HCC personnel. The QP’s experience evaluating similar projects leads them to opine that the market trends are representative of the expected trends of an on-going coal mining operation in the United States |
Legal matters | Section 17 | The legal matters involving statutory and regulatory interpretations affecting the mine plan were provided by HCC personnel. The QP’s experience with statutory and regulatory issues leads them to opine the mining plan meets all statutory and regulatory requirements of an on-going coal mining operation in the United States |
Environmental matters | Section 17 | The environmental permits and matters were provided by HCC permitting group. The QP’s experience with permitting and environmental issues leads them to opine the information provided is representative of what is required of an on-going coal mining operation in the United States |
Local area commitments | Section 17 | N/A |
Governmental factors | N/A | N/A |
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APPENDIX A
MINE MAP
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A-3 | | |
Exhibit 96.4
GIBSON SOUTH MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED FOR
Gibson County Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
GIBSON SOUTH MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED BY
RESPEC
146 East Third Street
Lexington, Kentucky 40508
PREPARED FOR
Gibson County Coal, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
Project Number M0062.21001
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TABLE OF CONTENTS
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SAMPLE PREPARATION, ANALYSES AND SECURITY | 18 | |||
| 8.1 | SAMPLE PREPARATION AND ANALYSIS | 18 | |
| 8.2 | QUALITY CONTROL/QUALITY ASSURANCE (QA/QC) | 19 | |
| 8.3 | OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION | 19 | |
9.0 | DATA VERIFICATION | 20 | ||
| 9.1 | SOURCE MATERIAL | 20 | |
| 9.2 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 20 | |
10.0 | MINERAL PROCESSING AND METALLURGICAL TESTING | 21 | ||
| 10.1 | ANALYTICAL PROCEDURES | 21 | |
| 10.2 | REPRESENTATIVE SAMPLES | 21 | |
| 10.4 | RESULTS | 21 | |
| 10.5 | OPINION OF QUALIFIED PERSON ON DATA ADEQUACY | 21 | |
11.0 | MINERAL RESOURCE ESTIMATES | 22 | ||
| 11.1 | DEFINITIONS | 22 | |
| 11.2 | LIMITING FACTORS IN RESOURCE DETERMINATION | 22 | |
| 11.3 | CLASSIFICATION RESOURCES | 24 | |
| 11.4 | ESTIMATION OF RESOURCES | 24 | |
| 11.5 | OPINION OF QUALIFIED PERSON | 25 | |
12.0 | MINERAL RESERVES ESTIMATES | 26 | ||
| 12.1 | DEFINITIONS | 26 | |
| 12.2 | KEY ASSUMPTIONS, PARAMETERS AND METHODS | 26 | |
| | 12.2.1 | Reserve Classification Criteria | 26 |
| | 12.2.2 | Non-Contiguous Properties | 26 |
| | 12.2.3 | Cut-Off Grade | 27 |
| | 12.2.4 | Market Price | 27 |
| 12.3 | MINERAL RESERVES | 27 | |
| 12.3.1 | Estimate of Mineral Reserves | 27 | |
| 12.4 | OPINION OF QUALIFIED PERSON | 28 | |
13.0 | MINING METHODS | 29 | ||
| 13.1 | GEOTECHNICAL & HYDROLOGICAL MODELS | 29 | |
| 13.2 | PRODUCTION RATES & EXPECTED MINE LIFE | 29 | |
| 13.3 | UNDERGROUND DEVELOPMENT | 30 | |
| 13.4 | PERSONNEL MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL | 31 | |
| 13.5 | MINE MAP | 32 | |
14.0 | PROCESSING AND RECOVERY METHODS | 33 | ||
| 14.1 | PLANT PROCESS | 33 | |
| 14.2 | ENERGY, WATER, PROCESS MATERIALS & PERSONNEL | 33 | |
15.0 | INFRASTRUCTURE | 34 |
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16.0 | MARKET STUDIES | 37 | ||
| 16.1 | MARKETS | 37 | |
17.0 | ENVIRONMENTAL | 38 | ||
| 17.1 | ENVIRONMENTAL STUDIES | 38 |
| 17.2 | WASTE DISPOSAL & WATER MANAGEMENT | 38 |
| 17.3 | PERMITTING REQUIREMENTS | 38 |
| 17.4 | PLANS, NEGOTIATIONS OR AGREEMENTS | 39 |
| 17.5 | MINE CLOSURE | 39 |
| 17.6 | LOCAL PROCUREMENT & HIRING | 40 |
| 17.7 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 40 |
18.0 | CAPITAL AND OPERATING COSTS | 41 | |
| 18.1 | CAPITAL COSTS | 41 |
| 18.2 | OPERATING COSTS | 41 |
19.0 | ECONOMIC ANALYSIS | 43 | |
| 19.1 | KEY PARAMETERS AND ASSUMPTIONS | 43 |
| 19.2 | ECONOMIC VIABILITY | 45 |
20.0 | ADJACENT PROPERTIES | 46 | |
21.0 | OTHER RELEVANT DATA AND INFORMATION | 47 | |
22.0 | INTERPRETATION AND CONCLUSION | 48 | |
| 22.1 | INTERPRETATIONS AND CONCLUSIONS | 48 |
| 22.2 | RISKS AND UNCERTAINTIES | 48 |
23.0 | RECOMMENDATIONS | 49 | |
24.0 | REFERENCES | 50 | |
25.0 | RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT | 51 | |
APPENDIX A MINE MAP | A-1 |
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LIST OF TABLES
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LIST OF FIGURES
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1.0 EXECUTIVE SUMMARY
1.1PROPERTY DESCRIPTION
Gibson County Coal, LLC (GCC) owns and operates the Gibson South Mine (GSM). Gibson County Coal, LLC is a wholly owned subsidiary of Alliance Coal, LLC (Alliance). GSM is an underground coal mining operation located in Gibson County, Indiana and currently has approximately 23,350 acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Surface facilities are controlled through ownership or lease.
1.2GEOLOGY AND MINERALIZATION
The Springfield (Indiana No. 5) coal seam is mined through room and pillar methods. The Springfield seam is located in the Illinois Basin which is an interior cratonic basin that formed from numerous subsidence and uplift events. The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
1.3STATUS OF EXPLORATION
GSM has extensively explored the Springfield seam through multiple drilling operations. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic data and when available coal quality data.
1.4MINERAL RESOURCE AND RESERVE ESTIMATES
This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal and predict coal quality for marketing purposes. This information is used to create a resource model using Carlson’s Geology module, part of an established software suite for the mining industry. In addition to coal thickness and quality data, seam recovery is modeled. Classification of the resources is based on distances from drill data. Carlson then estimates in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. These results are exported to a database which then applies the appropriate percent ownership, mine recovery and seam recovery. Table 1-1 is a summary of the coal reserves based on the life-of-reserve plan. All resources were converted to reserves. There are no resources exclusive of reserves.
Table 1-1. Summary of Controlled Coal Reserve Estimates as of December 31, 2021
Reserve Category | Controlled Recoverable (1,000 tons) |
Springfield Seam | |
Proven | 44,191 |
Probable | 8,282 |
Total Proven and Probable | 52,473 |
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1.5CAPITAL AND OPERATING COST ESTIMATES
GSM is an on-going operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of historical operating performance. The coal operation is not subject to federal or state taxes as it is held by a partnership for tax purposes and not taxed as a corporation. Table 1-2 shows the estimated capital costs and mining and processing costs for the life of reserve plan.
Table 1-2. Capital and Operating Costs
Category | Life of Reserve Estimate 2022-2031 |
Capital Costs | 223,554 |
Mining and Processing Costs | 1,449,877 |
TOTAL | 1,673,431 |
1.6PERMITTING REQUIREMENTS
Indiana Department of Natural Resources, Division of Reclamation is responsible for oversight of active coal mining and reclamation activities. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities and other incidental activities have been obtained and remain in good standing.
1.7QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS
It is the Qualified Person’s (QP) opinion the operating risks of the mine are low. The mining operation, processing facilities, and the site infrastructure are in place. Mining practices are well established. All required permits are issued and remain in good standing. Market risk is discussed in Section 16.1 and could materially impact reserve estimates.
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2.0 INTRODUCTION
2.1ISSUER OF REPORT
GCC has retained RESPEC Company, LLC (RESPEC) to prepare this Technical Report Summary (TRS). GSM is operated by GCC. GCC is a wholly owned subsidiary of Alliance.
2.2TERMS OF REFERENCE AND PURPOSE
The purpose of this TRS is to support the disclosure in the annual report on Form 10-K of Alliance Resource Partners, L.P. (ARLP 10-K) of Mineral Resource and Mineral Reserve estimates for the GSM as of 12/31/2021. This report is intended to fulfill 17 Code of Federal Regulations (CFR) §229, “Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 – Regulation S-K,” subsection 1300, “Disclosure by Registrants Engaged in Mining Operations.” The mineral resource and mineral reserve estimates presented herein are classified according to 17 CFR§229.133 – Item (1300) Definitions.
Unless otherwise stated, all measurements are reported in U.S. imperial units and currency in U.S. dollars ($).
This TRS was prepared by RESPEC. No prior TRS has been filed with respect to the GSM.
2.3SOURCES OF INFORMATION
During the preparation of the TRS, discussions were had with several Alliance personnel.
The following information was provided by Alliance and GCC:
/ | Property history |
/ | Property data |
/ | Laboratory protocols |
/ | Sampling protocols |
/ | Topographic data |
/ | Mining methods |
/ | Processing and recovery methods |
/ | Site infrastructure information |
/ | Environmental permits and related data/information |
/ | Historic and forecast capital and operating costs. |
2.4PERSONAL INSPECTION
A RESPEC QP and Alliance representative conducted a site visit on February 1, 2022. During the site visit, the RESPEC QP visited the preparation plant, the raw coal stockpile, the clean coal stockpile, the mine slope, the mine shaft, load-out structure, and the refuse impoundment. A portion of the product is
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trucked to GCC’s nearby Gibson North mine (GNM), where it is transported to a rail load-out facility. The GNM stockpiles and the rail load-out were visited.
Discussions were held with the mine engineer regarding several issues including current markets, coal quality and products, the ability to hire employees, and the life-of-mine plan for refuse disposal.
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3.0 PROPERTY DESCRIPTION
3.1PROPERTY DESCRIPTION AND LOCATION
The GSM (38°18’22” N, 87°42’30” W) is located in Gibson County, Indiana and currently has approximately 23,350 underground acres permitted.
Figure 3-1 shows the general location of the GSM property.
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Figure 3-1. General Location Map
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3.2MINERAL RIGHTS
GCC holds rights to approximately 21,600 gross acres of coal within the boundaries of approximately 543 coal leases and coal deeds.
In November 1997, pursuant to (a) Assignment of Underground Coal Leases, (b) Partial Assignment of Underground Coal Leases and (c) Special Corporate Warranty Deed, Old Ben Coal Company conveyed to MAPCO Land & Development Corporation various coal leases and fee coal interests within a large property boundary located in Gibson County, Indiana. MAPCO Land & Development Corporation changed its name to MAPCO Coal Land & Development Corporation, and MAPCO Coal Land & Development Corporation merged into Alliance Properties, LLC (a wholly owned subsidiary of MAPCO Coal Inc.) effective August 4, 1999.
After the original Old Ben acquisition, Alliance Properties, LLC and GCC continued to acquire additional coal leases and fee coal interests in the area. Alliance Properties, LLC merged into GCC on February 19, 2018.
The coal leases are with private owners. The coal field description in the leases is generally described as an area within township 1 south range 11 west; township 1 south 12 west; township 1 south range 13 west; township 2 south range 11 west; township 2 south range 12 west; township 2 south range 13 west; township 3 south range 11 west; township 3 south range 12 west; township 3 south range 13 west; all in Gibson County, Indiana and Knox County, Illinois.
For some tracts, GCC has partial control of the mineral rights. The estimated saleable tonnage for each tract is reduced appropriately where control is less than 100%.
3.3SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS
ARLP's revolving credit facility is secured by, among other things, liens against certain Gibson County Coal surface properties, coal leases, and owned coal. Documentation of such liens is of record in the Office of the Recorder of Gibson County, Indiana. Please refer to “Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt” of the ARLP 10-K for more information on the revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for ARLP's accounts receivable securitization facility, evidenced by financing statement of record in the Office of the Recorder of Gibson County, Indiana. Please refer to "Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt" of the ARLP 10-K for more information on the accounts receivable securitization facility.
The Indiana Department of Natural Resources, Division of Reclamation is responsible for oversight of active coal mining and reclamation activities. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
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4.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
4.1TOPOGRAPHY AND VEGETATION
The GSM is located in the Southern Wabash Lowlands physiographic region of Indiana per USEPA. This region is unglaciated and glaciated (glacial till not extensive), consisting of undulating to rolling terrain, wide shallow valleys with low to medium gradient stream channels; paleo-dunes in west. The surface facilities and mine access are located to the southwest of Princeton, IN, and to the southeast of Duke Energy – Gibson Plant. The elevation ranges across the mine permit area between 380 and 560 feet above mean sea level. The vegetation across the mine permit area consists primarily of cropland, with some pastureland and deciduous forest.
4.2ACCESSIBILITY AND LOCAL RESOURCES
The primary shaft access to GSM (38°18’22” N, 87°42’30” W) is located on County Road 350 S, Owensville, IN 47665. It is accessible from Princeton, IN, via IN-64 W to IN-65 S to County Road 350 S. Interstate 64 is a major transportation artery passing through the area, which lies about 9.8 miles due south of the mine. The city of Princeton, IN, lies about 8.4 miles to the northeast of the mine, the Duke Energy – Gibson Plant, lies about 5.6 miles to the northwest of the mine, and the Toyota Motor Manufacturing Indiana Plant lies about 8.1 miles to the west of the mine. The Wabash River lies about 5.9 miles to the northwest of the mine, passing next to the Duke Energy – Gibson Plant. Coal is transported by belt from the underground mine to the surface at the slope access (38°18’23” N, 87°41’57” W) located about 0.5 miles to the east of the primary shaft access. The coal is processed at the mine’s processing facilities located just to the northwest of the slope access. The mine has a truck loading facility located just to the south of the processing facility. The processed coal is transported by truck to either the GNM train loading facility, the Mount Vernon barge loading facility or directly to the client. The GNM truck unloading facility (38°22’27” N, 87°36’32” W) is located about 6.8 miles to the northeast of the GSM truck loading facility. From the truck unloading facility, the coal is transported by belt to the GNM train loading facility (38°22’11” N, 87°35’36” W) located 0.9 miles to the southwest. Rail service is provided by CSX Transportation (CSX) or Norfolk Southern Railway (NS). The CSX rail line is located east of the mine’s rail loop. The NS rail line is located south of the rail loop. The Mount Vernon barge loading facility (37°55’04” N, 87°52’04” W) is located on the Ohio River (mile marker 828) about 28 miles to the southwest of the mine. The barge loading facility has the capability to accept coal from either truck or rail at its unloading facilities located inside of a rail loop about 0.5 miles to the northeast of the barge loading facility. The nearest FAA-designated commercial service airport is Evansville Regional Airport (EVV) located about 21 miles to the southeast of the mine in Evansville, IN.
4.3CLIMATE
The GSM and surrounding Princeton, IN, area has four distinct seasons with average annual precipitation of 48.9 inches according to U.S. Climate Data. The average annual high temperature is 66°F and the average annual low temperature is 44°F. The average annual snowfall is 10 inches. The climate of the area has little to no effect on underground and surface operations at the mine. The mine operates year-round with exceptions for holiday and vacation shutdowns.
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4.4INFRASTRUCTURE
The GSM gets its potable water from Gibson Water, Inc. Water used for underground operations and coal processing is provided by wells owned by the mine and sourced from the local alluvium. Electricity is provided by Western Indiana Energy REMC (WIN) through 69 kV transmission lines leading from Duke Energy’s Gibson Generating Station, which has a capacity of 3,145 megawatts. Employment in the area is competitive. However, the mine has been able to attract a mixture of skilled and unskilled labor with its competitive pay package and benefits. Mine personnel primarily come from the Indiana counties of Gibson, Knox, Pike, Warrick, Vanderburgh, and Posey. The city of Evansville, IN, lies about 24 miles to the southeast of the mine. Its population is 117,298 according to the 2020 U.S. Census, making it the 3rd most populous city in Indiana. Evansville is the county seat of Vanderburgh County, IN, and it is a regional hub of commercial, medical, and cultural activity. Most supplies are trucked to the mine from regional vendors.
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5.0 HISTORY
5.1PRIOR OWNERSHIP
As described in Section 3.2, a significant portion of the GSM property was previously owned by Old Ben Coal Company (OBCC). OBCC after acquiring property rights commenced exploration activities.
5.2EXPLORATION HISTORY
OBCC ran large exploration programs across multiple years to examine thickness, mineability, and quality. In general, holes are cased through the alluvium, rotary drilled to an interval above the coal, and then cored to collect roof, coal, and floor samples. Cores are typically 2⅛ to 3 inches in diameter. Sampling of coal was undertaken on the majority of holes with coal quality analysis completed. The GM series, drilled from about 1969 to 1971, contains 61 holes. The 600 series drilling was completed between 1982 and 1988 and contained 76 holes. Geophysical logs were acquired for a majority of the drilling. The T2 series drilling in the western area of the property is associated with the adjacent Wabash Mine under AMAX’s ownership, where 73 holes similar in scope to the OBCC holes were drilled by AMAX.
See Appendix A for map showing all drill hole locations.
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6.0 GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT
6.1REGIONAL GEOLOGY
GCC extracts coal from the Springfield (Indiana No. 5) coal seam located in the Illinois Basin. The Illinois Basin is an interior cratonic basin that formed from numerous subsidence and uplift events. The Illinois Basin extends approximately 80,000 square miles, covering Illinois, southern Indiana, and western Kentucky.
