The value of Illinois deposits quintupled during the next five
years, helping Cline raise $1.2 billion to build the mines that
he's now parlaying into a fortune.
'Going All In'
"I never had a problem going 'all in' in a card game,"
says Cline, 52, who is tieless in a blue shirt and chinos as he
recalls his gamble on this June morning at his Pond Creek mine
outside Marion, Illinois, 320 miles (515 kilometers) southwest
of Chicago .
+------------------------------------------------------------------------------+
Cline Talking Clean as Coal Mines Supply Most Energy Since 1970
2010-10-12 04:01:00.6 GMT
By John Lippert and Mario Parker
Oct. 12 (Bloomberg) -- With maps of 675 square miles of his
Illinois mines before him, Chris Cline recalls the moment he
knew the coal in those mines would be worth billions of dollars.
It was 2002, and he and a competitor were on the phone
lamenting how hard it was to find big deposits in central
Appalachia, the stretch of rolling hills that extends from West
Virginia to eastern Tennessee.
Cline, a miner's grandson, knew where to look instead,
Bloomberg Markets magazine reports in its November issue. The
next day, he decided to spend $300 million for mining rights,
land and equipment in Illinois, betting on coal his rivals were
abandoning. Cheap, plentiful and energy-rich, Illinois coal had
a major drawback: It contained too much acid-rain-producing
sulfur to be burned in most power plants.
Cline foresaw that the dwindling Appalachian supply,
coupled with what he expected would be rules to force all power
plants to add scrubbers to remove pollutants, would make
Illinois coal attractive. If plants had to clean the coal
anyway, Cline reasoned, why not use inexpensive Illinois stock?
He was right. Three years later, the U.S. Environmental
Protection Agency required power plants to add scrubbers to cut
emissions, reviving the stagnant market for high-sulfur coal.
The value of Illinois deposits quintupled during the next five
years, helping Cline raise $1.2 billion to build the mines that
he's now parlaying into a fortune.
'Going All In'
"I never had a problem going 'all in' in a card game,"
says Cline, 52, who is tieless in a blue shirt and chinos as he
recalls his gamble on this June morning at his Pond Creek mine
outside Marion, Illinois, 320 miles (515 kilometers) southwest
of Chicago.
If you've never heard of Cline, it may be because he's
making his fortune far from Wall Street on the Illinois prairies
-- by digging up a rock humans have used for fuel since the
Bronze Age.
Cline doesn't hang out in Hollywood or Silicon Valley or
hobnob with fellow billionaires. He's the principal owner of a
private company, Foresight Energy LLC, and until now has never
spoken to the media. Cline maintains his roots in West Virginia.
He spends two months a year off the beaten track in Beckley, a
town of 16,832 near where his grandfather mined coal with a
pickax a century ago.
Chances are good that if you live in the eastern third of
the U.S. -- or even in parts of Europe -- your home is lit by
electricity from his coal. Cline ships 11 million tons a year
and may reach 80 million tons by 2018, giving him 7 percent of
projected U.S. output.
'Good Lives'
Cline says he abandoned his policy of avoiding reporters --
and his long-held belief that there's no such thing as good
publicity in the coal business -- because he wants to improve
coal's public image on all fronts.
"We in the industry probably do the worst job in the world
getting out the story of the good lives we're helping people
live," Cline says. "Changing that is certainly a big interest
of mine."
At Pond Creek, Cline, who is 6 feet (1.83 meters) tall and
has the rugged looks of actor Harrison Ford, turns effusive as
he dons blue coveralls and a white hard hat. He ushers his
visitors into a pickup that heads down a paved slope toward the
coal.
This is ideal territory for longwall mining, so called
because it uses a machine with a 5.5-foot shearer to cut slices
3.5 feet thick from a coal seam that's 1,400 feet wide -- a long
wall of coal. Each day, Cline's longwall machine extracts 35,000
tons, enough to power 2,800 U.S. homes for a year.
