Warrior Met Coal, Inc (Warrior) is commencing development of its Blue Creek reserves in Alabama during Q1 2020.
The project, located near Warrior’s existing mines, is one of the last remaining large-scale untapped premium High Vol A metallurgical coal mines in the US. The Blue Creek development will be a single longwall mine with an expected annual capacity of 4.3mn nt over the first 10 years of production with a 50-year life expectancy. Based on the current schedule, Warrior expects continuous mining by Q3 2023 with the longwall scheduled to start up in Q2 2025.
The projected value of the project is greater than $1bn over the life of the mine, based on current market price of around $150/mt, with a projected internal rate of return of nearly 30pc and an expected payback period on initial investment of approximately two years. Warrior expects to invest $550-600mn over the next five years to develop the mine with expected spending of $25mn in 2020 to begin the project.
The declining supply of premium High Vol A coal has meant that where High Vol A was traditionally priced at a discount to the Australian Premium and US Low Vol met coals, it is now priced at or slightly above these coal grades. Warrior expects High Vol A coals to continue trending above these other coal grades to support the margin. Additionally, production cost per ton is expected to be 25-30pc lower than Warrior’s existing mines.
Once fully developed, Blue Creek will increase Warrior’s annual production capacity by about 54pc with its three premium hard coking coals. Warrior controls approximately 114mn nt of recoverable reserves at Blue Creek and can acquire adjacent reserves that would increase total recoverable reserves at the mine to over 170mn nt.
Warrior produced 8.5mnnt of metallurgical coal in 2019, a 9.5pc increase over 2018, which exceeded its early guidance. Sales volumes for 2019 also reached 8mn nt, up 4.5pc from 2018. Inventory stood at 0.749mn nt (9pc of sales) at the end of December 31, 2019.
In 2019, Warrior reported net income of $301.7mn and adjusted net income of $284.0mn, down 56.7pc and 38pc, respectively, compared to net income of $696.8mn and adjusted net income of $459mn.