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Setting a deadline for coal mining

"We're above the bugdet, mine manager of Gruve 7, Ronny André Olsen (left) says. FOTO: Eirik Palm

Setting a deadline for coal mining

Employees at Store Norske are working hard to improve profitability. But unless coal prices improve, it is highly uncertain whether the Lunckefjell mine will ever become operational.



29.05.2015 kl 11:23

"We don’t grow when things are easy. We grow when we face challenges" is the message written (in English) on a blackboard in the mess hall in the Mine 7 support building. Production at the mine, which supplies coal to Clariant in Germany, increased eight percent during the the first quarter of 2015 compared to a year ago.

"It's just about what form of production we have," said Ronny André Olsen, the mine's manager. "In the first quarter we have gone through a splitting, but beyond that is we are very well positioned. We're ahead of budget."

In March, the first load of coal was shipped to the continent. The coal is used for chemical production and in early June a new shipment of 12,000 tons is scheduled from the coal pier in Longyearbyen.

"The atmosphere is good, but it is clear that people are thinking about the situation," Olsen said.

Their workplace is constantly out in the storm these days. Store Norske's board of directors met Tuesday afternoon to review the company's performance during the first quarter. The result was a before-tax loss of 183.3 million kroner. The company, in its quarterly report, cites low mining production and continuing low coal prices for the weak result. Available liquidity has been reduced to 175 million kroner compared to 269 million kroner a year ago.

Not satisfied with the total
At the same time, drastic measures are underway that started last November when the full extent of the financial crisis threatening the company's future became known. Overall costs for wages, production at Svea, geological surveys and "other operations" decreased 42.8 million kroner during the first quarter compared with last year.

Costs at Mine 7 increased slightly, but production there also rose by 1,000 tons compared with the first three months of last year.

"This is in accordance with how we have budgeted in 2015," said Wenche Ravlo, the company's administrative director. "It has been so far a little better."

She declined to discuss details but confirmed, among other things, the results from Mine 7 are positive.

But the same doesn't apply to the overall bottom line.

"I am far from happy with everything," she said. "We are still in an extremely serious situation and that is what we're dealing with."

After this it will require such a large inflow of additional liquidity that it will be difficult to implement, and coal activity will therefore cease during 2016

Deadline: Spring of 2016
Store Norske has put many operations on the back burner, including halting its entry into the Lunkefjell mine that opened last year, and the company only extractions besides Mine 7 are from the fringe areas of Svea Nord that are the easiest and cheapest to produce. A total of 152,000 tons was produced at the mine during the first quarter, compared to 285,000 tons last year. On the plus side, only 47,000 tons of stones were removed compared to 177,000 tons the year before. As a result, the cost for "cleaning" the coal was considerably lower.

But the commercial coal deposits at Svea Nord will be quickly depleted and a new entry will be required if coal mining in Svalbard is going to continue. The anticipation is most of the planned cost reductions will be implemented and coal prices will improve. Otherwise there is a significant danger that Lunckefjell mine, created at a cost of 1.2 billion kroner, may be left standing.

Store Norske is giving themselves a deadline of spring 2016 to get started.
"After this it will require such a large inflow of additional liquidity that it will be difficult to implement, and coal activity will therefore cease during 2016," Store Norske's quarterly report states.

It is also clear any entry will require Store Norwegian to borrow money from the bank to finance the work.

"Should additional entry occur, it will require extra financing," Ravlo said. "And then there must be a business case which which indicates that you can at least to break even and that the bank gets their money back."

If the price for a long time will remain at current levels, it may nevertheless be difficult to justify continued operation after 2016

Only Mine 7?
The company's quarterly report also notes there is a "significant risk" of further negative developments in the coal market.

"If the price for a long time will remain at current levels, it may nevertheless be difficult to justify continued operation after 2016," it states.

The changes are therefore high Mine 7 will be be the only Norwegian coal mine operating in Svalbard two years from now. Future coal prices are currently projected at about $60 a ton, $15 below what Store Norske is basing sustainable operations on.

Ravlo emphasized the forward curve – future prices – can swing and surprise. Therefore, it is currently impossible to say what developments will occur. She also noted there is considerable commitment within the company. On Wednesday, she had the last in a series of meetings with employees.

"I think people are positive and will help contribute," she said. "There is little complaining, and they are set to be involved, there is no doubt about that. And so the mood is a little cautious about what happens next."

Workers have started the process of excavating a new part of Mine 7 inside Breinosa. Operations in the section ceased for many years, but in early May production resumed there.

"The coal seam and everything looks good so far. So we can only cross our fingers and hope it's as good inward," Olsen said, adding some extra optimism about the miners:
"These are brilliant people."

Translated by Mark Sabbatini

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