West Virginia is dangling tax incentives for coal miners in an attempt to revive operations in the heart of Coal Country. At least one miner, Contura Energy Inc., isn’t swayed just yet.
Contura runs 23 surface and underground mines in the state, and incentives signed into law last week haven’t yet persuaded the company to open more, Chief Executive Officer Kevin Crutchfield said. “We’ve got a pretty solid plan for West Virginia as we look ahead with the projects that we’ve already announced,” he said Wednesday in a call with analysts, adding that the company would rather “look at projects on their own merits.”
West Virginia Governor Jim Justice signed bills on March 27 that established a rebate for coal-mining equipment and reduced a key tax on the industry. While Arch Coal Inc. rallied on the move and trade groups praised it, Contura’s response highlights the challenges policy makers face in bolstering an industry that supplies a shrinking market. Demand for the fuel is declining in the U.S., and companies have little interest in expanding — particularly into the business of thermal coal burned at power plants.What Bloomberg Intelligence Says
If someone wanted to open a new thermal coal mine, I think someone would have to check their head.– Andrew Cosgrove, mining analyst
That’s not to say the incentives won’t help anyone: Arch Coal, which said in February that it plans to open a new mine in West Virginia, stands to benefit from the rebate. But Bloomberg Intelligence analyst Andrew Cosgrove called the company a “unique” case as the mine’s being built near an existing one and will tap the same reserves. Its proximity will also allow Arch to use some of the same equipment, cutting costs, he said.
While Contura mines metallurgical coal — a market that’s proven more resilient than thermal — Cosgrove said weakening demand prospects in China may soon drag down prices for even that type. And Contura, as well as other met coal producers, are wary of investing in new operations.
The tax incentives will boost some met coal margins, but “I don’t think it will bring a wave of new supply,” Jeremy Sussman, an analyst with Clarksons Platou Securities, said by email.