Centralia Coal Mine ClosesTransAlta Blames Aging Mines, Weather as Centralia Coal Mine Closes
By Judy Monchuk
28 Nov 2006
CALGARY (CP) -- Escalating safety costs at the aging Centralia coal mine was the final economic nail that forced TransAlta Corp. [TSX:TA; NYSE:TAC] to abruptly shut down the colliery and lay off 600 workers, the power giant's CEO said Tuesday.
Weather, aging mines and regulatory delays have conspired to erode the economics at the Washington state mine. But costs associated with recent earthslides forced executives to make the difficult decision, said chief executive officer Steve Snyder.
''With the earth shifting like that, we're concerned about miner safety, and we have to put in extra precautions to ensure the miners are working in safe conditions,'' he said. ''We would definitely do that, but the reality is that those safety conditions do add costs and they were a factor.''
Synder said company officials knew the 30-year-old mine would have to be closed down in the next couple of years but had hoped that could be done in a gradual fashion, not the abrupt shutdown late Monday.
''We saw these issues building,'' said Synder. ''We knew they were putting financial pressures on us. We looked at all the alternatives and have been studying them for months now. And in the last few days, we came to a final reconciliation.''
The mine feeds coal to TransAlta's nearby coal-fired power plant at Centralia. Its shutdown and writedowns at an adjacent gas-fired plant will result in up to C$250 million in special charges, the power producer said late Monday.
Regulatory changes made in 2004 have led to a more complex process and longer timelines for development permits. That has meant TransAlta hasn't been able to quickly expand the mine to new areas.
''As a consequence, we increasingly had to mine in areas with higher overburden and longer haul distances,'' said Snyder. ''Add it up. At the end of the day, we just had to make a decision.''
TransAlta also announced an earlier-than-anticipated switch to coal from the Powder River Basin in Wyoming. A long-term transportation contract to move that coal has been forged with BNSF Railway Co. and coal contracts from Rio Tinto Energy America to TransAlta's coal-fired plant in Centralia.
''Writedowns are clearly not a positive event, however we believe the shift to greater (Power River Basin) coals will enhance future generation margins,'' said analyst Andrew Kuske of UBS Research.
TransAlta expects an after-tax charge of about C$150 million, or 75 cents a share, in the fourth quarter due to asset and inventory writedowns, reclamation liabilities and severance costs related to the shutdown of the U.S. coal mine.
Streamlining at Centralia, where TransAlta operates three power plants, is expected to cut the company's cash flow this year by C$18 million due to severance-related and other payments.
Beginning next year, coal costs at the plant are expected to be in line with 2005 levels and profit margins from the plant are expected to improve and reflect the benefit of lower coal costs and new contracts for power sales.
Centralia includes a coal-fired plant built in 1971 that produces 1,404 megawatts of power a year, a smaller gas-fired plant built in 2002 which has an output of 248 megawatts and a tiny hydroelectric plant built in 1970 which produces one megawatt of power.
Jobs at the coal-fired plant are not affected.
Synder said the shutdown was a tough decision and acknowledged that TransAlta's pledge to help the employees find new jobs or retraining will not make the situation easier.
''Regardless of the support we are providing, this is tough news for our Centralia employees and the surrounding communities and I'd like to apologize to them for what will surely be a trying time,'' he said.
TransAlta is one of Canada's biggest private power producers with 50 coal-fired, natural gas and hydroelectric plants in Canada, the United States, Mexico and Australia. The company produces 8,468 megawatts of power, with another 540 megawatts under development.
The company generated profits of C$198.8 million and revenues of C$2.8 billion last year and employed more than 2,700 people at the end of 2005.
In Tuesday trading on the Toronto Stock Exchange, TransAlta shares rose 90 cents to close at C$25.43, a jump of 3.7% in trading of nearly 1.67 million shares.
© The Canadian Press 2006