Self-Bonding for Mines: The Coal is the Ultimate Collateral

Jude Clemente – March 27, 2016

For well over a century, coal has been America’s most reliable and affordable source of electricity. Nevertheless, despite decade after decade of contributions to our quality of life, forces are gathering to knock coal out of the U.S. generation mix and thereby increase electric rates and decrease reliability.

Coal mining companies in the Western U.S. have had an excellent track record of land restoration utilizing a mix of financial assurances including self-bonding, commercial surety bonds, bank guarantees and letters of credit. One of the most recent lines of assault is an effort to eliminate the self-bonding traditionally available to coal producers. In self-bonding, the company provides its own guarantees it can cover the costs to reclaim mining operations.

One contentious point in the debate is whether coal companies have the collateral to self-bond. Given the fact that America has 27% of the world’s proven coal reserves, and the federal government owns over 40% of those, there is little doubt that the inherent value of domestic coal overwhelms any questions relating to self-bonding.

The value of our proven coal reserves and potential coal resource is immense, and thus the government has the most solid form of collateral.

At 265 billion tons, the U.S. has the largest proven coal reserves in the world, 27% of the global total, double 2nd place China. Further, proven coal reserves are just snapshots in time showing how much of the huge coal resource is technologically/economically available under current market conditions. Constant technological advances elevate our “resource” into an ever-growing subset of “reserves.”

For example, according to the U.S. Geological Survey, the U.S. Wyoming’s and Montana’s Powder River Basin (PRB) alone, where over 40% of U.S. coal production occurs, has a remaining resource of about 1,150 trillion short tons – enough to meet current global demand for 140 years.

Just consider Saudi Aramco, the world’s largest oil producer whose proven reserves alone are valued at $10 trillion when oil is even priced at a low $40 per barrel. The U.S. coal industry has 3.4 times more energy in proven coal reserves than Saudi Aramco has in proven oil. Thus, U.S. proven coal alone could be worth at least $34 trillion, or double the entire U.S. GDP.

Moreover, our massive coal endowment provides us with our greatest “energy security blanket” whose true value for health and wealth simply cannot be measured –collateral for the entire nation that doesn’t appear on any balance sheet. Yet,one analysis from the University of Wyoming finds that “by using PRB coal, the U.S. economy avoids $280 billion per year in higher energy costs.” Over 30 states receive coal from Wyoming mines to generate electricity.

For health, research at Johns Hopkins University concludes that coal and the affordable energy that it yields actually prevents nearly 200,000 premature American deaths per year by giving us more disposable income, the real basis of our health (here). For wealth, this increase in disposable income from using coal is invaluable: consumer spending accounts for nearly 75% of U.S. GDP. Thus, the coal industry’s reported contribution of nearly $70 billion to national GDP is greatly understated.

U.S. Coal Reserves: The Ultimate Form of Collateral

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