Primary coal-bearing strata, including the Springfield coal, is of Carboniferous age in formations of Pennsylvanian aged rocks, which were deposited about 325 to 290 million years ago. Pennsylvanian sediments in Gibson County consist of shales, sandstones, siltstones, coals, and limestones. Pennsylvanian rocks are assigned in Indiana to the Raccoon Creek, Carbondale, and McLeansboro Groups. All three groups are present in Gibson County. The Springfield coal belongs to the Petersburg Formation within the Carbondale Group.
See Figure 6-1 for a stratigraphic column.
Figure 6-1. Generalized Stratigraphic Column of Pennsylvanian Rocks in Indiana
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6.2LOCAL GEOLOGY
The immediate roof over a vast majority of the reserve is a gray shale and/or silty shale known as the Dykersburg Shale. Below the Springfield coal seam, the lithology is variable but is generally a greenish-gray claystone or sandy claystone.
Locally, the GSM’s geology can be divided into two distinct geologic settings. In the northern portion of the reserve the geology is highly variable due to the proximity of the Galatia paleochannel. The immediate roof geology in this area is a complex assemblage of thinly laminated shales and siltstones. Furthermore, this location also includes an abundance of fossilized plant debris, varying in size and often concentrated in areas of low topographic relief. The Springfield coal thickens to as much at nine feet near the Galatia paleochannel. Near the paleochannel there can be isolated areas of coal that contain clastic partings that develop quickly and can terminate abruptly.
The southern portion of the reserve is characterized by a thinning Dykersburg shale and an encroaching marine sequence containing the Saint David Limestone and the Turner Mine Shale.
A stratigraphic column (Figure 6-1) and a geologic cross section (Figure 6-2) representing the local geology found in the reserve are included in this report.
The reserve is bounded to the north by the Galatia paleochannel, to the west by workings from the abandoned Wabash mine and to the east by workings from the abandoned Kings Station mine. To the south/southeast the reserve is bounded by a thinning Dykersburg shale and the towns of Owensville and Johnson. The extreme southern reaches of the reserve are bounded by thinning coal, less than 4.0 feet in thickness.
See Figure 6-2 for a geological cross-section. Cross-section location is shown on the mine map in Appendix A.
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Figure 6-2. Geological Cross-Section A-A’
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6.3PROPERTY GEOLOGY AND MINERALIZATION
The GSM extracts coal from the Springfield, or Indiana No. 5 coal seam. The seam lies between 450 and 650 feet deep and dips gently (about 1%) to the west/southwest. The seam varies in thickness over the reserve area from over nine feet in the northern areas in close proximity to the Galatia paleochannel and thins to four feet in the south, distal to the channel. The average coal thickness within the GSM is about six feet.
On a 1.50 float, dry basis, the Springfield seam averages about 7.1% ash, 2.0% sulfur, and 13,500 btu/lb. The mineral deposit type (coal rank) mined by the GSM is a high volatile bituminous B/C coal.
The geologic model developed to characterize the resource/reserve is a bedded sedimentary deposit model. This is generally described as a continuous, non-complex, typical cyclothem sequence that follows a bedded sedimentary sequence. The geology, including coal thickness and extent has been and continues to be verified by an extensive drilling program.
6.4STRATIGRAPHY
6.4.1MCLEANSBORO GROUP
The McLeansboro group extends from the top of the Danville Coal Member of the Dugger Formation to the top of the Pennsylvanian sequence. Shale and sandstone make up over 90 percent of the rocks in this group, but minor amounts of limestone, fireclay, siltstone, and thin coals are present. This group includes the Shelburn, Patoka, Bond, and Mattoon Formations, in ascending order.
6.4.2CARBONDALE GROUP
The Carbondale group is overlain by the Mcleansboro Group and underlain by the Raccoon Creek Group. The Carbondale Group extends from the base of the Seelyville Coal Member to the top of the Danville Coal Member. The Carbondale Group consists of laterally extensive limestone and five commercially important coals including the Springfield coal seam. The Group is dominantly comprised of shale, siltstone, and sandstone.
6.4.3RACCOON CREEK
The Raccoon Creek Group is overlain by the Carbondale Group and underlain by rocks ranging from Middle Devonian to Late Mississippian age. The Raccoon Creek is composed of more than 95% sandstone and shale with the rest of the composition being limestone, coal, and fireclay.
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7.0 EXPLORATION
7.1DRILLING EXPLORATION
GCC has extensively explored the Springfield (Indiana No. 5) seam within the GSM area through drilling and collection of information from previous developers. Drilling records are the primary dataset used in the evaluation of the resource. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic information and coal quality data. This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. The drilling density on the controlled property is sufficient to identify and predict geological trends within the resource area.
The geologic database is also supplemented by the use of oil and gas well data from the petroleum industry. Oil and gas well geophysical logs are acquired from the Indiana Geological Survey. The most common geophysical log available is the induction log, which has the spontaneous potential curve and various resistivity and conductivity curves on it. These logs are beneficial in identifying sandstones, coals, and shales. Though less common, geophysical logs that have natural gamma, density and resistivity curves are available. These logs are identified in the geologic database as a “high quality” well. These logs provide much greater detail and can better differentiate between the various lithology. Oil and gas well data are used to verify thickness, identify faulting, and delineate areas with adverse mining conditions.
Exploration also includes the channel sampling of mine sections from underground surveys and underground geologic mapping conducted by geologists. Channel samples are samples collected from the coal seam within the coal mine. Once a suitable location is found within the mine, equal, representative portions of the coal seam are extracted using hand tools from the top of the seam to the bottom. The sample is placed within a heavy-duty plastic bag which is securely sealed with tape. The sample is then transported from the mine to the lab where the requested analyses are conducted.
Channel sample data and mine surveys are useful for thickness data and identifying any partings or anomalies within the coal seam. Underground geologic mapping is beneficial for identifying facies changes, poor roof trends, and supplementing hazards maps generated from drilling data.
The GSM resource has adequate drilling to define general geological trends within the resource area. Despite this, exploration continues to be undertaken and data added to the geologic database on an annual basis. This occurs when unexpected, adverse mining conditions arise or when it becomes necessary to better define the coal quality in areas that may lack sufficient information. Also, permit conditions require that a drill hole with geotechnical data be available within a 300-acre radius of a similar hole.
Drilling on the property targets the Springfield (Indiana No.5) coal and has been conducted using widely practiced industry methods by a third-party contractor employing qualified personnel. A geologist or other company representative oversees all drilling conducted on the property. Drilling methods include continuous diamond coring, mud rotary, air rotary and spot coring. Spot coring is a method that uses either mud or air rotary drilling to reach a specific depth, usually twenty or thirty feet above the target
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seam. Once this depth is reached, the drill string is removed, and the rig sets up for core drilling. The core barrel is advanced to the bottom of the hole where coring commences. Core is advanced to about ten feet below the target seam. Once drilling is completed on a hole, a suite of geophysical parameters is collected for the entire borehole. Parameters such as naturally occurring gamma, resistivity, high resolution density and caliper data are collected. This information is used to verify the driller’s log, geologist’s log and verify the thickness of the coal and core recovery. Also, the geophysical log is helpful if core isn’t collected, such as when only rotary drilling is conducted. The information from the geophysical log is used to determine coal thickness and identify critical strata in the boring.
Continuous coring on the property is generally limited to locations where shafts, fans or other critical infrastructure will be located. All core is described by a geologist, photographed for future reference, and stored until no longer needed.
Please see Appendix A for a plan view showing the locations of drill holes.
7.2HYDROGEOLOGIC INVESTIGATIONS
Indiana Department of Natural Resources (IDNR): Division of Reclamation (DOR) requires a groundwater user survey in and within 1,000’ of the permitted boundary. Issuance of permits needs IDNR to write a Cumulative Hydrologic Impact Assessment (CHIA). Both items were completed for this site and indicated groundwater issues would not be significant and require any sort of aquifer characterization. Groundwater inflow associated with mining has historically not been a significant issue and is dealt with as encountered.
7.3GEOTECHNICAL INFORMATION
Rock mechanics data is collected from core drilling on an as needed basis. The GSM’s permit issued by the IDNR DOR requires a corehole with geotechnical data on a minimum of every 300-acres of mining. Geotechnical data is derived from core sampling. Once the core is described and photographed by a geologist, the samples are prepared by a geologist or engineer and a representative from the lab transports the sample to the geotechnical lab for analysis. The following parameters are determined at a third-party laboratory:
/ | Compressive Strength using ASTM Standard D7012 method |
/ | Indirect Tensile Strength using ASTM Standard D3967 method |
/ | Swelling Strain using the (International Society for Rock Mechanics) ISRM method |
/ | Slake Durability using ASTM Standard D4644 method |
/ | Water Content using ASTM Standard D2216 method |
/ | Atterberg Limits using ASTM Standard 4318 method |
All rock mechanics data are analyzed by either SGS Laboratories or Standard Laboratories, Inc. No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to believe that the quality assurance actions employed by these laboratories are adequate to provide reliable results for the requested parameters.
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The results from the geotechnical sampling program are adequate to satisfy the Indiana Department of Natural Resources, Division of Reclamation permit requirements and to provide guidance for the design of ground control methods.
See Appendix A for a map depicting the location of all drill holes.
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8.0 SAMPLE PREPARATION, ANALYSES AND SECURITY
8.1SAMPLE PREPARATION AND ANALYSIS
Prior to sending samples to the laboratory for analysis, company representatives prepare them for transport. This includes a sample request form that has information such as sample ID, depths and requested analyses, that is placed securely inside the sample container. If the sample is rock core, the core remains sealed in plastic bags and in the box provided by the drilling contractor. The box is secured using heavy duty packing tape. If the sample is a channel sample, the sample is placed in a heavy-duty plastic bag. The bag is clearly labelled with the operation name, sample ID and location where the sample was collected. Within the sample bag, a smaller plastic bag contains a form that has the operation name, sample ID, date of sample collection, location where sample was collected and the requested analyses. Company representatives then arrange for sample pick up by a representative from the laboratory. Once the laboratory takes possession of the sample, rigorous quality control and quality assurance standards are strictly adhered to.
GSM contracts with two laboratories, Standard Laboratories and SGS, North America, Inc. Standard Laboratories has two facilities that analyze samples from the GSM. One lab is located in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from its senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IEC 17025. Their certification number is 3482.03
Both laboratories prepare, assay, and analyze samples in accordance with approved ASTM International standards.
Coal analysis typically includes some or all of the following:
/ | Ultimate Analysis using ASTM Method D5373 for percent nitrogen, carbon and hydrogen and ASTM D3176 for the determination of percent oxygen. |
/ | Mineral Analysis of Ash using ASTM Method D4326 for measuring percent silicon dioxide, aluminum dioxide, ferric oxide, calcium oxide, magnesium oxide, potassium oxide, sodium oxide, titanium dioxide, phosphorus pentoxide, magnesium dioxide, barium oxide, strontium oxide, sulfur trioxide. |
/ | Proximate Analysis using ASTM Method D5865 for the determination of thermal caloric value in BTU/LB. ASTM Method D3175 is used for the determination of percent ash. ASTM Method D4239 is used for measuring percent sulfur. Method M-V3175 is used to determine percent volatiles and ASTM D3175 is used to determine percentage of fixed carbon. |
/ | Ash Fusion Temperatures are determined using ASTM Method D1857, Sulfur Forms are determined using ASTM Method D2492 and Water-Soluble Alkalis are determined using ASTM Method D8010. |
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/ | The Hardgrove Grindability Index (HGI) is measured using ASTM Method D409(M) and the percent Equilibrium Moisture is determined using ASTM Method D1412. The Mercury value, measured in parts per million is determined using ASTM Method D6722. |
/ | Trace element analysis to include Antimony, Arsenic, Barium, Beryllium, Boron, Bromine, Cadmium, Chlorine, Chromium, Cobalt, Copper, Fluorine, Germanium, Lead, Lithium, Manganese, Mercury, Molybdenum, Nickel, Selenium, Silver, Strontium, Thallium, Tin, Vanadium, Zinc and Zirconium. ASTM Method D6357, D4208, D3761, or D6722 are typically used. |
The GSM has sufficient drilling across the extent of the reserve to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, it periodically becomes necessary to collect additional channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
8.2QUALITY CONTROL/QUALITY ASSURANCE (QA/QC)
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that the quality assurance actions employed by these laboratories are adequate to provide reliable results for the requested parameters.
8.3OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION
No significant disruptions, issues or concerns have ever arisen as a result of sample preparation and analysis. Therefore, it’s reasonable to assume that sample preparation, security and analytical procedures in place are adequate to provide a reliable sample in which requested parameters can be analyzed.
The qualified person is of the opinion that the sample preparation, security, and analytical procedures for the samples supporting the resource estimation work are adequate for the statement of mineral resources. Results from different laboratories show consistency and nothing in QA/QC demonstrates consistent bias in the results.
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9.0 DATA VERIFICATION
9.1SOURCE MATERIAL
The GSM maintains a detailed geologic database used to develop several types of maps used to predict the mineability and coal quality of the Springfield coal seam. Data verification of the accuracy of this database is conducted on a regular basis by company engineers and geologists. This includes a detailed review of drilling data, coal quality data and coal seam correlation of all exploration drill holes to what is found in the database. The verification process also entails underground geologic mapping by a geologist to field verify the accuracy of compiled geologic models from drill hole data. Furthermore, maps generated from coal quality data to predict the coal quality across the resource are checked for accuracy against actual output from the preparation plant.
Alliance contracted Weir International (Weir) to conduct an audit of Alliance’s reserve estimates prepared under Industry Guide 7. Weir submitted its findings in a report dated July 23, 2015. Weir’s review included methodologies, accuracy of Carlson gridding, and drill hole data. A similar review was conducted by Weir in 2010. During the 2015 audit, 10% to 20% of the new drill hole data was reviewed and confirmed.
RESPEC was provided with e-log data for all new holes or data obtained in 2016 or more recently. RESPEC compared 20% of those e-logs to the Carlson database. RESPEC also verified the thickness and quality grids. As part of the verification process, a new thickness grid was created from the database, and that resultant grid compared to GSM’s model using Carlson grid file utilities.
9.2OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
Based on the verification of GSM data by the QP and review of prior database audits, the QP deems the adequacy of GSM data to be reasonable for the purposes of developing a resource model and estimating resources and subsequently reserves.
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10.0 MINERAL PROCESSING AND METALLURGICAL TESTING
10.1ANALYTICAL PROCEDURES
The GSM has sufficient drilling across the extent of the reserve to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, on occasion it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
10.2REPRESENTATIVE SAMPLES
The parameters that the GSM analyzes are adequate to define the characteristics necessary to support the marketability of the coal.
10.3TESTING LABORATORIES
GSM contracts with two laboratories, Standard Laboratories and SGS, North America, Inc.
Standard Laboratories has two facilities that analyze samples from the GSM. One lab is in Evansville, Indiana and the other in Freeburg, Illinois. The laboratory in Freeburg, Illinois is an ISO/IEC 17025 accredited laboratory. The laboratory in Evansville, Indiana, while not accredited, according to a formal statement from senior management “operates in compliance with International Standard ISO/IEC 17025 General Requirements for Competence and Testing and Calibration Laboratories.”
SGS North America, Inc. has an office in Henderson, Kentucky and is accredited by A2LA under ISO/IEC 17025. Their certification number is 3482.03. Both laboratories provide unbiased, third-party results and operate on a contractual basis.
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that using one of these laboratories should provide assurance that the data processing and reporting procedures are reliable.
10.4RESULTS
GCC performed a series of washability tests to develop washability curves. These curves predict coal qualities and recoveries at different specific gravities. The existing plant operates at a specific gravity of approximately 1.5 -1.6. The results from the coal quality sampling program are adequate to determine the specification requirements for customers located in both the domestic and export markets.
10.5OPINION OF QUALIFIED PERSON ON DATA ADEQUACY
It is the opinion of the QP that the coal processing data collected from these analyses is adequate for modelling the resources and reserves for marketing purposes. All analyses are derived using standard industry practices by laboratories that are leaders in their industry.
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11.0 MINERAL RESOURCE ESTIMATES
11.1DEFINITIONS
A mineral resource is an estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.
Mineral resources are categorized based on the level of confidence in the geologic evidence. According to 17 CFR § 229.1301 (2021), the following definitions of mineral resource categories are included for reference:
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. An inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An inferred mineral resource, therefore, may not be converted to a mineral reserve.
An indicated mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. An indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource and may only be converted to a probable mineral reserve. As used in this subpart, the term adequate geological evidence means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty.
A measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. As used in this subpart, the term conclusive geological evidence means evidence that is sufficient to test and confirm geological and grade or quality continuity.
11.2LIMITING FACTORS IN RESOURCE DETERMINATION
Resources in the Springfield seam are delineated based on the following limitations:
/ | Mineable thickness |
/ | Marketable quality |
/ | Structural limits, such as faults or sandstone channels, existing mining, and subsidence protection zones |
/ | Government and social approval |
11.2.1MINEABLE THICKNESS
Thicknesses are extracted from the database to create a geologic model. Grids are created using an inverse distance algorithm using a weighting factor of three. The minimum Springfield coal thickness in the database is 3.91 feet and the minimum thickness in the expected mining area is 4.21 feet. These
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thicknesses are considered mineable using continuous miners. It is noted that 23 wells located in the Galatia Channel did not encounter the Springfield seam. This area is excluded from the resource area.
11.2.2MARKETABLE QUALITY
The primary source quality data is from core holes drilled for the purpose of coal exploration. The qualities that are of primary interest are ash, sulfur, and BTU. These qualities have limitations which affect the value of the coal. The table below summarized the values and ranges of each in the geologic database. The range of critical qualities in the database indicates that all the coal in the Springfield seam is within marketable limits. The potential resource areas are considered to meet the quality standard and no further consideration or analyses of these parameters are made. All resource estimates include average anticipated values for ash, sulfur, and BTU.
