December 27, 2000 Mining for Success

Volume 3 | Issue 9

David Gill looks at The American Coal Company, the most recent acquisition, and how it was retooled to set new Illinois production records.

Beginning in 1988, Bob Murray began to pursue a vision that would lead him to form a network of coal mines throughout the nation. Murray had left his job as president and chief executive officer of North American Coal Corporation in October 1987. That following year, he began acquiring the coal mines that would lead him, today, to a group of mines that has a yearly capacity of 18 million to 20 million tons of coal production a year.

The most recent affiliate to join this network came on board through Murray’s acquisition of the Galatia mine in Harrisburg, Ill., from Kerr-McGee in 1998. Murray formed The American Coal Company to complete this acquisition. What he purchased was a mine with a relatively low 50 million to 60 million tons of coal reserves. In a short time, the company has boosted this mine’s reserve base to its current level of 125 million tons of reserves spread over 16,900 acres. The company also doubled its raw coal storage capacity from 200,000 tons to its current level of 400,000 tons. According to Don Gentry, president of American Coal, this mine is the largest coal mine of any type in Illinois, and one of the largest underground coal mines in the entire United States.

Two years later, that Galatia mine has become large in another sense. The mine has become one of the most prominent success stores in Murray’s coal mine network. Says Gentry, “We have set records in production on a regular basis. That mine, when we bought it, produced 5.5 million tons a year. We’ll do about 7.3 million to 7.4 million tons this year.”

Gentry explains, “We’ve been successful in increasing production over what the previous owner was able to produce through very extensive capital-improvement programs. These have improved production all the way from where the coal is extracted through the surface and through our preparation plant. We’ve debottlenecked our infrastructure throughout.”

Drive to the Top

But if anyone knows Murray, such an accomplishment should be no surprise. As detailed in a recent story profiling Murray in Coal Age magazine, this is a man who is driven – and who expects those around him to be driven as well. Murray, according to the Coal Age story, regularly works 18-hour days, sleeps in one of his three offices or in one of the company’s guest houses, and often lists his mailing address as the tail number on his turboprop airplane.

The American Coal Company is headquartered in Lexington, Ky. Taken together, Murray’s enterprises number an estimated 2,000 employees. It’s those employees Murray cites when asked why he revs himself personally beyond the speed limit: “They are depending on me and the success of these companies for their jobs, for the security of their families. It’s called ‘loyalty of the company to the employee.’”

Murray also stresses that American Coal doesn’t lose people to other companies. The employees “know our relationship is for a lifetime,” he says. “When I hire people, I take responsibility for them and their families very seriously – not in a paternalistic way, but in a personal way. The people know, when the chips are down, I’ll be there for them.”

Upgrading for Production

It was this attitude that played a major role in driving The American Coal Company’s Galatia mine employees to break the mine’s record for production. As Gentry states, the company also invested what was needed to upgrade the operation. The company increased the capacity of all the underground belts, along with each of the dual slope belts, from 1,350 tons per hour to 2,200 tons per hour by raising the system’s horsepower, changing the speed reducers and pulley dimensions, and increasing the counter weights.

At the preparation plant, American Coal undertook a major expansion and equipment upgrade. The company added a second complete coarse coal circuit and increased capacity from 1,500 tons per hour to 2,150 tons per hour. As Gentry relates in the Coal Age story, the mine is now recovering more fines on the same raw material now than before the acquisition. It now operates three production shifts a day, seven days a week, and conducts maintenance during idle shifts, during belt moves and during long-wall moves.

As with his other coal-mine acquisitions, Murray has succeeded in keeping the Galatia mine’s costs in control while investing the capital needed to upgrade the total facility. He does this by buying used equipment. For example, American Coal spent $300,000 to buy 140 shields for the Galatia mine, then spent another $2.8 million to rebuild the shields. As the company notes, these revived shields might last 40 percent to 45 percent as long as brand-new shields, but cost just 20 percent of the estimated $15 million a mine might have to pay for brand-new shields.

Powerful Future

American Coal’s customer base is largely in the electric utilities industry, and includes companies such as Gulf Power, Mississippi Power, Tampa Electric, Alabama Power, Ameren and the Tennessee Valley Authority. As Gentry explains, this customer base provides a strong basis for growth down the road.

“A lot of things are happening in the electric utility industry, including deregulation and the requirement for greater emissions control,” he says. “There’s been a constant new flow of regulations, which can drastically change the playing field among the coal mines that supply the utilities. Where we have an advantage is that our coal is, by regional standards, relatively low in sulfur compared with other coals in this region. This makes the emissions on our coal more in line with the new regulations, and in turn this gives us a significant advantage in marketing our products. The Illinois basin traditionally produces high-sulfur coal, which has reduced production in this region and shifted coal to low-sulfur areas like Wyoming, and this remains probably our biggest competitive threat.”

But, true to Murray’s always-upbeat approach, American Coal doesn’t view the future in terms of threats; the future is all opportunities to the determinedly hard-driving chief executive. American Coal is far from done in acquiring other mines to add to its network, and its strategy is to look for mines with high-quality coal, high mineability and highly competitive in costs, strategically located, integrated in all operations and that will come to the company for a fair price. And judging from his track record to date, Murray will get what he wants.

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