LATIN AMERICAN SPECIAL — Mexico makes good use of its coal

Coal has been a basic commodity for the development of industry as we know it today. It has been essential in most European countries for centuries.

More than 3 billion tons of coal are mined annually worldwide; almost I billion tons are mined in the U.S. alone. Today, coal powers more than 60% of the electric energy generated in the U.S. In addition, coal is utilized for steelmaking, non-ferrous smelting and heating.

Mexico has 6 billion tons of total coal resources and produces about 10 million tons per year of coal from the mine (before any processing or washing).

Unfortunately, Mexico is not blessed with abundant or high-quality coal. However, with effort, the companies working in the coal fields of Coahuila have turned an apparently low-quality resource into a productive industry which supplies virtually all of the coking coal for Mexico and practically all of the thermal coal used in the carbo-electric generating plants of northeastern Mexico.

The coal fields fall within an area of about 4,500 sq. miles in the northern portion of the state of Coahuila. The mines are located in the brushlands of the Gulf Coastal Plain, a flat region south of the Rio Grande. The total coal resource in this region is about 4 billion tons, and about 9 million tons are produced per year.

The southern portion of the area produces coking coal, while the northern portion produces thermal coal. Both of these are generally high-ash coals by international standards; ash is commonly greater than 30%. Despite this, both coals suit their purpose. The coking properties are excellent. The main customer is the Altos Hornos de Mexico (Ahmsa) steelworks in Monclova, which produce about 40% of Mexico’s steel. Coal from Coahuila supplies all of the steelworks, all of the non-ferrous smelters and all of the foundry shops of Mexico.

Coal was first mined in the southern part of the district, in the Sabinas Coal Fields, in the 1880s for the railways, and since that time, mining has been carried out within the region on a small-to-medium scale. From around 1955, Ahmsa started acquiring the coking coal properties. By 1970, many of the major mines had been united in the Minerals Monclova (Mimosa) coal company.

There are about 20 known coal beds in Coahuila, but only two or three are economically minable. These are located at the base of the Olmos Formation near the sandstones of the underlying San Miguel Formation. (The geological equivalent to this latter formation is being explored in neighboring Texas for the potential of “tar sands.”)

At the Mimosa fields, coal is mined in three underground mines operating with longwalls (a system in which the entire vein is removed and nothing is left to support the “roof” except the shaft pillars). The longwalls are quite typical by international standards, about 650 ft. wide at the face by about 3,200 ft. Mining is carried out with standard longwall equipment. The mines follow fairly flat-lying coal beds to a maximum depth of less than 1,000 ft. without major complications except for a few areas of frequent faulting. Displacements are commonly about 5 ft. with occasional displacement of up to 50 ft. Some sections of the mines have high gas concentrations which are pre-drained by longhole drilling and carefully monitored to maintain safe levels.

The mines produce about 4 million tons of coal which are washed to produce about 1.7 million tons of coking coal — a recovery of about 43%. The coking ovens in Monclava are about 124 miles to the south.

Coal has been mined on a small scale in the Piedras Negras region since the late l9th century. In 1964, the Federal Electricity Commission (CFE) finished a long-term evaluation of the coal resources of this region and installed a small coal-fueled 37.5 megawatts (MW) generating plant in order to test the potential of this power source for northeastern Mexico.

This plant operated successfully for 13 years, and in 1977 the CFE decided to undertake full-scale development of the coal fields and construct a large generating plant, named Rio Escondido, of 1,200 MW. The generator has four units of 300 MW to serve the region, which is projected to increase its power demand significantly in the future.

Because coal mining is not a proper legal function of the CFE, a parastatal company, Minera Carbonifera Rio Escondido, S.A. (Micare), was formed to mine and supply thermal coal to CFE’s Rio Escondido and Carbon II plants. Micare had the sole responsibility to mine coal in the quantities and qualities required for the generating plants. The company operated until 1992 under the direction of CFE; it was then privatized and now forms part of the GAN Group.

When completed in 1996, the two generating plants will have a combined generating capacity of 2,600 MW, or 5-7% of Mexico’s total capacity. The estimated cost of generated power at these plants will be substantially lower than the Federal Electricity Commission’s (CFE) average in the rest of the country’s power grid. It is probable, therefore, that these plants will operate with high average generating capacities; they will be an essential power supply for Mexico’s industrial northeast.

Micare produces about 4 million tons of coal annually, which is washed for the electric plants. Demand will rise to 10-11 million tons per year once Carbon II comes fully on line by 1996.

The supply of coal from Micare is complemented with minor amounts from the Sabinas Coal region to the south and with some imported coal from the U.S. Micare operates five mines: two open pits and three underground tunnels. Open Pit One is mined with conventional truck and shovel; Open Pit Two is mined with a 57-cubic-metre bucket.

Since coal in the northeastern region of Mexico is of comparatively low quality by international standards, it is very freight sensitive and necessarily dependent on the development of nearby markets for economic utilization. These markets — steelmaking and energy generation — provide an assured long-term value for the coal.

Obviously, market and supply are highly interdependent. The economic value of the resource depends on efficient, long-term mining operations; there is little room for inefficiency or cost fluctuation in a low unit price resource. Luckily, the established markets are not vulnerable to outside competition, because of transport costs and customers’ standardization of a particular composition/quality of coal. Quality is critical and must be maintained constantly. The price of Coahuila coal depends more on product consistency and the dependability of supply than on world coal prices. Therefore, there tends to be significantly greater price stability than is normally the case for metals.

Since unit profit margins are low, operations depend on high volume for a reasonable profit.

With dedicated effort by miners and industry, the low-quality coal resource of Coahuila has become a major business for mining companies and a major economic factor for the industrial development of the region. — Excerpted from a speech by Jorge Ordonez, president of Ordonez Profesional, S.C., and Luis Chavez Martinez, director of promotion and technical assistance at Fideicomiso de Fomento Minero, delivered at a recent conference in Acapulco. The article appeared in a recent issue of the magazine “Business Mexico.”