Table 11-1. Qualities at 1.5 Specific Gravity – Dry Basis
Quality | Number of samples | Average | Minimum | Maximum | Standard Deviation |
Ash | 240 | 6.88 | 4.16 | 16.92 | 1.65 |
Sulfur | 240 | 1.7 | 0.46 | 4.29 | 0.73 |
BTU | 240 | 13,491 | 11,708 | 13,927 | 265.3 |
Values in Table 11-1 are dry basis qualities based on laboratory analysis of core or channel samples. Marketable qualities reflect moisture and adjustments for plant variability. GSM has the ability to blend raw saleable coal with the fully washed product to create a higher ash and lower BTU product. Typical as received quality specifications for the GSM product are approximately:
/ | BTU – 11,450 to 11,750 |
/ | Moisture – 13.0% to 15.0% |
/ | Ash – 6.0% to 8.0% |
/ | Sulfur – 1.5% to 2.0% |
/ | Volatile Matter - 31.0% to 36.0% |
11.2.3STRUCTURAL LIMITS
The resource is limited to the north by the Galatia paleochannel. There are no known faults in the area to limit the resource.
An approximate 200’ buffer is maintained around existing underground mines in the Springfield seam in the area: Kings Station Mine and the Wabash Mine.
An unmined block of the Springfield seam will be left under the mine structures located on the surface and is excluded from the resource estimation. Also, the resource is limited in the northwest as to not undermine a cooling pond associated with the adjacent power plant.
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11.2.4GOVERNMENT AND SOCIAL APPROVAL
There are no significant limitations to GCC obtaining the permits required. GCC holds the necessary permits to mine, process, and transport coal from this area. Historically, the company has been able to amend or revise permits as needed. The public is notified of significant permitting actions and may participate in the process.
11.3CLASSIFICATION RESOURCES
11.3.1CLASSIFICATION CRITERIA
The identified resources are divided into three categories of increasing confidence: inferred, indicated, and measured. The delineation of these categories is based on the distance from a known measurement point of the coal. The distances used are presented in USGS Bulletin 1450-B, “Coal Resource Classification System of the U.S. Bureau of Mines and U.S. Geological Survey.” These distances are presented in Table 11-2.
Table 11-2. Coal-Resource Classification System
Classification | Distance from Measurement Point |
Measured | <1,320’ |
Indicated | 1,320’ – 3,960’ |
Inferred | 3,960’ – 15,840’ |
These distances for classification division are not mandatory. However, these values have been used since 1976, have proven reliable in the estimation of coal resources, and are considered reasonable by the QP.
11.3.2USE OF SUPPLEMENTAL DATA
Due to the continuity of coal seams in the Illinois Basin, mineability limits are the most important factor in resource assessment. Information from oil and gas well e-logs in the vicinity are used as supplemental data to confirm thickness trends, identify structural limits, and characterize adverse geologic conditions. Coal thickness grids are generated from drill hole information, mine measurements, channel samples, and a subset of high-quality oil and gas well e-logs. These are data points in which the company has a high degree of confidence in thickness measurement. These are the data used by the company to generate the model for its internal planning. The combined information increases the overall reliability of the resource estimate, and all data points are included within the classification system.
11.4ESTIMATION OF RESOURCES
Resource estimates are based on a database of geologic information gathered from various sources. The sources of this data are presented in Section 7 of this report. Thickness and quality data are extracted from the database to create a model using Carlson’s Geology module. The model consists of a set of grids, generated using an inverse distance algorithm with a weighting factor of three. In addition to the thickness and quality data, seam recovery is modeled. Quality data and recovery rates
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are determined through a set of tests generating washability curves. The current operation washes the run-of-mine coal at a specific gravity of approximately1.5 – 1.6. The qualities and plant yield are based on this specific gravity.
Section 12 presents the modifying factors considered in determining whether resources qualify as reserves. There are no resources exclusive of reserves for the GSM. Due to the level of geologic certainty, there are no inferred resources. All resources were classified as either measured or indicated and were converted to reserves.
11.5OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the resource estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including GSM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation |
» | Regulatory changes related to the Waters of the US. |
» | Air quality standards |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the resource.
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12.0 MINERAL RESERVES ESTIMATES
12.1DEFINITIONS
A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. Probable mineral reserves comprise the economically mineable part of an indicated and, in some cases, a measured mineral resource. Proven mineral reserves represent the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource.
12.2KEY ASSUMPTIONS, PARAMETERS AND METHODS
12.2.1RESERVE CLASSIFICATION CRITERIA
The Springfield seam has historically been successfully mined at this location and throughout southern Indiana. Several other mines in the region are currently operating in this seam. Resources are identified as described in Section 11 of this report based on geologic conditions, mineability, and marketability of the coal seam. The two critical factors in converting indicated and measured mineral resources into the mineral reserves are inclusion in an economically feasible mine plan and government approval through the various environmental and operational permits.
Table 17-1 presents the various state and federal environmental permits currently held by the operation. These include the surface mining permit (required for surface operations), air quality permits, and water discharge permits. Approval has already been granted for the required surface disturbance, construction and operation of the preparation facilities, coal refuse disposal, and coal transport. It is noted that not all the anticipated underground mining areas are currently covered under the IDNR mining permit. Shadow areas (underground only areas) are extended using permit revisions. This is a common practice for underground operations in the Illinois Basin.
All the identified resource is converted into the reserve classification.
12.2.2NON-CONTIGUOUS PROPERTIES
The operation currently has mineral rights to 356 properties yet to be mined. Some of these properties are non-contiguous. Securing additional mineral rights is a routine, ongoing activity with an emphasis on obtaining rights to tracts to fill any gaps in the mine plan. Should the operation encounter a tract for which mineral rights cannot be obtained, modifications can be made to the mine plan to access controlled tracts. Due to the nature of the resource and the flexibility of the mining operation, isolated tracts are considered eligible for conversion to the reserve classification. It is also noted that due to the large number of tracts which define the reserve, should a controlled non-contiguous tract become isolated, it will not have a significant effect on the total reserve.
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12.2.3CUT-OFF GRADE
The coal bed consistently exhibits qualities that make the product marketable. No reduction is made to the resources or reserves due to quality.
12.2.4MARKET PRICE
The EIA reported the average weekly coal commodity spot price for Illinois Basin coal (the EIA price) on February 4, 2022, to be $75.50/ton (11,800 Btu, 5.0 lbs SO2 basis). The reference price used in the economic analysis is $36.08 which is based on the simple average of the five-year actual GSM realization per ton and simple average of the EIA Price as reported for the first Friday of each month for calendar years 2020 and 2021 (the 2-year average). The revenue projection in the economic analysis is based on this estimate of coal price and is assumed to be real 2021 US dollars.
12.3MINERAL RESERVES
12.3.1ESTIMATE OF MINERAL RESERVES
The existing plant operates at a specific gravity of approximately 1.5 – 1.6. The qualities and recovery at a 1.5 specific gravity are added as attributes to the applicable drill holes from which samples were collected. Those values are then modeled using Carlson, gridding these attributes using the inverse distance algorithm with a weighting factor of three.
The operation uses a room and pillar layout. The approved ground control plan results in a 45% mining recovery of the in-place reserves. The mining recovery applied to the in-place coal estimates raw coal.
The coal testing included density calculations. The operation uses an average in-situ density of 82.6 lbs/cubic foot. This value is within the expected range of coal density.
All coal tonnages are reported as clean controlled coal. Carlson’s Surface Mine Module is used to estimate in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. The Carlson results are exported to a database, which then applies the appropriate percent ownership, mine recovery, and seam recovery. The basic calculation is:
Tons = Area * Thickness * Density * Mine Recovery * Seam Recovery * Percent Ownership
Table 12-1. Summary of Coal Reserves as of December 31, 2021
Reserve Category | Controlled Recoverable (1,000 tons) | Sulfur (%) | Ash (%) | BTU |
Springfield | ||||
Proven | 44,191 | 1.92 | 6.96 | 13,509 |
Probable | 8,282 | 2.33 | 7.89 | 13,355 |
Total Proven and Probable | 52,473 | 1.99 | 7.11 | 13,485 |
Values in Table 12-1 are based on a washed, dry basis.
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12.4OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the reserve estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including GSM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Extension of permitted area – Not all the Reserves are currently permitted. Underground operations in Indiana have traditionally been able to extend the permitted shadow areas as needed. No change is anticipated in the issuance of these permit modifications. It is expected that the shadow area of the permit will be expanded as needed. |
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. Although there is competition from other underground operators for skilled labor, GCC has been successful in attracting and retaining skilled staff and has programs for training less experienced miners. Should GCC not be able to maintain as skilled a labor pool as anticipated, this could impact productivity. However, economic evaluation indicates GSM remains economic with modest downturns in productivity. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation may impact the domestic electric utility market which is a major customer for GSM coal. While many proposed changes have been suggested, the horizon for these changes severely impacting the market is anticipated to be beyond the current planning horizon supporting the reserve estimate. |
» | Regulatory changes related to the Waters of the US (WOTUS). The interpretation of the regulation and enforcement of the Clean Water Act with respect to the jurisdictional waters of the US has been modified multiple times through regulatory actions and court decisions. It is likely that further reinterpretation will occur. This could affect future modifications such as new or expanded stockpile areas, transportation areas, and refuse disposal areas. |
» | Miscellaneous regulatory changes. The coal industry has been subjected to many changes in regulation and enforcement in the recent past. In addition to new regulations related to greenhouse gas emissions and WOTUS, it is expected that further change will occur. |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the reserve.
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13.0 MINING METHODS
13.1GEOTECHNICAL & HYDROLOGICAL MODELS
Geotechnical models of the GSM Mineral Reserves have been assembled utilizing Carlson computer software. Geologic information from drillholes, underground channel samples, and past reserve studies is entered into the database and used to build stratigraphic grid models. Attributes including coal thickness, depth, recovery percentage, and quality are some of the features utilized to accurately model the GSM reserve.
The underground mining permit issued by the Indiana Department of Natural Resources, Division of Reclamation (IDNR) requires coreholes prior to mining, and their corresponding geotechnical sampling, to be performed at a density of not less than one hole per 300 acres of mined area within the reserve. The geotechnical data obtained from the coreholes is submitted to the IDNR as updates to an approved Subsidence Control Plan, prior to mining. However, corehole density is often much greater than the minimum required by IDNR in order to better define quality parameters of the coal seam. These holes are used to supplement the geologic model. Commonly analyzed quality parameters include moisture, ash, sulfur, and BTU.
Water inflow into the mine is managed as needed when encountered.
13.2PRODUCTION RATES & EXPECTED MINE LIFE
GCC extracts coal from the Springfield seam utilizing the room and pillar method of underground mining. Mining takes place on dual-split ventilation Super Sections. The dual-split ventilation system allows two continuous mining machines to operate on each Super Section simultaneously. Infrastructure within the mine, including conveyors, ventilation, power, and freshwater capacity, is sized to support maximum production of five (5) Super Sections. Empirical data gathered from previous mining in the same coal seam while using similar equipment and mining practices as the GSM is compiled and considered when forecasting production rates. Predictable adverse geologic factors, such as mining in areas with a split coal seam, are also considered during production forecasting.
Planned production varies according to contracted sales volume and expectations of market conditions. Table 13.1 provides historic raw tons mined before processing, preparation plant recovery, and clean recoverable tons. The forecasted raw tons mined before processing, preparation plant recovery, and clean recoverable tons contained in the economic analysis are shown in Table 13.2.
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Table 13 1. Historic Production and Recovery (tons 1,000’s)
Category | 2017 | 2018 | 2019 | 2020 | 2021 |
Raw Tons | 8,180 | 9,518 | 7,552 | 2,984 | 4,340 |
Clean Recoverable Tons | 5,956 | 6,938 | 5,490 | 2,289 | 3,290 |
Recovery | 72.8% | 72.9% | 72.7% | 76.7% | 75.8% |
Table 13 2. Life of Reserve Production Estimate (tons 1,000’s)
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 |
Raw Tons | 6,966 | 7,522 | 7,430 | 7,392 | 7,326 | 7,541 | 7,345 | 7,217 | 7,288 | 7,494 |
Clean Recoverable Tons | 5,240 | 5,453 | 5,381 | 5,434 | 5,215 | 5,459 | 5,148 | 5,221 | 5,023 | 4,900 |
Recovery | 75.2% | 72.5% | 72.4% | 73.5% | 71.2% | 72.4% | 70.1% | 72.3% | 68.9% | 65.4% |
Typical reserve recovery rates for the GSM range from 44%-48%. The recovery rate varies slightly based on the size of pillars left. Pillar size varies throughout the reserve typically ranging between 82’ x 82’ (100’ centers) and 42’ x 42’ (60’ centers). Coal thickness throughout the GSM reserve averages 6.0’. The continuous miners cut a minimum six feet in height in entries and crosscuts. Where the coal thickness is less than the minimum, additional out-of-seam dilution is incurred which is removed by the Preparation Plant. Entries and cross-cuts driven by the continuous mining machines average a width of 18’.
There are approximately 52.4M clean tons remaining in the GSM reserve to be mined within the controlled properties. The current life of reserve plan anticipates exhausting the reserve in 2031. The lifespan of the mine is dependent on many factors and may vary materially from current projections. Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including GSM, and the coal industry in general.
13.3UNDERGROUND DEVELOPMENT
The GSM currently operates within the specifications of the approved permits and certifications required by all local, state, and federal regulatory agencies. Some of these permits and certifications are as follows:
/ | Local: county road agreements, regulated drainage ditch permits |
/ | State: IDNR shadow boundary permit, IDNR surface affects permit, IDEM wastewater treatment permits (NPDES), IDEM air permit |
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/ | Federal: US EPA class 5 injection well permit, Army Corps of Engineers section 404 (wetlands) permit, US NRC nuclear material license |
In addition to the permits listed above, all applicable mining regulations found in Title 30 of the Code of Federal Regulations (CFR) must be followed. The Mine Safety and Health Administration (MSHA) is the federal regulatory agency who oversees compliance with the CFR. Also, plans uniquely specific to the GSM are required to be submitted, reviewed, and approved by MSHA prior to mining. Some of the approved MSHA required mine plans include:
/ | Roof Control Plan |
/ | Ventilation Plan |
/ | Emergency Response Plan |
/ | Mine Emergency Evacuation and Fire Fighting Program Instruction Plan |
/ | Oil Well Mine Through/Around Plan |
/ | Slurry Injection Plan |
13.4PERSONNEL MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL
Underground equipment required at the GSM includes, but is not limited to:
/ | Continuous miner |
/ | Shuttle car |
/ | Double boom roof bolter |
/ | Truss bolter |
/ | Battery scoop |
/ | Fork trucks |
/ | Personnel carrier (mantrip) |
/ | Feeder breaker |
/ | Road grader |
/ | Belt conveyor |
/ | Transformer/substation |
/ | Refuge Alternative chamber |
/ | Rock dusters |
/ | Miscellaneous dewatering pumps |
Surface equipment required at the GSM includes, but is not limited to:
/ | Dozers (various sizes) |
/ | Miscellaneous preparation plant equipment |
/ | End loader |
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/ | Man and material hoisting equipment |
/ | Ventilation fan |
/ | Substation |
/ | Mobile crane |
/ | Belt conveyor |
/ | Tractor and dirt scraping pans |
/ | Side by side personnel carriers |
/ | Fresh water wells |
Personnel required to operate and maintain the GSM are generally obtained through the hiring of both skilled and non-skilled workers from the immediate area. Salaried positions at the GSM are made up of production managers, business managers, engineers, information technology, preparation plant operators, maintenance foreman, purchasing agents, and safety specialists. Hourly positions include equipment operators on the surface and underground, general laborers, dust sampling technicians, mechanics, examiners, warehouse clerks, etc. Total headcount numbers can vary depending on the market and demand for coal. Typical headcount ranges from between 220 to 450 workers, depending on the number of super sections operating.
13.5MINE MAP
Please see Appendix A for a plan view of the mine map.
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14.0 PROCESSING AND RECOVERY METHODS
14.1PLANT PROCESS
GSM utilizes a heavy media, float/sink style preparation plant to separate marketable coal from refuse. The plant has a design feed capacity of 1,800 tons per hour (TPH). The plant is divided into two independent 900 TPH circuits, fed by two independent plant feed conveyors. Once in the plant, the run of mine (ROM) material passes over vibratory screens to be separated by size. Approximately 80% of all of the ROM material reports to the heavy media circuit as coarse material. Through the introduction of magnetite, a ferromagnetic naturally occurring mineral, the gravity of the ROM material solution within the heavy media circuit is manipulated to precisely control the float/sink point. The ROM material in the heavy media circuit is then pumped into a heavy media cyclone. The cyclonic action aids in the magnification of gravity, which allows for a faster and more precise separation between coal and rock. The clean coal, or product, produced by the heavy media cyclone is rinsed, dried, and collected by the clean coal conveyor to be shipped. The rock, or coarse refuse, produced by the heavy media cyclone is rinsed and sent to the refuse disposal area.
The 20% of material that makes up the fine circuit within the plant is also separated by gravity, but in a different manner. The fine ROM material reports to a series of classifying cyclones, spirals, and vibratory stack sizers to separate the coal from the fine refuse. Clean coal produced by the stack sizers and spirals is passed through screen bowl driers to remove excess moisture prior to being collected on the clean coal conveyor. Fine refuse from the same process is pumped to a static thickener. Once the fine refuse material has had sufficient time to settle to the bottom of the thickener, it is pumped away to be disposed of within the refuse impoundment or underground in abandoned mine workings.