Coins Jingling
It's dangerous work that can rile up landowners when it
causes property on the surface to drop by 6 feet. But compared
with Appalachia, with its 4-foot-thick coal seams and mines
filled with water and mud, it's more like coal farming, Cline
says.
Five hundred feet underground, the pickup emerges into a
labyrinth of corridors alongside a conveyor that hauls coal to
the surface. Cline beams as fist-sized chunks rattle past.
"I like that," he says. "It's like the sound of coins
when they're jingling."
In an age obsessed with global warming and green energy,
coal -- a combustible rock that has generated heat for humanity
for 5,000 years and still conjures up images of black lung
disease and the sooty England of novelist Charles Dickens -- is
staging a defiant comeback.
Climate Change
Condemned by environmentalists who say that digging it mars
the land and that cleaning it is impossible, and blasted by the
World Health Organization for contributing to premature deaths,
coal supplied 29.4 percent of the planet's manmade energy last
year -- the highest level since 1970.
Coal is responsible for a third of U.S. emissions of carbon
dioxide, the main greenhouse gas producing climate change, the
Government Accountability Office found in June.
CO2 in the atmosphere rose in July from a year earlier to
390.09 parts per million from 387.84. The International Energy
Agency, which advises 28 governments including the U.S.,
advocates a limit of 450 parts per million to avoid social
disruption.
"Coal is one of the most damaging materials in the
environment, but it's not going away,' says John Thompson, an
analyst at Boston-based Clean Air Task Force. "By 2015, China
will have three times more coal-fired plants than the U.S.
They'll produce CO2 that will stay in the atmosphere thousands
of years."
Growth Industry
China opens a coal-fired plant each week; last year, seven
workers died every day on average in Chinese mines trying to
supply those plants, according to the nation's environmental
ministry.
Global coal consumption may soar 58 percent from 2010
through 2035, the U.S. Energy Department says, making it a
growth industry for the 21st century. Eighty-five percent of the
increase will come in China and India, the DOE says.
Cline says he has read everything he can find on global
warming and describes it as a real but exaggerated threat. He
says he supports technologies that make the burning of coal
cleaner and is doing his part by supplying coal to an American
Electric Power Co. power plant in New Haven, West Virginia. New
Haven is the world's first coal-fired plant to both capture
carbon and then bury it thousands of feet deep in a process
called sequestration.
Cline says he's trying to make mining itself safer by using
fewer workers and giving them incentives to be productive.
'Inconvenient Truth'
Politicians who want to penalize coal have their priorities
wrong, Cline says. He says humankind will benefit more from
cheap and abundant energy than from overreacting to what he
calls minimal increases so far in atmospheric CO2 and the level
of the world's oceans.
Cline says he was so annoyed when his children's teachers
in Palm Beach, Florida, aired Al Gore's film "An Inconvenient
Truth" that he asked them to distribute literature that showed
that climate change may be caused by clusters of sunspots or the
Earth wobbling on its axis, not just carbon. When they refused,
he complained to school fundraisers.
"As far as the social acceptability of coal, I like to
think I'm part of supplying the cheapest energy in America," he
says.
Buffett's Coal Bet
Investors are applauding coal's comeback. After tumbling 84
percent in five months from June to November 2008 as the
financial crisis gutted growth, the Stowe Global Coal Index
rebounded. The index rose 295 percent from its low on Nov. 20,
2008, through Oct. 11 of this year -- more than five times the
rise of the Standard & Poor's 500 Index in that period.
Shares of Peabody Energy Corp., the largest U.S. coal
producer, climbed 217 percent to $51.53. Brisbane, Australia-
based Macarthur Coal Ltd., the biggest producer of coal used in
steelmaking, quadrupled to A$12.90. Joy Global Inc., which makes
mining equipment in Milwaukee, rose 381 percent to $73.12.
Even Warren Buffett's $27 billion purchase of the
Burlington Northern Santa Fe LLC railroad in February was partly
a bet on coal. Buffett, chief executive officer of Berkshire
Hathaway Inc., uses his company's newly acquired railroad to
ship coal from Wyoming to dozens of U.S. states.
