Royalty reduced to protect coal mining

Arch Coal will temporarily pay below-normal federal royalty rate reductions for some of its West Elk Mine operations near Somerset because of adverse geological conditions the company says had made certain mining less economical.

The Bureau of Land Management approved the request in September.

Gov. John Hickenlooper wrote the BLM a letter expressing the state’s support for the reduction. The support comes despite a roughly $3 million projected annual drop in royalty payments that are split 52/48 percent between the federal government and Colorado, respectively.

Mike King, the state’s Department of Natural Resources executive director, said Hickenlooper wants to keep North Fork Valley coal mines vibrant as employers.

“The governor wants to do everything he can to keep coal coming from those mines,” he said.

The five-year reduction from the standard 8 percent underground mine rate to 5 percent applies to about 6,353 acres under two leases, and an estimated 31 million metric tons of produced coal. A metric ton is about 2,200 pounds.

Hickenlooper also sent letters of support in August for similar temporary reductions for the Colowyo Mine near Meeker and the McClane Canyon Mine north of Fruita.

In his letters, he estimates the reduction in annual revenue would amount to $1.63 million and $169,500, respectively, for the state, but he also notes that failure to produce the coal also would result in lost tax revenue and affect local employment.

The basis for, and status of, the Colowyo and McClane Canyon requests was not available from the BLM ON Friday.

The BLM considers such requests for a number of reasons, agency spokeswoman Vanessa Lacayo said.

Arch Coal, whose subsidiary Mountain Coal Co. runs the West Elk Mine, cited poor mining conditions and high ash content.

Gunnison County, where the mine is located, also supported the request.

County Manager Matthew Birnie said the mine is the county’s biggest single taxpayer. The reduction doesn’t affect its property taxes, but would indirectly affect its federal mineral lease and severance tax payments, he said.

“For us basically the calculus was a lower percentage of something is better than a larger percentage of nothing” if the mine otherwise doesn’t operate in the difficult area, he said.

He said protecting jobs also is important, even though most of the mine’s employees don’t live in the county.

Arch Coal spokeswoman Kim Link said the reduction will help the company deal with challenging conditions and achieve greater resource recovery. She said even with the reduction, the mine expects to pay about $25 million in Colorado-originating, federal and state royalties and taxes next year.

Jeremy Nichols, with the conservation group WildEarth Guardians, said this isn’t the first such request by the mine, and the process isn’t entirely transparent, which leaves him suspicious about the reductions.

“It seems like this is more about giving Arch Coal a break and not considering whether it’s in the public interest,” he said.

In 2005, the company got a reduction because of the exceptionally high amount of methane it was having to vent from the mine.

Nichols said that was “utterly bizarre — you don’t have to pay us as much money in order to waste more gas.”

Nichols’ group has been pushing to have mines capture and make use of such gas, or at least flare it to reduce its impact as a greenhouse gas.

He said he understands the idea of trying to make sure a mine keeps operating and the government continues to get some revenue, but at some point it simply may not be economical to continue mining.

“It’s where do you draw the line?” he said.


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