14.2ENERGY, WATER, PROCESS MATERIALS & PERSONNEL
Energy for the underground mining and preparation plant operations is delivered in the form of a 69kV transmission line to the GSM with a 10MW substation located on site which is adequate of the requirements of the underground mine, preparation plant and ancillary surface operations. The transmission line and power are provided and maintained by WIN Energy.
Process water for underground mining and the preparation plant is supplied by three water supply wells owned by the GSM. The water supply wells are located approximately 2 miles from the mine site on property owned by Gibson County Coal. Potable water used in the bath houses and offices is supplied by Gibson Water, Inc., an Indiana Rural Water Association.
The preparation plant uses readily available reagents and supplies. These are typically able to be competitively sourced from multiple vendors and are generally delivered to the mine by truck.
The preparation plant operates a flexible work schedule responding to mine production and market demands. A typical shift crew includes five salaried and sixteen hourly personnel, with up to two crews to operate at full capacity.
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15.0INFRASTRUCTURE
The GSM is located at 3455 South 700 West, Owensville, IN, 47665. It is accessible from county road 350 South via state route 65 via US HWY 41 from the north or via state route 168 to the south through the town of Owensville (38°16’20” N, -87°41’21” W). Interstates 64 and 69 are major transportation arteries in and out of the area. Most supplies are trucked to the mine from regional vendors. All necessary utilities are in place and working. Electricity is sourced from a 69 kV line to a 10MW substation located on site through the WIN Energy electric cooperative. Water is provided by a combination of wells owned by the mine and sourced from the local alluvium with potable water provided by Gibson Water, Inc.
Coal is transported by truck to GCC’s GNM facility for loading on CSX or NS rail or trucked south to Alliance’s Mount Vernon Transfer Terminal (MVTT) on the Ohio River (mile marker 828). The GNM (38°22’35” N, -87°36’50” W) is approximately 6.7 direct miles northeast of the GSM. The rail loadout has an annual capacity of approximately 8 million tons and typically loads trains in four hours or less. MVTT (37°55’31” N, -87°51’46” W) is approximately 27.9 direct miles south southwest of the GSM. MVTT has the capabilities to transload 8 million tons per year via truck or rail (EVWR) to barge. Ground storage is about 200,000 tons. Coal is also transported directly to customers by truck, mainly in the surrounding Indiana power generation market.
A fine refuse impoundment is located on the mine’s property. At the final stages, the embankment style impoundment will cover approximately 280 acres. The impoundment embankments are constructed of coarse refuse, creating storage space for fine refuse within the impoundment.
Figures 15-1 and 15-2 show the layout of GSM and GNM surface facilities.
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Figure 15-1. Infrastructure Layout Surface Facilities
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Figure 15-2. Infrastructure Layout Rail Loading Facilities
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16.0 MARKET STUDIES
16.1MARKETS
GSM produces a low/medium sulfur coal that is sold to the domestic and international thermal coal markets. Production from the GSM is shipped by truck or transported by rail on the CSX or NS railroads from the Gibson North rail loadout facility directly to customers or to various transloading facilities, including the Mt. Vernon Transfer Terminal, LLC (Mt. Vernon) transloading facility, for barge delivery.
GSM participates in the Illinois Basin coal market, selling coal to a diverse customer base of various domestic utilities, industrial facilities, and US East Coast and Gulf Coast exporters. While coal demand in the US is expected to decline over the coming years, the Eastern US thermal coal demand in 2021 was over 190 million tons. With its low-cost position, exceptional coal quality with regard to sulfur, and core domestic customer base, it is the QP’s opinion, GSM should continue to have adequate market opportunities for its product.
Table 16-1. Economic Analysis Coal Price
| | | Third Party Price Forecasts1 | | | |
Operation | 5-Year Average 2017-2021 | Minimum | Maximum | Economic Analysis Coal Price2 | Reserve Tons | |
GSM | Tons Sold3 | 4,800 | --- | --- | --- | 52,473 |
Price per ton2 | --- | $38.89 | $59.67 | $36.084 | --- |
1. | Proprietary third-party pricing forecast for 2022-2040 and 2022-2050, real 2021 dollars. |
2. | Price per ton is real 2021 dollars for the life of reserve economic analysis. |
3. | Tons reported in thousands. |
4. | The economic analysis coal price is based on the simple average of the GSM five-year average realization per ton and the simple average of the EIA Price as reported for the first Friday of each month for calendar years 2020 and 2021 (the 2-year average). See Section 12.2.4 for additional details. |
The demand for the GSM coal is closely linked to the demand for electricity, and any changes in coal consumption by United States or international electric power generators would likely impact the GSM demand. The domestic electric utility industry accounts for approximately 91% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of competing fuels for power plants such as nuclear, natural gas, and fuel oil as well as alternative sources of energy.
Future environmental regulation of GHG emissions could also accelerate the use by utilities of fuels other than coal. In addition, federal and state mandates for increased use of electricity derived from renewable energy sources could affect demand for coal. Such mandates, combined with other incentives to use renewable energy sources such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal.
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17.0ENVIRONMENTAL
17.1ENVIRONMENTAL STUDIES
No standalone environmental studies have been conducted for the properties. As part of the state and federal permitting process, various environmental assessments have been conducted. As disturbances are proposed for the operation, all relevant local, state, and federal agencies are contacted to review the proposed project. Each agency reviews the project for impacts to lands, water, and ecology.
17.2WASTE DISPOSAL & WATER MANAGEMENT
The coarse refuse generated from the coal preparation process is used in the construction of the existing permitted, on-site slurry impoundment. Additional permitting will be required to expand the slurry impoundment. The expansion area is to be constructed on controlled land adjacent to the existing slurry impoundment. In conjunction with the expansion area, the slurry impoundment may be increased by employing upstream construction methods.
The fine refuse generated from the coal preparation process is disposed of by pumping it into the slurry impoundment or by injecting it into the GSM. The combination of pumping to the slurry impoundment and injecting into the GSM will provide life of reserve disposal of fine refuse.
All runoff from the slurry impoundment is managed by sediment control structures including diversions, sumps, and sediment basins. Prior to discharge from the permitted areas, water must meet compliance standards as defined in the NPDES permits. Water samples at discharge locations are collected in accordance with the approved permit and analyzed by an independent laboratory.
17.3PERMITTING REQUIREMENTS
IDNR DOR is responsible for oversight of active coal mining and reclamation activities. The regulatory program is responsible for permitting and compliance verification, enforcement, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
In addition to the state mining and reclamation laws, operators must comply with various other federal laws relevant to mining. The federal laws include:
/ | Clean Air Act |
/ | Clean Water Act |
/ | Surface Mining Control and Reclamation Act |
/ | Federal Coal Mine Safety and Health Act |
/ | Endangered Species Act |
/ | Fish and Wildlife Coordination Act |
/ | National Historic Preservation Act |
/ | Archaeological and Historic Preservation Act |
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In conjunction with the IDNR coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the Indiana Department of Environmental Management (IDEM). IDEM is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air or water quality.
All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing. A listing of all current state mining permits is provided in Table 17-1. Mining permits generally require that the permittee post a performance bond in an amount established by the agency to provide assurance that any disturbance or liability created by the mining operations is properly restored to an approved post-mining land use and that all regulations and requirements of the permit are satisfied before the bond is returned to the permittee.
Table 17-1. Current State Permits
Regulatory Agency | Permit No. | Permitted Surface Area (Acres) | Permitted Underground Area (Acres) | Bond |
17.4PLANS, NEGOTIATIONS OR AGREEMENTS
New permits and certain permit amendments/revisions require public notification. The public is made aware of pending permits by advertisement in the local newspaper. Additionally, a copy of the application is retained at the county’s public library for the public to review. A 30-day comment period follows the last advertisement date to allow the public to submit comments to the regulatory authority.
In certain instances, additional opportunities are provided to the public for comment. These instances include operations within 100 feet of a public road, operations within 300 feet of a dwelling, and operations within 300 feet of a public building, school, church, or community building. In those instances, approval must be granted by the regulatory authority as well as individuals or groups who own or provide oversight for a particular facility.
17.5MINE CLOSURE
A detailed plan for reclamation activities upon completion of mining required at the properties has been prepared. Reclamation costs have been estimated based on internal project costs as well as publicly available heavy construction databases. Reclamation costs at the end of the year 2021 totaled approximately $5.5 million.
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17.6LOCAL PROCUREMENT & HIRING
There are no commitments for local procurement or hiring. However, efforts are made to source supplies and materials from regional vendors. The workforce is likewise located in the regional area.
17.7OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
The approved permits and certifications are adequate for continued operation of the facility. Waste disposal facilities are in place for current mining operations, with plans to expand the disposal facilities in order to provide life of reserve storage. Water control structures are in place and function as required by regulatory agencies. In the QP’s opinion, the estimated reclamation liability is adequate to estimate mine closure and reclamation costs at the property.
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18.0 CAPITAL AND OPERATING COSTS
RESPEC reviewed capital and operating costs required for the coal mining operations at the GSM. Historic capital and operating expenditures were supplied to RESPEC by GCC. The site is an operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of recent operating performance. The cost estimates are accurate to within +/-25%. RESPEC considers these cost estimates to be reasonable. All costs in this section are expressed in real 2021 US dollars.
18.1CAPITAL COSTS
Capital costs were estimated with the costs classified as routine operating necessity (sustaining capital) and capital required for major infrastructure additions or replacement. As discussed in Item 12.3, the reserve for GSM is 52.4M tons. The current production schedule estimates approximately 52.4M tons will be mined by 2031. The estimated capital costs for the reserve tons are provided in Table 18-1.
Table 18-1. Capital Cost Estimate
Life of Reserve Estimate 2022-2031 (US$000's) | ||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 |
Routine Operating Necessity | 22,551 | 15,675 | 27,417 | 15,689 | 18,027 | 16,934 | 18,840 | 19,167 | 18,972 | 16,461 |
Major Infrastructure Investment | --- | --- | --- | 1,500 | --- | 15,561 | 16,760 | --- | --- | --- |
18.2OPERATING COSTS
Operating cost inputs for the life of reserve economic analysis such as labor, benefits, consumables, maintenance, royalties, taxes, transportation, and general and administrative expenses were based on recent operating data. A summary of the estimated operating costs, including depreciation expense (the Mining and Processing Cost) for the life of the reserve are provided in Table 18-2.
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Table 18-2. Operating Cost Estimate
Life of Reserve Estimate 2022-2031 (US$000's) | ||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 |
Cash Operating Costs | 105,827 | 113,280 | 111,312 | 110,220 | 110,842 | 112,881 | 111,148 | 110,888 | 110,655 | 112,355 |
Royalties | 7,520 | 7,795 | 5,458 | 6,625 | 6,410 | 7,211 | 6,117 | 6,996 | 5,499 | 6,141 |
Depreciation | 23,147 | 25,923 | 27,714 | 27,340 | 26,332 | 28,537 | 28,789 | 28,748 | 28,852 | 29,313 |
Mining and Processing Costs | 136,494 | 146,999 | 144,484 | 144,186 | 143,584 | 148,629 | 146,054 | 146,632 | 145,006 | 147,809 |
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19.0ECONOMIC ANALYSIS
RESPEC completed an economic analysis based on the cash flow developed from the production plan and capital and operating costs previously discussed. The average per ton sold revenue estimate used for the life of reserve economic evaluation was $36.08.
19.1KEY PARAMETERS AND ASSUMPTIONS
The economic analysis has been based on production, revenue, capital, and operating costs estimates. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation. Table 19-1 provides the annual cash flow of the life of reserve economic analysis for GSM.
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Table 19-1. Pre-tax Cash Flow Summary
Life of Reserve Estimate 2022-2031 (US$000's) | ||||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 |
Revenues | 190,347 | 196,978 | 194,398 | 196,295 | 188,393 | 197,203 | 186,008 | 188,622 | 181,476 | 178,175 |
Cash Operating Costs | (105,827) | (113,280) | (111,312) | (110,220) | (110,842) | (112,881) | (111,148) | (110,888) | (110,655) | (112,355) |
Royalties | (7,520) | (7,795) | (5,458) | (6,625) | (6,410) | (7,211) | (6,117) | (6,996) | (5,499) | (6,141) |
Capital Expenditures | (22,551) | (15,675) | (27,417) | (17,189) | (18,027) | (32,494) | (35,600) | (19,167) | (18,972) | (16,461) |
Working Capital Changes | 11,271 | 3,520 | (2,250) | 2,594 | 2,187 | 2,841 | 1,241 | 1,716 | 64 | 2,291 |
Cash Flow | 65,720 | 63,748 | 47,961 | 64,854 | 55,301 | 47,457 | 34,384 | 53,288 | 46,413 | 45,509 |
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19.2ECONOMIC VIABILITY
The economic viability of the operation is reliable based on various factors. This is an on-going operation and has already established the economic benefits outweigh the economic costs. The economic analysis utilized the same parameters and assumptions used in past financial models. Therefore, it is reasonable to expect similar benefits and costs. Since this is an on-going operation with no major up front capital expenditures, there is no calculation of NPV, internal rate of return or payback period of capital.
We have tested the economic viability of the life of reserve economic analysis by conducting sensitivity analysis with respect to the revenue and operating and capital cost. In the independent sensitivity analysis, the revenue was reduced by 25% and the operating and capital cost were increased by 25%. This analysis shows the GSM reserves remain economically viable in both scenarios. The summary of the sensitivity analysis is shown in Table 19.2.
Table 19-2. Sensitivity Analysis
Life of Reserve Estimate 2022-2031 (US$ 000’s) | ||||
Category | Annual Minimum | Annual Maximum | Annual Average | Total |
Revenue Reduced 25% - Cash Flow | (12,117) | 18,133 | 5,016 | 50,163 |
Operating & Capital Costs increased 25% - Cash Flow | (3,832) | 31,746 | 17,495 | 174,953 |
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20.0 ADJACENT PROPERTIES
The GSM is bounded to the east by old works of the abandoned King’s Station Mine (KSM). Per the Indiana Geological Survey’s Coal Mine Information System (CMIS), KSM operated from 1923 until closure in 1973. The mine map examined shows very successful room and pillar extraction with some irregularities as the mine approached the Galatia paleochannel to the north. From limited drilling, gas well interpretations, and correspondence with employees at the mine, conditions were very similar to GSM.
The GSM is bounded to the west by old works of the abandoned Wabash Mine. Per CMIS, Wabash operated from 1973 until closure in 1998. However, mine maps show small amounts of mining on and off until about 2003 in Illinois. From available MSHA records, production peaked at about 4.1 million clean tons in 1995. The mine operated in Indiana and Illinois, crossing a fault of the Wabash Valley System and mining extensively on both sides. As with the other mines in the area, Wabash had successful room and pillar extraction with some irregularities (partings, poor roof conditions) as the mine approached the Galatia paleochannel to the north. In general, conditions seem very similar to the GSM.
GSM’s sister mine, Gibson North, lies across the Galatia paleochannel to the north. Gibson North produced coal from 2000 until 2019. At its peak, Gibson North’s annual production exceeded 3.9 million tons.
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21.0 OTHER RELEVANT DATA AND INFORMATION
All data relevant to the supporting studies and estimates of mineral resources and reserves have been included in the sections of this TRS. No additional information or explanation is necessary to make this TRS understandable and not misleading.
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22.0 INTERPRETATION AND CONCLUSION
22.1INTERPRETATIONS AND CONCLUSIONS
The QP has reached a conclusion concerning the GSM operation based on data and analysis summarized in this TRS that the operation is currently viable based on the reserves that remain, the economic benefits for GCC, and the market needs of this product. GSM contains an estimated 52.5 million clean tons of reserves.
22.2RISKS AND UNCERTAINTIES
It is the QP’s opinion that the mine operating risks are low. This is an on-going operation that has proven to be a viable and profitable business. The analysis of the reserves and resources used the same methodology the operation has used in the past. Given the reliability of past mining plans, it is a reasonable conclusion that future mining plans would continue to be reliable. However, market uncertainty associated with government regulations could result in earlier retirements of coal fired electric generating units. This could negatively affect the demand and pricing for the GCC product. Please refer to ARLP’s Form 10-K, Item 1A, for a complete listing of risk factors that may affect this operation.
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23.0 RECOMMENDATIONS
The recommendations for GSM are as follows:
/ | Continue acquiring mining rights in the extended mine plan to support future production |
/ | Continued permitting efforts for expansion of waste disposal facility. |
/ | Continue current exploration plan |
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24.0 REFERENCES
Thompson, T.A. Sowder, K.H., Johnson, M.R. (2010, Revised 2016). Generalized Stratigraphic Column of Indiana Bedrock. Indiana Geological Survey, Indiana University.
Nalley S., LaRose, A. (2021). Annual Energy Outlook 2021 Press Release, U.S. Energy Information Administration (EIA). Accessed on February 4, 2022. Retrieved from https://www.eia.gov/outlooks/aeo/
U.S. Energy Information Administration (EIA). (2021). Coal Markets. Accessed on February 4, 2022. Retrieved from https://www.eia.gov/coal/markets/
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25.0 RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT
Table 25-1 summarizes the information provided by the registrant for matters discussed in this report, as permitted under §229.1302(f) of the SEC S-K 1300 Final Rule.