Cline is buying locomotives, building a port on the Ohio
River and designing his own oceangoing ships to serve his coal
empire. He already exports 40 percent of his haul, mainly to
Europe. As China and India gobble up half of world production,
he's in talks to ship to them, too.
Mine Games
Cline says mining rights to his 4 billion tons of Illinois
coal are worth at least $3 billion. Dennis Kostic, president of
Weir International Inc., a Downers Grove, Illinois-based
consulting firm, puts the value at $4 billion -- a level of
affluence Cline's grandfather couldn't have imagined.
Raised in a West Virginia hamlet with 200 residents, Cline
today owns a 164-foot yacht called Mine Games that features five
staterooms and a two-person submarine. He docks it in Palm
Beach, 9 miles from his 34,400-square-foot (3,200-square-meter)
oceanfront mansion in a neighborhood he shares with golfer Jack
Nicklaus. He commutes to his mines in a Gulfstream G550 jet and
cruises Illinois in an Italian-made AgustaWestland helicopter
with his Australian shepherd, Niki.
In Beckley, his 150-acre (60-hectare) estate has a lake, a
go-kart track and pastures filled with horses, goats and llamas.
Cline, a divorced father of four who says he dates occasionally,
calls it a playground for his two sons and two daughters.
"'I just haven't had time to look for a wife," he says.
Getting Richer
Cline could become even richer if Foresight goes public. He
says an initial public offering would be worth $3 billion if it
occurs next year, as it may. The value would rise to twice that
by 2013, he says. He declines to specify his stake, saying only
that he's the majority owner of the Palm Beach Gardens, Florida-
based company.
"Chris knows how to mine coal," says Nick Carter,
president of Natural Resource Partners LP, a Houston-based owner
of coal reserves, who has provided Cline with $315 million in
financing since 2005 and has promised $205 million more. "I
want him gambling with my money."
Cline says he aspires to run the safest, most efficient and
most environmentally friendly U.S. coal company. If he achieves
those goals, he says, profits will follow.
At Pond Creek, with its conveyor brimming with coal, Cline
says he's making an operating profit of $28 per ton this year.
Peabody averages $5.99 per ton, says Seth Schwartz, president of
Arlington, Virginia-based consulting firm Energy Ventures
Analysis Inc.
Backbone of Power
Cline is exploiting coal's big advantage: It's a bargain
compared with most forms of green energy.
"Coal is the backbone of reliable, low-cost power," says
Bartow Jones, managing director of Riverstone Holdings LLC, a
New York-based Carlyle Group affiliate that invested $600
million in Cline's operations in 2007.
Power-plant coal such as Cline's sold for $47.25 a ton on
Oct. 11, about two-thirds cheaper than wind power and three-
quarters the cost of solar, according to Bloomberg New Energy
Finance. In the second quarter, the cost of electricity per
megawatt hour from coal was $59.51, including capital and
operating expenses, compared with power from offshore wind at
$176.37 and electricity from thin-film photovoltaic cells at
$240.55.
At a cost of $19 a ton to mine coal last year at Pond
Creek, Cline spends even less than competitors. Coal from
central Appalachia averages $57 a ton to mine, Schwartz says.
'That Bothers Me'
Because coal is an inexpensive engine to fuel the world's
development, Cline says, regulators must be careful not to
cripple growth.
The U.N. Intergovernmental Panel on Climate Change won a
Nobel Peace Prize along with Gore in 2007 for a plan to limit
fossil fuels through higher taxes, among other things. Cline
says such measures are misguided.
"If we're going to put a tax on carbon, with the money
going to the thousands of people dying every day from not having
clean water, or from malaria, then anybody who refused that
would be immoral," Cline says. "But to do it because somebody
wants a windmill turning instead of fossil fuels, with the money
going to a non-useful entity, that bothers me."
World governments provide subsidies for fossil fuels worth
$557 billion a year, including $40 billion for coal, the IEA
says. This compares with $46 billion for renewables and
biofuels.
