Whoa…coal prices have rebounded hugely – but don’t look for a Store Norske reboot anytime soon

coalship

Erase everything that’s happened during the past two years and ponder this: if one or both of Svalbard’s two biggest coal mines were operating full-speed right now they’d nearly be breaking even due to a huge rebound in coal prices.

Alas, that won’t stop the near-total shutdown of mining that has already occurred, with only a few more weeks’ shipping of existing supplies left before it takes full effect. But it is a sign resurrection may be, as a pop-culture movie put it, Mission Extremely Difficult instead of Mission Impossible.

Coal prices have recently rebounded to as high as $62 a ton after sinking to about $40 during a price crash that started during the latter half of 2014. Store Norske Administrative Director Wenche Ravlo, in an e-mail interview, stated coal prices of $65 and $70 a ton are needed for the Lunckefjell mine to break even – but resuming operations is more complex than whether those prices are reached.

“Prices have increased considerably over some months, which is positive and which we take into account in our evaluation,” she wrote. “However, we still need to see a further increase and that the market finds support above our break-even level. A start-up will in addition (as was the case last year) need financing of a considerable amount of working capital.”

“When it comes to start-up costs, this will largely depend on the length of the period before start-up,” she added.

The question may be moot. Ravlo said the company is now expecting prices will average $56 to $57 dollar a ton during 2017.

“We do not make an internal forecast for the coal price, but we rely on external analyses as well as the price action we can directly observe in the markets,” she wrote.

One other factor in the calculations is the dollar-krone exchange rate, Ravlo added. The rate was about five krone to the dollar several years ago, but fell to nine-to-one during the past year due largely to a collapse in oil prices. The current rate is about eight-to-one.

Operations at Lunckefjell and Svea were phased out in the wake of the coal price crisis, with the only remaining activity from either being the shipping out of the last coal stockpiles at Svea before a full suspension takes effect at both sites. Work is continuing at Mine 7, which is expected to produce about 100,000 tons of coal this year, according to NRK. Store Norske is expected to produce a total of one million tons of coal in what may be its final year of full-fledged operations, compared to 1.14 million tons in 2015 and 1.73 million tons in 2014.

Store Norske is also in the final stages of laying off all but 100 of what was a 400-person workforce in 2012.The Norwegian government, which last year approved a 500-million-kroner bailout package to stave off bankruptcy, is also prepared to give the company an additional $749 million kroner through 2019 to maintain the mines at Svea and Lunckefjell so they can be reopened if coal prices recovery sufficiently.

The government also released an updated version of a “white paper” defining policy goals for Svalbard, but many local and business leaders expressed disappointment at the lack of specifics. That especially applies to the future of Store Norske, which the government assumed full ownership of as part of the bailout package (the company was 99 percent government-owned beforehand), according to members of the Longyearbyen Community Council who discussed the situation at a meeting last Tuesday.

But council members, after a debate lasting several hours, didn’t exactly submit a detailed resolution of its own, instead approving a one-sentence statement, according to Svalbardposten.

“The council believes it is important that the sectoral policy objectives and the long-term strategy for Store Norske’s different business be clarified as soon as possible,” the statement asserts.