Table 25-1. Summary of Information Provided by Registrant
Category | Report Item/ Portion | Disclose why the Qualified Person considers it reasonable to rely upon the registrant |
Macroeconomic trends | Section 19 | N/A |
Marketing information | Section 16 | The market trends were provided by GCC personnel. The QP’s experience evaluating similar projects leads them to opine that the market trends are representative of the expected trends of an on-going coal mining operation in the United States |
Legal matters | Section 17 | The legal matters involving statutory and regulatory interpretations affecting the mine plan were provided by GCC personnel. The QP’s experience with statutory and regulatory issues leads them to opine the mining plan meets all statutory and regulatory requirements of an on-going coal mining operation in the United States |
Environmental matters | Section 17 | The environmental permits and matters were provided by GCC permitting group. The QP’s experience with permitting and environmental issues leads them to opine the information provided is representative of what is required of an on-going coal mining operation in the United States |
Local area commitments | Section 17 | N/A |
Governmental factors | N/A | N/A |
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APPENDIX A
MINE MAP
A-1 | | |
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Exhibit 96.5
TUNNEL RIDGE MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED FOR
Tunnel Ridge, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
TUNNEL RIDGE MINE
SEC S-K 1300
TECHNICAL REPORT SUMMARY
PREPARED BY
RESPEC
146 East Third Street
Lexington, Kentucky 40508
PREPARED FOR
Tunnel Ridge, LLC
1146 Monarch Street
Suite 350
Lexington, Kentucky 40513
JULY 2022
Project Number M0062.21001
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TABLE OF CONTENTS
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| 8.3 | OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION | 20 | |
DATA VERIFICATION | 21 | |||
| 9.1 | SOURCE MATERIAL | 21 | |
| 9.2 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 21 | |
10.0 | MINERAL PROCESSING AND METALLURGICAL TESTING | 22 | ||
| 10.1 | ANALYTICAL PROCEDURES | 22 | |
| 10.2 | REPRESENTATIVE SAMPLES | 22 | |
| 10.3 | TESTING LABORATORIES | 22 | |
| 10.4 | RESULTS | 22 | |
| 10.5 | OPINION OF QUALIFIED PERSON ON DATA ADEQUACY | 22 | |
11.0 | MINERAL RESOURCE ESTIMATES | 23 | ||
| 11.1 | DEFINITIONS | 23 | |
| 11.2 | LIMITING FACTORS IN RESOURCE DETERMINATION | 23 | |
| | 11.2.1 | Mineable Thickness | 23 |
| | 11.2.2 | Marketable Quality | 24 |
| | 11.2.3 | Structural limits | 24 |
| | 11.2.4 | Government and Social Approval | 25 |
| 11.3 | CLASSIFICATION RESOURCES | 25 | |
| | 11.3.1 | Classification Criteria | 25 |
| | 11.3.2 | Use of Supplemental Data | 25 |
| 11.4 | ESTIMATION OF RESOURCES | 25 | |
| 11.5 | OPINION OF QUALIFIED PERSON | 26 | |
12.0 | MINERAL RESERVES ESTIMATES | 27 | ||
| 12.1 | DEFINITIONS | 27 | |
| 12.2 | KEY ASSUMPTIONS, PARAMETERS AND METHODS | 27 | |
| 12.2.1 | Reserve Classification Criteria | 27 | |
| 12.2.2 | Cut-Off Grade | 27 | |
| 12.2.3 | Market Price | 27 | |
| 12.3 | MINERAL RESERVES | 28 | |
| 12.3.1 | Estimate of Mineral Reserves | 28 | |
| 12.4 | OPINION OF QUALIFIED PERSON | 28 | |
13.0 | MINING METHODS | 30 | ||
| 13.1 | GEOTECHNICAL & HYDROLOGICAL MODELS | 30 | |
| 13.2 | PRODUCTION RATES & EXPECTED MINE LIFE | 30 | |
| 13.3 | UNDERGROUND DEVELOPMENT | 31 | |
| 13.4 | MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL | 32 | |
| 13.5 | MINE MAP | 33 | |
14.0 | PROCESSING AND RECOVERY METHODS | 34 |
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| 14.1 | PLANT PROCESS | 34 | |
| 14.2 | ENERGY, WATER, PROCESS MATERIALS & PERSONNEL | 34 | |
15.0 | INFRASTRUCTURE | 35 | ||
16.0 | MARKET STUDIES | 37 | ||
| 16.1 | MARKETS | 37 | |
17.0 | ENVIRONMENTAL | 38 | ||
| 17.1 | ENVIRONMENTAL STUDIES | 38 | |
| 17.2 | WASTE DISPOSAL & WATER MANAGEMENT | 38 | |
| 17.3 | PERMITTING REQUIREMENTS | 38 | |
| 17.4 | PLANS, NEGOTIATIONS OR AGREEMENTS | 40 | |
| 17.5 | MINE CLOSURE | 40 | |
| 17.6 | LOCAL PROCUREMENT & HIRING | 40 | |
| 17.7 | OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY | 40 | |
18.0 | CAPITAL AND OPERATING COSTS | 41 | ||
| 18.1 | CAPITAL COSTS | 41 | |
| 18.2 | OPERATING COSTS | 41 | |
19.0 | ECONOMIC ANALYSIS | 42 | ||
| 19.1 | KEY PARAMETERS AND ASSUMPTIONS | 42 | |
| 19.2 | ECONOMIC VIABILITY | 42 | |
20.0 | ADJACENT PROPERTIES | 44 | ||
21.0 | OTHER RELEVANT DATA AND INFORMATION | 45 | ||
22.0 | INTERPRETATION AND CONCLUSIONS | 46 | ||
| 22.1 | INTERPRETATIONS AND CONCLUSIONS | 46 | |
| 22.2 | RISKS AND UNCERTAINTIES | 46 | |
23.0 | RECOMMENDATIONS | 47 | ||
24.0 | REFERENCES | 48 | ||
25.0 | RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT | 49 | ||
APPENDIX A MINE MAP | A-1 |
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LIST OF TABLES
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LIST OF FIGURES
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1.0 EXECUTIVE SUMMARY
1.1PROPERTY DESCRIPTION
Tunnel Ridge, LLC (Tunnel Ridge) owns and operates the Tunnel Ridge Mine (TRM). Tunnel Ridge is a wholly owned subsidiary of Alliance Coal, LLC. TRM is an underground coal mining operation located in Ohio County, West Virginia and Washington County, Pennsylvania and currently has approximately 20,890 acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Surface facilities are controlled through ownership or lease.
1.2GEOLOGY AND MINERALIZATION
The Pittsburgh No. 8 seam is mined through longwall mining and room and pillar methods. The seam is located in the Appalachian Basin, specifically, the northern portion of the Appalachian Basin. The Appalachian Basin is an elongated synclinal structure that contains a large volume of predominantly sedimentary stratified rocks and encompasses an area of about 207,000 square miles. The primary coal-bearing strata is of Carboniferous age in the Pennsylvanian system.
1.3STATUS OF EXPLORATION
The TRM reserve block has been extensively explored through drilling conducted by Tunnel Ridge and previous developers. Drilling records are the primary dataset used in the evaluation of the reserve. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic data and when available, coal quality data.
1.4MINERAL RESOURCE AND RESERVE ESTIMATES
This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal and predict coal quality for marketing purposes. This information is used to create a resource model using Carlson’s Geology module, part of an established software suite for the mining industry. In addition, to coal thickness and quality data, seam recovery is modeled. Classification of the resources is based on distances from drill data. Carlson then estimates in-place tonnages, qualities, and average seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. These results are exported to a database which then applies the appropriate percent ownership, mine recovery and seam recovery. Table 1-1 is a summary of the coal reserves based on a life-of-reserve plan. All resources were converted to reserves. There are no resources exclusive of reserves.
Table 1-1. Summary of Controlled Coal Reserves Estimates as of December 31, 2021
Reserve Category | Controlled Recoverable (1,000 tons) |
Pittsburg No. 8 Seam | |
Proven | 28,578 |
Probable | 25,121 |
Total Proven and Probable | 53,699 |
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1.5CAPITAL AND OPERATING COST ESTIMATES
TRM is an on-going operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of historical operating performance. Table 1-2 shows the estimated average capital costs and mining and processing costs for the life of reserve plan. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation.
Table 1-2. Capital and Operating Costs
Category | Life of Reserve |
Capital Costs | 411,569 |
Mining and Processing Cost | 1,908,165 |
TOTAL | 2,319,734 |
1.6PERMITTING REQUIREMENTS
TRM is located on the border of West Virginia and Pennsylvania and operates in each state. Thus, regulatory requirements for each state must be met pertaining to mining operations and facilities located in each respective state.
For operations and facilities in West Virginia, the West Virginia Department of Environmental Protection (WVDEP) is the regulatory authority over mining activities. Within the WVDEP, the Division of Mining and Reclamation (DMR) is responsible for review and issuance of all permits relative to coal mining and reclamation activities.
For operations and facilities in Pennsylvania, the Pennsylvania Department of Environmental Protection (PADEP) is the regulatory authority over mining activities. Within the PADEP, the Bureau of District Mining Operations (DMO) is responsible for review and issuance of all permits relative to coal mining and reclamation activities.
All applicable permits for underground mining, coal preparation and related facilities and other incidental activities have been obtained and remain in good standing.
1.7QUALIFIED PERSON’S CONCLUSIONS AND RECOMMENDATIONS
It is the Qualified Person’s (QP) opinion that the mine operating risks are low. The mining operation, processing facilities, and the site infrastructure are in place. Mining practices are well established. All required permits are issued and remain in good standing. Market Risk is discussed in Section 16.1 and could materially impact the reserve.
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2.0 INTRODUCTION
2.1ISSUER OF REPORT
Tunnel Ridge has retained RESPEC Company, LLC (RESPEC) to prepare this Technical Report Summary (TRS). TRM is operated by Tunnel Ridge. Tunnel Ridge is a wholly owned subsidiary of Alliance.
2.2TERMS OF REFERENCE AND PURPOSE
The purpose of this TRS is to support the disclosure in the annual report on Form 10-K of Alliance Resource Partners, L.P., (ARLP 10-K) of Mineral Resource and Mineral Reserve estimates for the TRM as of 12/31/2021. This report is intended to fulfill 17 Code of Federal Regulations (CFR) §229, “Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 – Regulation S-K,” subsection 1300, “Disclosure by Registrants Engaged in Mining Operations.” The mineral resource and mineral reserve estimates presented herein are classified according to 17 CFR§229.133 – Item (1300) Definitions.
Unless otherwise stated, all measurements are reported in U.S. imperial units and currency in U.S. dollars ($).
This TRS was prepared by RESPEC. No prior TRS has been filed with respect to the TRM.
2.3SOURCES OF INFORMATION
During the preparation of the TRS, discussions were had with several Alliance personnel.
The following information was provided by Tunnel Ridge and Alliance:
/ | Property history |
/ | Property Data |
/ | Laboratory Protocols |
/ | Sampling Protocols |
/ | Topographic Data |
/ | Mining Methods |
/ | Processing and Recovery Methods |
/ | Site Infrastructure information |
/ | Environmental permits and related data/information |
/ | Historic and forecast capital and operating costs. |
2.4PERSONAL INSPECTION
A RESPEC QP and Alliance representative conducted a site visit on February 9, 2022. During the site visit, the RESPEC QP visited the river barge load-out, the preparation plant, the raw coal stockpile, the clean coal stockpile, the mine slope, the mine shafts, load-out structure, and the refuse impoundments.
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Discussions were held with the mine engineer regarding several issues including future mine plans and the life-of-mine plan for refuse disposal.
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3.0 PROPERTY DESCRIPTION
3.1PROPERTY DESCRIPTION AND LOCATION
The TRM (40°09’17” N, -80°39’26” W), an underground longwall coal mine in the Pittsburgh No. 8 seam, currently has approximately 20,890 underground acres permitted.
Figure 3-1 shows the general location of the TRM.
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Figure 3-1. General Location Map
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3.2MINERAL RIGHTS
Pursuant to a Lease Agreement dated August 27, 2001 (the “ARGP Coal Lease”), Alliance Resource GP, LLC (“ARGP”) leased to Tunnel Ridge, the Pittsburgh No. 8 seam coal properties located in Ohio County, West Virginia and various townships in Washington County, Pennsylvania that were acquired by ARGP from The Valley Camp Coal Company and Kanawha and Hocking Coal and Coke Company in 2000 (the “Valley Camp Coal”), together with certain surface properties and facilities located in Ohio County, West Virginia that were acquired by ARGP from Rayle Coal Co. and Tridell Realty Co. in August, 2001 (the “Tridell Properties”). The ARGP Coal Lease was amended in 2003 to delete the Tridell Properties and a portion of the Valley Camp Coal, and a separate lease was entered into between the parties covering the Tridell Properties (the “ARGP Surface Lease”). As a result of several subsequent amendments adding additional Valley Camp Coal back to the ARGP Coal Lease, Tunnel Ridge currently controls approximately 8,525 mineable acres of the Valley Camp Coal.
Beginning in 2005, Tunnel Ridge began acquiring surface properties for slope and shaft development, overland conveyors construction, refuse disposal facilities and other ancillary surface facilities.
Coal produced from the TRM is transported by conveyor belt to a barge loading facility on the Ohio River that is owned by Tunnel Ridge.
3.3SIGNIFICANT ENCUMBRANCES OR RISKS TO PERFORM WORK ON PERMITS
ARLP’s revolving credit facility is secured by, among other things, liens against certain Tunnel Ridge surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Recorder of County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please refer to Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt" of the ARLP 10-K for more information on the revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for ARLP’s accounts receivable securitization facility, evidenced by financing statement of record in the Office of the Recorder of County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please refer to -K, "Item [8.] Financial Statements and Supplementary Data—Note 8 – Long-term Debt” of the ARLP 10-K for more information on the accounts receivable securitization facility.
TRM is located on the border of West Virginia and Pennsylvania, operating in each state. The regulatory requirements for each state must be met pertaining to mining operations and facilities located in each respective state.
In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining operations, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
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4.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
4.1TOPOGRAPHY AND VEGETATION
The TRM is located in the Permian Hills physiographic region of West Virginia per USEPA. This region is mostly unglaciated and hilly, consisting of a dissected plateau with 200 to 750 feet of local relief. It is composed of horizontally bedded sedimentary rock. The surface facilities and mine access are located to the northeast of Wheeling, WV, which sits on the Ohio River, and to the southwest of Pittsburgh, PA. The elevation ranges across the mine permit area from about 800 to 1400 feet above mean sea level. The vegetation across the mine permit area consists primarily of pastureland, deciduous forest, and mixed forest.
4.2ACCESSIBILITY AND LOCAL RESOURCES
The primary access shaft (Schoolhouse Portal) to TRM (40°05’47” N, -80°33’13” W) is located at 184 Schoolhouse Ln, Valley Grove, WV 26060. It is accessible from Wheeling, WV, via Interstate 70 E to US-40 E to Trestlework Rd to Schoolhouse Ln. The secondary access shaft (Battle Run Portal) to TRM (40°07’18” N, -80°35’19” W) is located at 2596 Battle Run Rd, Triadelphia, WV 26059. Interstate 70 is a major transportation artery passing through the area located 0.9 miles to the southeast of the mine’s primary access shaft. The city of Wheeling, WV is 9.1 miles to the southwest of the mine and the city of Washington, PA, is 17.1 miles to the east of the mine. The Ohio River is 8.3 miles due west of the mine. Raw coal is transported by belt from the underground mine to the surface at the slope access (40°08’04” N, -80°38’44” W) located 5.5 miles northwest of the primary access shaft. The raw coal is transported by overland belt from the slope to the mine’s processing facilities (40°09’17” N, -80°39’26” W) located 1.5 miles to the northwest of the slope access. The processed coal is transported by belt from the processing facilities through an underground corridor to the barge loading facility (40°10’30” N, -80°41’06” W) on the Ohio River (mile marker 82) 1.9 miles to the northwest of the processing facilities. The nearest large FAA-designated commercial service airport is Pittsburgh International Airport (PIT) located 32 miles to the northeast of the mine near Pittsburgh, PA.
4.3CLIMATE
The TRM and surrounding Wheeling, WV, area has four distinct seasons with average annual precipitation of 40.4 inches according to U.S. Climate Data. The average annual high temperature is 63°F and the average annual low temperature is 43°F. The average annual snowfall is 20 inches. The climate of the area has little to no effect on underground and surface operations at the mine. The mine operates year-round with exceptions for holiday and vacation shutdowns.
4.4INFRASTRUCTURE
The TRM gets its potable water from the Ohio County Water District. Water used for underground operations is pumped overland from the Ohio River. Water used for coal processing is sourced from collection ponds and the Ohio River. Electricity is provided to the TRM by American Electric Power (AEP) through a 138 kV transmission line from Brilliant, OH. and West Penn Power (WPP) through 3
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phase residential transmission lines. Employment in the area is competitive. However, the mine has been able to attract a mixture of skilled and unskilled labor with its competitive pay package and benefits. Mine personnel primarily come from Ohio, Marshall, and Brooke Counties, West Virginia, Belmont County, Ohio and Washington County, Pennsylvania. The city of Wheeling, WV, is 9.1 miles southwest of the mine. Its population is 27,052 according to the 2020 U.S. Census, making it the 5th most populous city in West Virginia. Wheeling is the principal city of the Wheeling, WV-OH Metropolitan Statistical Area, which has a population of 147,950 according to the 2010 U.S. Census. Most supplies are trucked to the mine from regional vendors.
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5.0 HISTORY
5.1PRIOR OWNERSHIP
Valley Camp Coal Company (VCCC) operated mines on the property.
5.2EXPLORATION HISTORY
VCCC drilled 24 of a 40-hole exploration program (1959 to 1977) in and adjacent to the reserve area to check thickness, quality, and mineability of the Pittsburgh No. 8 seam. In general, holes are cased through the surface material and then continuously cored to collect roof, coal, and floor samples for the target seam. Core diameter is typically 2” from NX core drilling equipment. Coal quality was performed on almost all the Pittsburgh No.8 seam samples with varying combinations of the top split. No geophysical work was available for the holes. TRM (WTR-series) accounts for over 80 of the remaining holes drilled from 2001 to present. Nearly all of these holes have quality and geophysical logs. Additionally, 30 other exploration holes or thickness points were obtained from various other companies that had previously conducted exploration within the area. Tunnel Ridge has collected over 600 channel samples from the TRM to supplement the exploration drilling. In general, all drilling has shown a highly consistent coal seam of mineable thickness and marketable quality for the thermal utility market.