Cline says he doesn't get subsidies and would like to see
them end. He cites Christopher Monckton, who served as a policy
adviser to former U.K. Prime Minister Margaret Thatcher, as the
most knowledgeable expert he has found on global warming.
'Moral Imperative'
Monckton says inexpensive electricity is the best tool for
reducing birth rates, since people have fewer children when
incomes rise and education improves.
"There is a moral imperative to burn as much coal as
necessary to lift the world's poor out of poverty," says
Monckton, now joint deputy leader of the U.K. Independence
Party, which wants the U.K. to leave the European Union. "If
you don't, the population is going to explode."
James Hansen, director of the Goddard Institute for Space
Studies in New York, says Monckton's argument is fallacious
because coal boosts death rates, too. "This is the stupidest
statement I have ever seen," Hansen says.
Coal and wood burning contribute to 656,000 premature
deaths a year in China, the World Health Organization says.
"Scrubbing sulfur from power-plant emissions just means
pollution is deposited in landfills," says Joe Lovett, founder
of the Appalachian Center for the Economy and the Environment in
Lewisburg, West Virginia.
'Bull in China Shop'
Miners still bear coal's most immediate and deadly risks.
Methane and coal dust may have sparked the blast that killed 29
workers at Massey Energy Co.'s Upper Big Branch mine in
Montcoal, West Virginia, on April 5 -- the worst U.S. mining
accident in 40 years. Massey CEO Don Blankenship, who unlike
Cline has had no qualms about grabbing the spotlight, said in
July that excessive regulations can imperil miners.
Cline describes Blankenship as one of the coal industry's
most talented leaders.
"Don thinks his convictions are morally correct and
follows them," Cline says. "In some ways, people should admire
it. They should also think, 'Maybe there's a way to not be a
bull in a china shop.'"
On a July day, while flying in his helicopter, Cline points
to West Virginia mountaintops that Arch Coal Inc., Massey and
others have sliced off to remove coal. He says he's amazed that
gutting mountains can be profitable.
"We have less environmental impact," he says of his
underground Illinois mines.
Ghostly World
At Pond Creek, Cline's first Illinois mine, work started
with an opening called the slope that's 25 feet wide, 10 feet
tall and burrows diagonally 3,300 feet to the coal. Cline opened
miles of underground roads, placing steel girders every 4 feet
and cable mesh overhead. He coated the walls with pulverized
limestone to suppress dust, producing a ghostly world of silent,
white passageways.
Every few feet, a rope dangles to guide miners in case of
an accident. Oxygen kits and emergency bunkers are available
every few hundred yards.
Five hundred feet below ground, Cline's longwall machine
comes whirring into view, with its spike-studded shearer
spinning like a giant's delicatessen meat slicer. As the machine
advances, 10-foot-tall roof supports jog forward on hydraulic
lifts. Three workers in T-shirts and coveralls wear earplugs and
shout over the noise.
'Mention Jobs'
None has a respirator; they rely instead on monitors that
read dust and methane levels. They'll slice forward 900 feet
this day and will need another 25 years to exhaust this one
mine.
A longwall operation can leave its mark on the farmland
above. As the roof supports move forward, earth behind them
collapses. This can cause land overhead to drop 6 feet, leaving
cornfields and backyards like sunken bathtubs.
Larry Schraut says such subsidence will damage corn he's
been farming near a proposed longwall mine for 40 years. He's
challenging Cline's permits but isn't optimistic.
"All you have to do is mention jobs," Schraut, 63, says.
"You don't have to say anything else."
So far, Cline is keeping neighbors happy by meeting with
them and offering compensation, Marion Mayor Robert Butler says.
"I have not heard a peep in terms of subsidence," he
says. Cline says if there's a house or farm nearby affected by
his mining, he's required by law to buy or fix it.
'Don't Go Underground'
Cline says his mines are safer than those of rivals because
he uses fewer people. Cline's workers, who don't belong to a
union, can make $80,000 a year by meeting safety and output
targets.