See Appendix A for a map showing all drillhole locations.
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6.0 GEOLOGICAL SETTING, MINERALIZATION AND DEPOSIT
6.1REGIONAL GEOLOGY
The TRM extracts coal from the Pittsburgh No. 8 seam in a reserve block located in northern West Virginia and western Pennsylvania. The TRM is located in the Appalachian Basin, specifically, the northern portion of the Appalachian Basin. The Appalachian Basin is an elongated synclinal structure that contains a large volume of predominantly sedimentary stratified rocks and encompasses an area of about 207,000 square miles. Primary coal-bearing strata, including the Pittsburgh No. 8 seam, are in formations of Pennsylvanian aged rocks, which were deposited about 325 to 290 million years ago. In the Appalachian Basin, Pennsylvanian aged rocks constitute a thick wedge of relatively coarse-grained clastic debris that is thickest along the eastern side of the basin. Pennsylvanian sediments in the region consist of shales, sandstones, conglomerates, siltstones, coals, and limestones and are largely alluvial deltaic in origin. The Pittsburgh No. 8 coal seam extends over 11,000 square miles across four states, including Ohio, West Virginia, Pennsylvania, and Maryland.
See Figure 6-1 for a stratigraphic column.
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Figure 6-1. Generalized Stratigraphic Column of Pennsylvanian Coal Beds, Marine Zones and Other Units
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6.2LOCAL GEOLOGY
The TRM resource block is located in the Appalachian Plateau province in northern West Virginia and southwestern Pennsylvania. This area is characterized by generally flat lying strata. The primary economic coal-bearing strata in northern West Virginia and southwestern Pennsylvania is comprised of the Monongahela Formation, including the Pittsburgh No. 8 seam. Structurally, the seam is gently folded with a series of synclines and anticlines crossing the eastern portion of the reserve that trends in a northeast-southwest direction.
The Pittsburgh No. 8 seam varies in thickness throughout the resource area. The Pittsburgh No. 8 seam is broken into a main bench, a variably thick parting and a rider coal of inferior quality. The main bench averages about 5.0 feet thick, the claystone parting varies from about zero to 1.6 feet thick. The upper bench, or rider, is anywhere from zero to over two feet thick and is typically high ash, high sulfur, lower quality coal. Depending on its thickness and the overall seam thickness, the rider is either left for roof coal or mined with the rest of the seam. The immediate roof within the TRM reserve block is generally a dark gray shale or claystone, overlain by a shaley limestone that has thin shale partings. Though it’s uncommon in the TRM reserve, a thin, discontinuous sandstone can be found in the main roof. The floor varies between a thin, shaley limestone to a gray-green claystone that transitions to a sandy shale.
See Figure 6-1 for a stratigraphic column and Figures 6-2 and 6-3 for geologic cross sections representing the local geology. See Appendix A for a plan view showing the locations of the cross sections.
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Figure 6-2. Geological Cross-Section A-A’
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Figure 6-3. Geological Cross-Section B-B’
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6.3PROPERTY GEOLOGY AND MINERALIZATION
The TRM extracts coal from the Pittsburgh No. 8 seam. The seam is mainly mined in northern West Virginia and southwestern Pennsylvania. The depth of cover depends on if the seam lies under a hill or valley. This results in a depth of cover that ranges from about 300 feet to over 800 feet. The area is bounded to the west, southwest, and south by previous mining. Coal-bearing strata dip toward the southeast at less than one percent grade.
The Pittsburgh No. 8 seam varies in thickness over the reserve area and averages about 6.9 feet thick, including the parting and upper bench.
On a 1.50 float, dry basis the Pittsburgh No. 8 seam quality averages about 8.16% ash, 3.35% sulfur, and 13,672 btu/lb.
The mineral deposit type mined at the TRM property is bituminous coal. The primary coal-bearing strata is of Carboniferous age, in the Pennsylvanian system. Coal thickness (including the rider) varies slightly throughout the area, ranging from about 3 feet to over 7 feet, though both of these thickness extremes are anomalous.
The geologic model developed to explore the reserve is a bedded sedimentary deposit model. This is generally described as a continuous, non-complex, typical cyclothem sequence that follows a bedded sedimentary sequence. The geology continues to be verified by an extensive drilling program.
A stratigraphic column (Figure 6-1) and geologic cross sections (Figure 6-2 & Figure 6-3) representing the local geology, are included in this report.
6.4STRATIGRAPHY
Pennsylvanian rocks are composed of shale, sandy shale, sandstone, limestones, and coal. The TRM extracts coal from the Pittsburgh No. 8 seam in the Monongahela Formation.
6.4.1THE MONONGAHELA FORMATION
The Monongahela Formation overlies the Conemaugh Group and extends from the base of the Pittsburgh No. 8 Coal to the base of the Waynesburg Coal. The Formation ranges in thickness from 250 to 400 feet. It was deposited in vast deltas, large rivers flowing through coastal lowlands, numerous lakes, and wetlands where sea level change allowed the development of large peat mires. The Pennsylvanian System in northern West Virginia and southwestern Pennsylvania is broken into five distinct Groups and Formations. The five Groups and Formations in ascending order are the Pottsville Group, the Allegheny Formation, the Conemaugh Group, the Monongahela Formation, and the Dunkard Group.
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7.0 EXPLORATION
7.1DRILLING EXPLORATION
The TRM resource has been extensively explored through drilling conducted by Tunnel Ridge and previous developers. Drilling records are the primary dataset used in the evaluation of the property. Drill records have been compiled into a geologic database which includes location, elevation, detailed lithologic information and coal quality data. This information is used to generate geologic models that identify potential adverse mining conditions, define areas of thinning or thickening coal, and predict coal quality for marketing purposes. The drilling density on the property is sufficient to identify and predict geological trends.
Exploration also includes an extensive channel sampling program, mine sections from underground surveys and underground geologic mapping conducted by geologists. Channel samples are samples collected from the coal seam within the coal mine. Once a suitable location is found within the mine, equal, representative portions of the coal seam are extracted using hand tools from the top of the seam to the bottom. The sample is placed within a heavy-duty plastic bag which is securely sealed with tape. The sample is then transported from the mine to the lab where the requested analyses are conducted.
Channel sample data and mine surveys are useful for thickness data and identifying any partings or anomalies within the coal seam. Underground geologic mapping is beneficial for identifying facies changes, poor roof trends, and supplementing hazards maps generated from drilling data.
The TRM property has adequate drilling to define geological trends. Exploration continues to be added to the geologic database on an annual basis.
Drilling on the property targets the Pittsburgh No.8 seam and is conducted using industry standard methods by a third-party contractor. A geologist or other company representative oversees all drilling conducted on the property. The most common method of drilling is continuous, wireline core. This method provides the most efficient core sample extraction from the rock mass. The rock core sample is removed from the bottom of the hole in the inner barrel assembly by a device on the wireline cable. Spot coring is a method that uses either mud or air rotary drilling to reach a specific depth, usually twenty or thirty feet above the target seam. Once this depth is reached, the drill string is removed, and the rig sets up for core drilling. The core barrel is advanced to the bottom of the hole where coring commences. Core is advanced to about ten feet below the target seam.
Once drilling is completed on a hole, a suite of geophysical parameters is collected for the entire borehole. Parameters such as naturally occurring gamma, resistivity, high resolution density and caliper data are collected. This information is used to verify the driller’s log, geologist’s log, thickness of the coal, and core recovery. Geophysical logs are helpful when core is not collected. The information from the geophysical log can be used to determine coal thickness and identify critical strata. All core is described by a geologist, photographed for future reference, and stored until it is no longer needed
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7.2HYDROGEOLOGIC INVESTIGATIONS
WVDEP and PADEP require a groundwater users’ survey in and within 1,000’ of the permitted boundary. Issuance of permit needs the respective agencies to complete a Cumulative Hydrologic Impact Assessment (CHIA). Both items were completed for this site and indicated groundwater issues would not be significant or require any sort of aquifer characterization. Groundwater inflow associated with mining has historically not been a significant issue and is dealt with as encountered.
7.3GEOTECHNICAL INFORMATION
Due to the well-established history of mining in the Pittsburgh No. 8 seam and the relatively consistent nature of the overlying and underlying rock strata no rock mechanics data has been collected thus far for the TRM reserve block. Keystone Mining Services (a division of Jennmar) has conducted evaluations of horizontal stress and adverse roof conditions in the TRM.
To comply with state and federal requirements regarding the construction of refuse impoundments, geotechnical data is gathered and analyzed on a continuous basis. C.T.L. Engineering of West Virginia, Inc. performs daily compaction testing of refuse placed during construction of the TRM refuse impoundments. Proctor tests are performed in conjunction with compaction testing to ensure material compaction requirements are met. Compaction testing performed in the field is reviewed with mine management on a daily basis. Standard penetration testing is performed during various phases of construction to calculate the load bearing capability of the subsurface.
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8.0 SAMPLE PREPARATION, ANALYSES AND SECURITY
8.1SAMPLE PREPARATION AND ANALYSIS
Prior to sending any type of sample to the laboratory for analysis, company representatives prepare samples for transport. This includes a sample request form, which has information such as sample ID, depths, and requested analyses to be performed, that is placed securely inside the sample container. If the sample is rock core, the core remains sealed in plastic bags and in the box provided by the drilling contractor. The box is secured using heavy duty packing tape. Channel samples are placed in a heavy-duty plastic bag. The bag is clearly labelled with the operation name, sample ID and location where the sample was collected. Within the sample bag, another smaller plastic bag contains a form that has the operation name, sample ID, date of sample collection, and the requested analyses. Company representatives then arrange for sample delivery to a representative from the laboratory. Once the laboratory assumes possession of the sample, rigorous quality control and quality assurance standards are strictly adhered to.
Tunnel Ridge contracts with Miltech Analytical Services (MAS), Inc. located in Hunker, PA. Miltech is ISO 9002 Compliant, and USEPA PA10462, PA DEP 65-03568 certified. Miltech uses ASTM D7448 for Laboratory Practice and Quality Management. Tunnel Ridge has historical information from other regional laboratories which include Commercial Testing and Engineering, Dickinson Laboratories, Standard Laboratories, and Precision Testing.
All laboratories, both past and present, prepare, assay, and analyze samples in accordance with ASTM international standards.
Typical coal quality analyses include the following:
/ | Channel samples are processed using ASTM D4596. |
/ | Core samples are processed using ASTM D5192. |
/ | Ultimate Analysis using ASTM Method D5291 for percent nitrogen, carbon, and hydrogen and for the determination of percent oxygen. |
/ | Mineral Analysis of Ash (major and minor metals by ICP) using ASTM Method D6349 for measuring percent silicon dioxide, aluminum dioxide, ferric oxide, calcium oxide, magnesium oxide, potassium oxide, sodium oxide, titanium dioxide, phosphorus pentoxide, magnesium dioxide, barium oxide, strontium oxide, sulfur trioxide. |
/ | Proximate Analysis using ASTM Method D5865 for the determination of thermal caloric value in BTU/LB. ASTM Method D3174 is used for the determination of percent ash. ASTM Method D5016 is used for measuring percent sulfur. Method D3175 is used to determine percent volatiles and ASTM D3172 is used to determine percentage of fixed carbon. |
/ | Ash Fusion Temperatures are determined using ASTM Method D1857, Sulfur Forms are determined using ASTM Method 8214. The Hardgrove Grindability Index (HGI) is measured using ASTM Method D409 (M) and the Total Moisture is determined using ASTM Method D3173 and D2961. The Mercury value, measured in parts per million is determined using ASTM |
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Method D6722 and chlorine is determined using method D8247. The Free Swelling Index is determined by ASTM Method D720. The Equilibrium Moisture is determined using ASTM Method D1419. Water Soluble Alkalis are determined using ASTM Method D 8014.
/ | Trace element analysis to include Antimony, Arsenic, Barium, Beryllium, Boron, Bromine, Cadmium, Chromium, Cobalt, Copper, Fluorine, Lead, Lithium, Manganese, Molybdenum, Nickel, Selenium, Silver, Strontium, Thallium, Tin, Vanadium, Zinc, determined by ICP ASTM Method D6357. |
The TRM has sufficient drilling across the extent of the property to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, on occasion it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
8.2QUALITY CONTROL/QUALITY ASSURANCE (QA/QC)
No significant disruptions, issues or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to conclude that the quality assurance actions employed by these laboratories is adequate to provide reliable results for the requested parameters.
8.3OPINION OF THE QUALIFIED PERSON ON ADEQUACY OF SAMPLE PREPARATION
No significant disruptions, issues or concerns have ever arisen as a result of sample preparation. Therefore, it’s reasonable to assume that sample preparation, security, and analytical procedures in place are adequate to provide a reliable sample from which requested parameters can be analyzed.
The qualified person is of the opinion that the sample preparation, security, and analytical procedures for the samples supporting the resource estimation work are adequate for the statement of mineral resources. Results from different laboratories show consistency and nothing in QA/QC demonstrates consistent bias in the results.
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9.0 DATA VERIFICATION
9.1SOURCE MATERIAL
TRM maintains a detailed geologic database used to develop several types of models used to predict the mineability and coal quality of the Pittsburgh No. 8 seam. Data verification of the accuracy of this database is conducted on a regular basis by company engineers and geologists. This includes a detailed review of drilling data, coal quality data and coal seam correlation of all exploration drillholes to what is found in the database. The verification process also entails underground geologic mapping by a geologist to field verify the accuracy of compiled geologic models from drillhole data. Furthermore, maps generated from coal quality data to predict the coal quality across the reserve are checked for accuracy against actual output from the preparation plant.
Alliance contracted Weir International (Weir) to conduct an audit of Alliance’s reserve estimates prepared under Industry Guide 7. Weir submitted its findings in a report dated July 23, 2015. Weir’s review included methodologies, accuracy of Carlson gridding, and drillhole data. A similar review was conducted by Weir in 2010. During the 2015 audit, 10% to 20% of the new drillhole data was reviewed and confirmed.
RESPEC was provided with e-log data for all new holes or data obtained in 2016 and more recently. RESPEC compared 20% of those e-logs to the Carlson database. RESPEC also verified the thickness and quality grids. As part of the verification process, a new thickness grid was created from the database, and that resultant grid compared to TRM’s model using Carlson grid file utilities.
9.2OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
Based on the verification of TRM data by the QP and review of prior database audits, the QP deems the adequacy of TRM data to be reasonable for the purposes of developing a resource model and estimating resources and subsequently reserves.
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10.0 MINERAL PROCESSING AND METALLURGICAL TESTING
10.1ANALYTICAL PROCEDURES
The TRM has sufficient drilling across the extent of the reserve to identify general trends in coal quality. The majority of the data comes from samples collected from core drilling. However, on occasion it becomes necessary to collect channel samples in order to delineate local changes in coal quality. The procedure for collecting channel samples was described in a previous section.
10.2REPRESENTATIVE SAMPLES
The parameters that the TRM analyze are adequate to define the characteristics necessary to support the marketability of the coal.
10.3TESTING LABORATORIES
Currently, Tunnel Ridge contracts with Miltech Analytical Services (MAS), Inc. located in Hunker, PA. Miltech is ISO 9002 Compliant and USEPA PA10462, PA DEP 65-03568 certified. Miltech uses ASTM D7448 for Laboratory Practice and Quality Management. This laboratory provides unbiased, third-party results and operates on a contractual basis.
No significant disruptions, issues, or concerns have ever arisen as a result of processing or laboratory error. Therefore, it’s reasonable to assume that this laboratory should provide assurance that the data processing and reporting procedures are reliable.
10.4RESULTS
Tunnel Ridge performed a series of washability tests to develop washability curves. These curves predict coal qualities and recoveries at different specific gravities. The existing plant operates at a specific gravity of approximately 1.5 -1.65. The results from the coal quality sampling program are adequate to determine the specification requirements for customers located in both the domestic and export markets.
10.5OPINION OF QUALIFIED PERSON ON DATA ADEQUACY
It is the opinion of the QP that the coal processing data collected from these analyses is adequate for modeling the resources and reserves for marketing purposes. All analyses are derived using standard industry practices by laboratories that are leaders in their industry.
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11.0 MINERAL RESOURCE ESTIMATES
11.1DEFINITIONS
A mineral resource is an estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.
Mineral resources are categorized based on the level of confidence in the geologic evidence. According to 17 CFR § 229.1301 (2021), the following definitions of mineral resource categories are included for reference:
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. An inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An inferred mineral resource, therefore, may not be converted to a mineral reserve.
An indicated mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. An indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource and may only be converted to a probable mineral reserve. As used in this subpart, the term “adequate geological evidence” means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty.
A measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. As used in this subpart, the term conclusive geological evidence means evidence that is sufficient to test and confirm geological and grade or quality continuity.
11.2LIMITING FACTORS IN RESOURCE DETERMINATION
Resources in the Pittsburgh No. 8 seam are delineated based on the following limitations:
/ | Mineable thickness |
/ | Marketable quality |
/ | Structural limits, such as faults or sandstone channels, existing mining, and subsidence protection zones |
/ | Government and social approval |
11.2.1MINEABLE THICKNESS
Thicknesses are extracted from the database to create a geologic model. Grids are created using an inverse distance algorithm using a weighting factor of three. The minimum Pittsburgh No. 8 coal
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thickness within the resource area is 4.58 feet. The average coal thickness (including the rider) in the geologic database is 6.44 feet.
11.2.2MARKETABLE QUALITY
The primary source quality data is from core holes drilled for the purpose of coal exploration. The qualities that are of primary interest are ash, sulfur, and BTU. These qualities have limitations which affect the value of the coal. The table below summarized the values and ranges of each in the geologic database. The range of critical qualities in the database indicates that the coal in the Pittsburgh No. 8 seam is within marketable limits. The potential resource areas are considered to meet the quality standard and no further consideration or analyses of these parameters are made. All resource estimates include average anticipated values for ash, sulfur, and BTU.
Table 11-1. Qualities at 1.5 Specific Gravity – Dry Basis
Seam | Quality | Number of | Average | Minimum | Maximum | Standard |
Pittsburgh No. 8 | Ash | 695 | 8.67 | 6.4 | 12.59 | 1.02 |
Pittsburgh No. 8 | Sulfur | 695 | 3.17 | 2.28 | 4.88 | 0.27 |
Pittsburgh No. 8 | BTU | 694 | 13,597 | 12,971 | 13,989 | 178 |
Values in Table 11-1 are dry basis qualities based on laboratory analysis of core or channel samples. Marketable qualities reflect moisture and adjustments for plant variability. Typical as received quality specifications for the TRM product are approximately:
/ | BTU – 12,500 to 12,700 |
/ | Moisture – 6.0% to 7.0% |
/ | Ash – 8.0% to 9.5% |
/ | Sulfur – 2.6% to 3.8% |
/ | Volatile Matter - 38.0% to 39.0% |
11.2.3STRUCTURAL LIMITS
There are no identified geologic limits to the resource boundary. No faulting is identified in the region. Coal thicknesses throughout the entire resource area are considered mineable using the operation’s current operational limit.
The southern and southwestern boundaries of the resource are defined by the existing Pittsburgh No. 8 seam underground mines: Old Valley Camp #1 and Valley Camp mines. A buffer of approximately 200 feet is maintained around previously mined areas. The Masten Mine is located along the eastern edge of the resource boundary with a buffer of approximately 500 feet.
A subsidence protection zone is maintained near the northwestern corner of the resource. This zone protects the Castleman Run Public Fishing Area.
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11.2.4GOVERNMENT AND SOCIAL APPROVAL
There are no significant limitations to the TRM obtaining the permits required. The TRM holds the necessary permits to mine, process, and transport coal from this area. Historically, the company has been able to amend, or revise permits as needed. The public is notified of significant permitting actions and may participate in the process.
11.3CLASSIFICATION RESOURCES
11.3.1CLASSIFICATION CRITERIA
The identified resources are divided into three categories of increasing confidence: inferred, indicated, and measured. The delineation of these categories is based on the distance from a known measurement point of the coal. The distances used are presented in USGS Bulletin 1450-B, “Coal Resource Classification System of the U.S. Bureau of Mines and U.S. Geological Survey.” These distances are presented in Table 11-2.
Table 11-2. Coal Resource Classification System
Classification | Distance from measurement point |
Measured | <1,320’ |
Indicated | 1,320’ – 3,960’ |
Inferred | 3,960’ – 15,840’ |
These distances for classification division are not mandatory. However, these values have been used since 1976, have proven reliable in the estimation of coal resources, and are considered reasonable by the QP.
11.3.2USE OF SUPPLEMENTAL DATA
Due to the continuity of coal seams in the Appalachian Basin, mineability limits are the most important factor in resource assessment. The limits of the adjacent underground mines are used as supplemental data to confirm thickness trends and identify structural limits. Coal thickness grids are generated from drillhole information, mine measurements, and channel samples. These are data points in which the company has a high degree of confidence in thickness measurement. This data is used by the company to generate the model for its internal planning. The combined information increases the overall reliability of the resource estimate, and all data points are included within the classification system.
11.4ESTIMATION OF RESOURCES
Resource estimates are based on a database of geologic information gathered from various sources. The sources of this data are presented in Section 7 of this report. Thickness and quality data are extracted from the database to create a model using Carlson’s Geology module. The model consists of a set of grids, generated using an inverse distance algorithm with a weighting factor of three. In addition to the thickness and quality data, plant recovery is modeled. Quality data and recovery rates are determined through a set of tests generating washability curves. The current operation washes the
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run-of-mine coal at a specific gravity of approximately 1.5-1.65. The qualities and plant yield are based on this specific gravity.
Section 12 presents the modifying factors considered in determining whether resources qualify as reserves. There are no resources exclusive of reserves for the TRM. Due to the level of geologic certainty, there are no inferred resources. All resources were classified as either measured or indicated and were converted to reserves.
11.5OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the Resource estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices and costs are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including TRM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the resource:
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. |
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation |
» | Regulatory changes related to the Waters of the US |
» | Air quality standards |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the resource.
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12.0 MINERAL RESERVES ESTIMATES
12.1DEFINITIONS
A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. Probable mineral reserves comprise the economically mineable part of an indicated and, in some cases, a measured mineral resource. Proven mineral reserves represent the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource.
12.2KEY ASSUMPTIONS, PARAMETERS AND METHODS
12.2.1RESERVE CLASSIFICATION CRITERIA
The Pittsburgh No. 8 seam has historically been successfully mined at this location and throughout the Appalachian coal basin. Several other mines in the region are currently operating in this seam. Resources are identified as described in Section 11 of this report based on geologic conditions, mineability, and marketability of the coal seam. The two critical factors in converting indicated and measured mineral resources into the mineral reserves are inclusion in an economically feasible mine plan and government approval through the various environmental and operational permits.
Table 17-1 presents the various state and federal environmental permits currently held by the operation. These include the surface mining permit (required for surface operations), air quality permits, and water discharge permits. Approval has already been granted for the required surface disturbance, construction and operation of the preparation facilities, coal refuse disposal, and coal transport. It is noted that not all the anticipated underground mining areas are currently covered under the SMRCA mining permit. Shadow areas (underground only areas) are extended using permit revisions. This is a common practice for underground operations in Appalachia.
All the identified resource is converted into the reserve classification.
12.2.2CUT-OFF GRADE
The coal bed consistently exhibits qualities that make the product marketable. No reduction is made to the resources or reserves due to quality.
12.2.3MARKET PRICE
The EIA reported the average weekly coal commodity spot price for Northern Appalachia coal (the EIA price) on February 4, 2022, to be $73.35/ton (13,000 Btu, <3.0 lbs. SO2 basis). The reference price used in the economic analysis is $42.68/ton, which is based on the QP’s review of historical pricing realized by TRM and proprietary third-party coal price forecasts provided by Alliance. The revenue projection in the economic analysis is based on this estimate of coal price and is assumed to be real 2021 US dollars.
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12.3MINERAL RESERVES
12.3.1ESTIMATE OF MINERAL RESERVES
The current operation uses the longwall and room and pillar mining methods. A 70% mining recovery is used for the combined methods. The mining recovery is applied to the in-place coal.
All coal tonnages are reported as clean controlled coal. Carlson’s Surface Mine Module is used to estimate in-place tonnages, qualities, density, and seam recovery within a set of polygons. These polygons are the result of the intersection of polygons outlining property boundaries, adverse mining conditions, mining method, mine plan boundaries, and resource classification boundaries. The Carlson results are exported to a database, which then applies the appropriate percent ownership, mine recovery, and seam recovery. The basic calculation is:
Tons = Area * Thickness * Density * Mine Recovery * Seam Recovery * Percent Ownership
Table 12-1. Summary of Coal Reserves as of December 31, 2021
Reserve Category / Seam | Controlled Recoverable (1,000 tons) | Sulfur (%) | Ash (%) | BTU |
Pittsburgh No. 8 Seam | | | | |
Proven | 28,578 | 3.29 | 8.1 | 13,691 |
Probable | 25,121 | 3.42 | 8.24 | 13,650 |
Total Reserves | 53,699 | 3.35 | 8.16 | 13,672 |
Values in Table 12-1 are based on a washed, dry basis.
12.4OPINION OF QUALIFIED PERSON
It is the QP’s opinion that the risk of material impacts on the reserve estimate is low. The mining operations, processing facility, and site infrastructure are in place. Mining practices are well established. The operation has a good track record of HSE compliance. The Energy Information Administration (EIA) predicts that global energy produced by coal will increase through 2050.
Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including TRM, and the coal industry in general. It is the QP’s opinion that the following technical and economic factors have the most potential to influence the economic extraction of the reserve:
/ | Extension of permitted area – Not all the Reserves are currently permitted. Underground operations in West Virginia and Pennsylvania have traditionally been able to extend the permitted shadow areas as needed. No change is anticipated in the issuance of these permit modifications. It is expected that the shadow area of the permit will be expanded as needed. |
/ | Subsidence – Tunnel Ridge must obtain subsidence rights or mitigation from surface owners in advance of longwall mining. |
/ | Skilled labor – This site is located near a populated area, which has a history of coal mining. Although there is competition from other underground operators for skilled labor, TRM has |
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been successful in attracting and retaining skilled staff and has programs for training less experienced miners. Should TRM not be able to maintain as skilled a labor pool as anticipated, productivity could be impacted. However, economic evaluation indicates TRM remains economic with modest downturns in productivity.
/ | Environmental Matters |
» | Greenhouse gas emission Federal or State regulations/legislation may impact the domestic electric utility market, which is a major customer for TRM coal. While many proposed changes have been suggested, the horizon for these changes severely impacting the market is anticipated to be beyond the current planning horizon supporting the reserve estimate. |
» | Regulatory changes related to the Waters of the US (WOTUS). The interpretation of the regulation and enforcement of the Clean Water Act with respect to the jurisdictional waters of the US has been modified multiple times through regulatory actions and court decisions. It is likely that further reinterpretation will occur. This could affect future modifications such as new or expanded stockpile areas, transportation areas, and refuse disposal areas. The coal industry has become experienced in adapting to these regulatory changes. |
» | Miscellaneous regulatory changes. The coal industry has been subjected to many changes in regulation and enforcement in the recent past. In addition to new regulations related to greenhouse gas emissions and WOTUS, it is expected that further change will occur. |
/ | Regional supply and demand – Although the US electric utility market has moved to natural gas and renewable forms of energy to provide a higher percentage of electricity production, it is the QP’s opinion, coal will continue to serve as a baseload fuel source in the US and other global energy markets. |
The potential for changes in the circumstances relating to these factors influencing the prospect of economic extraction exists and could materially adversely impact economic extraction of the reserve.
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13.0 MINING METHODS
13.1GEOTECHNICAL & HYDROLOGICAL MODELS
Geotechnical models of the TRM mineral reserves have been assembled utilizing Carlson computer software. Geologic information from drillholes, underground channel samples, and past reserve studies is entered into the database and used to build stratigraphic grid models. Attributes including coal thickness, depth, recovery percentage, and quality are some of the features utilized to accurately model the TRM reserve.
Data collection to support the models is performed as needed to ensure proper characterization of the mining area. Core drilling is performed to provide geotechnical information for permitting and mine design. Underground channel sampling is performed concurrently with mining. Laboratory analysis of corehole and channel samples are performed periodically and used to update the geotechnical models. Commonly analyzed quality parameters include moisture, ash, sulfur, and BTU.
Water inflow into the mine is managed when encountered.
13.2PRODUCTION RATES & EXPECTED MINE LIFE
The TRM extracts coal from the Pittsburgh No. 8 seam utilizing longwall and room and pillar methods of underground mining. Room and pillar methods are used for development of mainline areas as well as longwall panel gate entries and bleeders. Longwall mining is performed in areas where 100% extraction is possible utilizing a single longwall face that is typically 1,200 feet in width and up to 20,000 feet in length. Infrastructure within the mine includes conveyors, ventilation, power, freshwater capacity, one longwall face, and up to four development units. The number of development units varies based on the rate of longwall retreat.
Planned production varies according to contracted sales volume and expectations of market conditions. Table 13.1 provides historic raw tons mined before processing, preparation plant recovery, and clean recoverable tons. The forecasted raw tons before processing, preparation plant recovery, and clean recoverable tons contained in the economic analysis are shown in Table 13.2.
Table 13-1. Historic Production and Recovery (tons 1,000’s)
Category | 2017 | 2018 | 2019 | 2020 | 2021 |
Raw Tons | 14,155 | 13,358 | 14,353 | 13,059 | 13,633 |
Clean Recoverable Tons | 6,804 | 6,754 | 7,396 | 6,757 | 7,213 |
Recovery | 48.1% | 50.6% | 51.5% | 51.7% | 52.9% |
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Table 13-2. Life of Reserve Production Estimate (tons 1,000’s)
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
Raw Tons | 14,715 | 13,811 | 13,495 | 13,060 | 12,163 | 12,276 | 12,432 | 12,726 |
Clean Recoverable Tons | 7,533 | 6,891 | 6,666 | 6,567 | 6,335 | 6,393 | 6,639 | 6,675 |
Recovery | 51.2% | 49.9% | 49.4% | 50.3% | 52.1% | 52.1% | 53.4% | 52.5% |
Pillar sizes for gates range between 34’x120’ and 89’x 260’. Typically, three entries are driven 16’ wide for a unit width of 171’ for gate development. Pillar sizes for main development are typically 65’x 250’ and up to seven entries wide. Main entries are driven 16’ wide for a total width of approximately 406’.
There are approximately 53.7 million clean tons remaining in the TRM reserve to be mined within controlled properties. The current life of reserve plan anticipates exhausting the reserve in 2029. The lifespan of the mine is dependent on many factors and may vary materially from current projections. Please refer to Item 1A of the ARLP 10-K regarding the significant risks involved in investment in Alliance’s operations including TRM, and the coal industry in general.
13.3UNDERGROUND DEVELOPMENT
The TRM currently operates within the specifications of the approved permits and certifications required by all local, state (WV and PA), and federal regulatory agencies. Some of these permits and certifications are as follows:
/ | Local: county road agreements, regulated drainage ditch permits |
/ | State: WVDEP and PADEP underground permits, WVDEP and PADEP surface permits, NPDES wastewater treatment permits, DAQ air permit and air permit |
/ | Federal: US NRC nuclear material license |
In addition to the above-mentioned permits, all applicable mining regulations found in Part 30 of the Code of Federal Regulations (CFR) must be followed. The Mine Safety and Health Administration (MSHA) is the federal regulatory agency that oversees compliance to the CFR. Further, plans uniquely specific to the TRM are required to be submitted, reviewed, and approved by MSHA prior to mining. Some of the approved MSHA required mine plans include:
/ | Roof Control Plan |
/ | Ventilation Plan |
/ | Emergency Response Plan |
/ | Mine Emergency Evacuation and Fire Fighting Program Instruction Plan |
/ | Gas Well Mine Through/Around Plan |
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13.4MINING EQUIPMENT FLEET, MACHINERY & PERSONNEL
Underground equipment required at the TRM includes, but is not limited to:
/ | Longwall Shearer |
/ | Longwall AFC |
/ | Stage Loader |
/ | Continuous Miner |
/ | Coal Loader |
/ | Shuttle car |
/ | Roof Bolter |
/ | Battery and Diesel Scoop |
/ | Fork Trucks |
/ | Personnel Carrier (mantrip) |
/ | Feeder Breaker |
/ | Belt Conveyor |
/ | Transformer/Substation |
/ | Refuge Alternative Chamber |
/ | Rock Dusters |
/ | Miscellaneous Dewatering Pumps |
Surface equipment required at the TRM includes, but is not limited to:
/ | Dozers (various sizes) |
/ | Miscellaneous preparation plant equipment |
/ | End loader |
/ | Man and material hoisting equipment |
/ | Ventilation fan |
/ | Substation |
/ | Mobile crane |
/ | Belt conveyor |
/ | Excavators |
/ | Roller Compactors |
/ | Articulated Trucks |
Personnel required to operate and maintain the TRM are generally obtained through the hiring of both skilled and unskilled workers from the immediate area. Salaried positions at the TRM are made up of production managers, business managers, engineers, information technology, preparation plant
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operators, maintenance foreman, purchasing agents, and safety specialists. Hourly positions include equipment operators on the surface and underground, general laborers, dust sampling technical, mechanics, examiners, warehouse clerks, etc. Total headcount numbers can vary depending on the market and demand for coal. Typical headcount ranges from 430 to 470 workers, depending on the number of development units operating.
13.5MINE MAP
Please see Appendix A for a plan view of the mine map.
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14.0 PROCESSING AND RECOVERY METHODS
14.1PLANT PROCESS
The TRM utilizes a heavy media, float/sink style preparation plant to separate marketable coal from refuse. The plant has a design feed capacity of 1,800 tons per hour (TPH). The plant is divided into two independent 900 TPH circuits that can individually be idled to allow repairs to be made on one circuit while the other remains in operation. Once in the plant, the run of mine (ROM) material passes over vibratory screens to be separated by size. Approximately 80% of all of the ROM material reports to the heavy media circuit as coarse material. Through the introduction of magnetite, a ferromagnetic naturally occurring mineral, the gravity of the flotation solution within the heavy media circuit is manipulated to precisely control the float/sink point. The ROM material is introduced to the heavy media vessel where coal is floated in the solution and heavier rock material conveyed out for disposal. The clean coal, or product, produced by the heavy media vessel is rinsed, dried, and collected by the clean coal conveyor to be shipped. The rock, or coarse refuse, produced is also rinsed and sent to the refuse disposal area.
The 20% of material that makes up the fine circuit within the plant is also separated by gravity, but in a different manner. The fine ROM material reports to a series of classifying cyclones, spirals, and column flotation to separate the coal from the fine refuse. Clean coal produced by the spirals and column flotation is passed through screen bowl driers to remove excess moisture prior to being collected on the clean coal conveyor. Fine refuse from the same process is pumped to a static thickener. Once the fine refuse material has had sufficient time to settle to the bottom of the thickener, it is pumped away to be disposed of within the refuse impoundment.
14.2ENERGY, WATER, PROCESS MATERIALS & PERSONNEL
American Electric Power, (AEP) provides most of the electrical power required to operate the TRM. The power required for underground mining operations is delivered by a 138kV transmission line with a 15-20-25MVa substation on site. Electrical power from this substation then branches out to other facilities owned and operated by the TRM. Preparation plant power is delivered by 69kV transmission line to a dual 10MVa substation located near the preparation plant facility. TRM maintains a separate 34.5kV transmission line to its Winters Return Fan site and Schoolhouse Portal site. Additionally, power is delivered and supplied by West Penn Power (WPP) to two bleeder shaft sites by a 12,470V power line.
Process water for underground mining, and the preparation plant is supplied by water pumped from the Ohio River. Potable water used in the bath houses and offices is supplied by the Ohio County Water District.
The preparation plant uses readily available reagents and supplies. These are competitively sourced from multiple vendors and are generally delivered to the mine by truck.
The preparation plant operates on a flexible work schedule responding to mine production and market demands. A typical shift crew includes one salaried and six hourly personnel with up to four crews to operate at full capacity.
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15.0INFRASTRUCTURE
The TRM is located at 184 Schoolhouse Lane, Valley Grove, WV. Wheeling, WV (40°04’02” N, -80°43’16” W) is located approximately 12 miles to the west via US-40W. West Alexander, PA (40°06’17” N, -80°30’28” W) is located 4 miles to the east via US-40E / National Rd. Supplies are trucked to the mine from regional vendors. All necessary utilities are in place and working. Electricity is supplied by AEP to the mine by the 69kV and 138kV transmission lines. Water required for underground and coal processing operations and other non-potable needs is pumped from the Ohio River. Potable water needed for office and bathhouse facilities is supplied by the Ohio County Water District.
Coal is transported by barge. The TRM barge loading facility is located at Ohio River mile marker 82 (40°10’30” N, -80°41’04” W). The TRM barge loading facility has an annual capacity of 9 million tons. The TRM has a clean coal ground storage capacity of 300,000 tons and clean coal silo capacity of 28,000 tons.
Two fine refuse impoundments are located on the mine’s property. At the final stage, the embankment style impoundments will cover approximately 416 acres. The impoundment embankments are constructed of coarse refuse, creating storage space for fine refuse within the impoundment.
Figure 15-1 shows the layout for TRM surface facilities.
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Figure 15-1. Infrastructure Layout
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16.0 MARKET STUDIES
16.1MARKETS
The TRM produces a medium/high sulfur coal that is sold to the domestic and international thermal coal markets. Production from the TRM is shipped by barge directly to customers or to various transloading facilities, including a third-party facility on the Wheeling and Lake Erie Railway providing connections to the CSX Transportation, Inc. (CSX) and Norfolk Southern Railway Company (NS) railroads.
The TRM participates in the Northern Appalachian coal market, selling coal to a diverse customer base of various domestic utilities, industrial facilities, and US East Coast and Gulf Coast exporters. While coal demand in the US is expected to decline over the coming years, the Eastern US thermal coal demand in 2021 was over 190 million tons. With its low-cost position, exceptional coal quality and core domestic customer base, it is the QP’s opinion that the TRM should continue to have adequate market opportunities for its product.
Table 16-1. Economic Analysis Coal Price
| | | Third Party Price Forecasts1 | | | |
Operation | 5-Year Average | Minimum | Maximum | Economic | Reserve Tons | |
TRM | Tons Sold3 | 7,040 | --- | --- | --- | 53,699 |
Price per ton2 | --- | $35.65 | $60.61 | $42.684 | --- |
1. | Proprietary third-party pricing forecast for 2022-2040 and 2022-2050, real 2021 dollars. |
2. | Price per ton is real 2021 dollars for the life of reserve economic analysis. |
3. | Tons reported in thousands. |
4. | The economic analysis coal price is based on the QP’s review of historical pricing realized by TRM and as reported by EIA and proprietary third-party coal price forecasts provided by Alliance. |
The demand for the TRM coal is closely linked to the demand for electricity, and any changes in coal consumption by United States or international electric power generators would likely impact the TRM demand. The domestic electric utility industry accounts for approximately 91% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of competing fuels for power plants such as nuclear, natural gas, and fuel oil as well as alternative sources of energy.
Future environmental regulation of GHG emissions could also accelerate the use by utilities of fuels other than coal. In addition, federal and state mandates for increased use of electricity derived from renewable energy sources could affect demand for coal. Such mandates, combined with other incentives to use renewable energy sources such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal.
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17.0ENVIRONMENTAL
17.1ENVIRONMENTAL STUDIES
No standalone environmental studies have been conducted for the properties. As part of the state and federal permitting process, various environmental assessments have been conducted. As disturbances are proposed for the operation, all relevant local, state, and federal agencies are contacted to review the proposed project. Each agency reviews the project for impacts to lands, water, and ecology.
17.2WASTE DISPOSAL & WATER MANAGEMENT
The processing of the run-of-mine coal at TRM generates fine and course refuse waste streams. The fine and course refuse are disposed of in the two onsite refuse impoundments. The coarse refuse is used to construct the impoundments’ embankments and the fine refuse is pumped to the pool areas created by the embankments. Additional permitting will be required to expand the refuse impoundments. The expansion areas will be constructed on controlled land adjacent to the existing refuse impoundments. In conjunction with the expansion area, the refuse impoundments may be increased by employing upstream construction methods.
All runoff from the site is managed by sediment control structures including diversions, sumps, and sediment basins. Prior to discharge from the permitted areas, water must meet compliance standards as defined in the NPDES permits. Water samples at discharge locations are collected in accordance with the approved permit and analyzed by an independent laboratory.
17.3PERMITTING REQUIREMENTS
The TRM is located on the border of West Virginia and Pennsylvania and operates in each state. The regulatory requirements for each state must be met pertaining to mining operations and facilities located in each respective state.
In West Virginia, WVDEP, DMR is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
In Pennsylvania, PADEP is the regulatory authority over mining activities. PADEP, DMO is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
In addition to the state mining and reclamation laws, operators must comply with various other federal laws relevant to mining. The federal laws include:
/ | Clean Air Act |
/ | Clean Water Act |
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/ | Surface Mining Control and Reclamation Act |
/ | Federal Coal Mine Safety and Health Act |
/ | Endangered Species Act |
/ | Fish and Wildlife Coordination Act |
/ | National Historic Preservation Act |
/ | Archaeological and Historic Preservation Act |
In conjunction with the WVDEP coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the WVDEP. The WVDEP, Division of Air Quality (DAQ) is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air quality. The WVDEP, Division of Water and Waste Management is responsible for permit issuance and compliance monitoring for all activities which have potential to impact water quality.
In conjunction with the PADEP coal mining permit, the Clean Air Act and Clean Water Act laws and regulations are administered by the PADEP. The PADEP, Bureau of Air Quality (BAQ) is responsible for permit issuance and compliance monitoring for all activities which have the potential to impact air quality. The PADEP, Bureau of Clean Water is responsible for permit issuance and compliance monitoring for all activities which have potential to impact water quality.
All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing. A listing of all current state mining permits is provided in Table 17-1. Mining permits generally require that the permittee post a performance bond in an amount established by the agency to provide assurance that any disturbance or liability created by the mining operations is properly restored to an approved post-mining land use and that all regulations and requirements of the permit are satisfied before the bond is returned to the permittee.
Table 17-1. Current State Permits
Regulatory | Permit No. | Permitted Area | Permitted | Bond |
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17.4PLANS, NEGOTIATIONS OR AGREEMENTS
New permits and certain permit amendments/revisions require public notification. The public is made aware of pending permits through an advertisement in the local newspaper. Additionally, a copy of the application is retained at the county’s public library or online through the State’s public access forum for the public review. A 30-day comment period follows the last advertisement date to allow the public to submit comments to the regulatory authority.
In certain instances, additional opportunities are provided to the public for comment. These instances include operations within 100 feet of a public road, operations within 300 feet of a dwelling, and operations within 300 feet of a public building, school, church, or community building. In those instances, approval must be granted by the regulatory authority as well as individuals or groups who own or provide oversight for a particular facility.
17.5MINE CLOSURE
A detailed plan for reclamation activities upon completion of mining required at the properties has been prepared. Reclamation costs have been estimated based on internal project costs as well as publicly available heavy construction databases. Reclamation costs at the end of the year 2021 totaled approximately $13.1 million.
17.6LOCAL PROCUREMENT & HIRING
There are no commitments for local procurement or hiring. However, efforts are made to source supplies and materials from regional vendors. The workforce is likewise located in the regional area.
17.7OPINION OF THE QUALIFIED PERSON ON DATA ADEQUACY
The approved permits and certifications are adequate for continued operation of the facility. Waste disposal facilities are in place for current mining operations, with plans to expand the disposal facilities in order to provide life of reserve storage. Water control structures are in place and function as required by regulatory agencies. In the QP’s opinion, the estimated reclamation liability is adequate to estimate mine closure and reclamation costs at the property.
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18.0 CAPITAL AND OPERATING COSTS
RESPEC reviewed capital and operating costs required for the coal mining operations at the TRM. Historic capital and operating expenditures were supplied to RESPEC by Tunnel Ridge. The site is an operating coal mine; therefore, the capital and operating cost estimates were prepared with consideration of recent operating performance. The cost estimates are accurate to within +/-25%. RESPEC considers these cost estimates to be reasonable. All costs in this section are expressed in real US dollars.
18.1CAPITAL COSTS
Capital costs were estimated with the costs classified as routine operating necessity (sustaining capital), capital required for major infrastructure additions or replacement, and expansion. As discussed in Item 12.3, the reserve for TRM is 53.7M tons. The current production schedule estimates approximately 53.7M tons will be mined by 2029. The estimated capital costs for the reserve tons are provided in Table 18-1.
Table 18-1. Capital Cost Estimate
Life of Reserve Estimate 2022-2029 (US$ 000's) | ||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
Routine Operating Necessity | 55,725 | 44,146 | 43,776 | 45,704 | 37,640 | 69,350 | 38,143 | 30,518 |
Major Infrastructure Investment | 549 | 6,200 | 10,000 | 6,700 | 6,859 | --- | 9,400 | 6,859 |
18.2OPERATING COSTS
Operating cost inputs for the life of reserve economic analysis such as labor, benefits, consumables, maintenance, royalties, taxes, transportation, and general and administrative expenses were based on recent operating data. A summary of the estimated operating costs, including depreciation expense (the Mining and Processing Cost) for the life of the reserve are provided in Table 18-2.
Table 18-2. Operating Cost Estimate
Life of Reserve Estimate 2022-2029 (US$000's) | ||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
Cash Operating Costs | 202,396 | 196,408 | 189,771 | 179,094 | 165,892 | 161,118 | 161,032 | 160,767 |
Royalties | 9,679 | 8,823 | 8,565 | 8,408 | 8,235 | 13,579 | 17,602 | 16,771 |
Depreciation | 53,843 | 44,154 | 47,601 | 49,272 | 49,571 | 51,810 | 52,296 | 51,477 |
Mining and Processing Costs | 265,917 | 249,385 | 245,937 | 236,774 | 223,698 | 226,508 | 230,930 | 229,015 |
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19.0ECONOMIC ANALYSIS
RESPEC completed an economic analysis based on the cash flow developed from the production plan and capital and operating costs previously discussed. The average per ton sold revenue estimate used for the life of reserve economic evaluation was $42.68.
19.1KEY PARAMETERS AND ASSUMPTIONS
The economic analysis has been based on production, revenue, capital, and operating costs estimates. The coal operation is not subject to federal and state income taxes as it is held by a partnership for tax purposes and not taxed as a corporation.
Table 19-1 provides an annual cash flow of the life of reserve economic analysis for TRM.
Table 19-1. Pre-tax Cash-Flow Summary
Life of Reserve Estimate 2022-2029 (US$000's) | ||||||||
Category | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
Revenues | 322,630 | 294,111 | 285,499 | 280,276 | 270,365 | 272,844 | 283,360 | 286,466 |
Cash Operating Costs | (202,396) | (196,408) | (189,771) | (179,094) | (165,892) | (161,118) | (161,032) | (160,767) |
Royalties | (9,679) | (8,823) | (8,565) | (8,408) | (8,235) | (13,579) | (17,602) | (16,771) |
Capital Expenditures | (56,274) | (50,346) | (53,776) | (52,404) | (44,499) | (69,350) | (47,543) | (37,377) |
Working Capital Changes | 17,707 | 4,356 | 3,610 | 1,203 | 1,581 | 5,049 | (54) | 1,438 |
Cash Flow | 71,989 | 42,889 | 36,997 | 41,573 | 53,321 | 33,845 | 57,129 | 72,989 |
19.2ECONOMIC VIABILITY
The economic viability of the operation is reliable based on various factors. This is an on-going operation and has already established the economic benefits outweigh the economic costs. The economic analysis utilized the same parameters and assumptions used in past financial models. Therefore, it is reasonable to expect similar benefits and costs. Since this is an on-going operation with no major up front capital expenditures, there is no calculation of NPV, internal rate of return or payback period of capital.
We have tested the economic viability of the life of reserve economic analysis by conducting sensitivity analysis with respect to the revenue and operating and capital cost. In the independent sensitivity analysis, the revenue was reduced by 15% and the operating and capital cost were increase by 20%. This analysis shows the TRM reserves remain economically viable in both scenarios. The summary of the sensitivity analysis is shown in Table 19.2.
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Table 19-2. Sensitivity Analysis
Life of Reserve Estimate 2022-2029 (US$ 000’s) | ||||
Category | Annual Minimum | Annual Maximum | Annual Average | Total |
Revenue Reduced15% - Cash Flow | (7,081) | 30,019 | 2,887 | 66,398 |
Operating & Capital Costs increased 20% - Cash Flow | (14,814) | 30,156 | 1,249 | 28,738 |
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20.0 ADJACENT PROPERTIES
The initial corridor to access the TRM reserves was driven east 15,000 feet between the underground mine works of the Valley Camp Coal mines to the south and Windsor’s Beech Bottom mine to the north. From examining old works, these mines were successful room and pillar mines. The Windsor mine eventually converted to a successful longwall operation. The years of operations and production statistics for these adjacent mines are unavailable.
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21.0 OTHER RELEVANT DATA AND INFORMATION
All data relevant to the supporting studies and estimates of mineral resources and reserves have been included in the sections of this TRS. No additional information or explanation is necessary to make this TRS understandable and not misleading.
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22.0 INTERPRETATION AND CONCLUSIONS
22.1INTERPRETATIONS AND CONCLUSIONS
The QP has reached a conclusion concerning the TRM operation based on data and analysis summarized in this TRS that the operation is viable based on the reserves that remain, the economic benefits for Tunnel Ridge and the market needs of this product. TRM contains an estimated 53.7 million clean tons of reserves.
22.2RISKS AND UNCERTAINTIES
It is the QP’s opinion the mine operating risks are low. This is an on-going operation that has proven to be a viable and profitable business. The analysis of the reserves and resources used the same methodology the operation has used in the past. Given the reliability of past mining plans, it is a reasonable conclusion that future mining plans would continue to be reliable. However, market uncertainty associated with government regulations could result in earlier retirements of coal-fired electric generating units. This could negatively affect the demand and pricing for the Tunnel Ridge product. Please refer to ARLP Item 1A for a complete listing of risk factors that may affect this operation.
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23.0 RECOMMENDATIONS
The recommendations for TRM are as follows:
/ | Continue acquiring mining rights in the extended mine plan to support future production |
/ | Continued permitting efforts for the waste disposal facility |
/ | Continue current exploration plan |
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24.0 REFERENCES
Blake, B.M., JR; Cross, A.T.; Eble, C.F.; Gillespie, W.H.; and Pfefferkorn, H.W. (2002). Selected Plant Megafosils from the Carboniferous of the Appalachian Region, United States; in L.V. Hills, C.M. Henderson and E.W. Bamber eds., Carboniferous and Permian of the World; Canadian Society of Petroleum Geologists, Memoir 19, pp 259-335.
https://www.wvgs.wvnet.edu/www/coal/coal_images/WVGES_CoalStratChartPennsylvanianBeds.pdf
Nalley S., LaRose, A. (2021). Annual Energy Outlook 2021 Press Release, U.S. Energy Information Administration (EIA). Accessed on February 4, 2022. Retrieved from https://www.eia.gov/outlooks/aeo/
U.S. Energy Information Administration (EIA). (2021). Coal Markets. Accessed on February 4, 2022. Retrieved from https://www.eia.gov/coal/markets/
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25.0 RELIANCE ON INFORMATION PROVIDED BY THE REGISTRANT
Table 25-1 summarizes the information provided by the registrant for matters discussed in this report, as permitted under §229.1302(f) of the SEC S-K 1300 Final Rule.
Table 25-1. Summary of Information Provided by Registrant
Category | Report Item/ Portion | Disclose why the Qualified Person considers it reasonable to rely upon the registrant |
Macroeconomic trends | Section 19 | N/A |
Marketing information | Section 16 | The market trends were provided by Tunnel Ridge personnel. The QP’s experience evaluating similar projects leads them to opine that the market trends are representative of the expected trends of an on-going coal mining operation in the United States |
Legal matters | Section 17 | The legal matters involving statutory and regulatory interpretations affecting the mine plan were provided by Tunnel Ridge personnel. The QP’s experience with statutory and regulatory issues leads them to opine the mining plan meets all statutory and regulatory requirements of an on-going coal mining operation in the United States |
Environmental matters | Section 17 | The environmental permits and matters were provided by the Tunnel Ridge permitting group. The QP’s experience with permitting and environmental issues leads them to opine the information provided is representative of what is required of an on-going coal mining operation in the United States |
Local area commitments | Section 17 | N/A |
Governmental factors | N/A | N/A |
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APPENDIX A
MINE MAP
A-1 | | |
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