Pond Creek's underground workers delivered 17.3 tons per
man-hour last year, five times more than the 3.41 tons for
Murray Energy Corp.'s New Era mine 17 miles away, according to
the Mine Safety and Health Administration. Pond Creek lost 1.8
days to nonfatal injuries per million tons in the first half of
2010 compared with 49 nationally, according to MSHA data.
"The best way to be safe is, don't go underground," Cline
says.
Cline has been working on better ways to mine coal most of
his life.
Working With Dad
When he was 6, his father, Paul, paid him a penny for each
paper bag he filled with dirt from under the porch of their
single-story, white frame house in Isaban, West Virginia. Paul
and a few dozen employees dug reserves too small for such
companies as Peabody to bother with and used the bags of dirt to
secure explosives for blasting. In two years, Chris had removed
so much dirt that the porch collapsed.
"He told me I needed to support the roof better," he says
now.
Chris learned by accompanying his father into the mines on
weekends and holidays while his mother, Lassie, kept the books.
In 1980, Paul signed a $50,000 note to buy out his partner. He
gave the partner's share to 21-year-old Chris, who stopped short
of graduating from the psychology program at Marshall University
in Huntington, West Virginia, to accept.
Cline never hid his ambition.
"He was always in my office, asking, 'Is there another
reserve I can get into?'" says Kostic, who then ran contract
mining for Eastern Associated Coal LLC. "He was interested in
expanding, in not being static."
Cline handed silver dollars to workers who met safety
targets, says Lew Savisky, another Eastern Associated worker.
"It's an incentive that doesn't cost an arm and a leg,"
he says. "I guarantee it helped him not have accidents."
Tragedy Strikes
Tragedy struck two of the people closest to Cline. His
first wife, Sabrina, the mother of now 28-year-old Candice, died
of breast cancer in 1987. He remarried in 1993 and then divorced
his second wife, Kelly, 10 years ago.
His best friend, Sidney Green, died in 2002 when the roof
collapsed in Cline's mine near Wharton, West Virginia. Green,
52, ran a machine that moved through the mine and extended
hydraulic lifts to support the roof. Federal investigators fined
Cline $45,500 after concluding that he had allowed these
machines to move simultaneously, not one at a time.
"Provisions of the approved roof control plan were not
being followed," the MSHA said in 2003.
Three years later, Green's widow, Lorraine, settled a
lawsuit in which she claimed Cline's foreman had been working
instead of supervising and had ignored a miner's warning about
cracks in the roof. Terms weren't disclosed.
'Human Aspect'
Cline says inspectors who are focused on legal
technicalities can always find violations. He says he still
ponders that day's mysteries, such as why Green was walking in
that part of the mine. Cline says he now spends $28 per square
foot on roof support, four times more than competitors do. Even
though he has had no fatalities since Green's death, his heart
races when the phone rings at night.
"There is more of a human aspect to us than just sending a
guy underground and not caring," he says of mining deaths.
"Zero is certainly our goal," he says.
Geology contributes to safety in Illinois. In West
Virginia, where Cline recently shut a mine, coal is 4 feet thick
and can be interspersed with sandstone. Miners lean forward in
rail cars to avoid hitting their heads and often work in water
and mud.
In Illinois, coal seams are flat and 7 feet thick. Workers
can stand up and move around better. Illinois deposits are less
prone to cave-ins and less likely to contain water or methane,
Cline says.
'Take More Risk'
Illinois was still a big bet when Cline went "all in" in
2002. An EPA crackdown to limit acid rain, starting with the
Clean Air Act of 1990, had cut the state's coal output to its
lowest level since the Great Depression. Exxon Mobil Corp.,
which mined coal in addition to drilling oil, was closing mines
from West Virginia to the Rocky Mountains and joining Chevron
Corp. and others in abandoning Illinois.
"Chris was willing to take more risk than we were," says
Robb Turner, co-founder of Boston hedge fund ArcLight Capital
Partners LLC. Turner purchased West Virginia mines from Cline
but declined to invest in Illinois because he expected meager
profits.
Carter, president of Natural Resource Partners, was willing
to fund Cline. Carter's investment makes NRP a proxy for
investing in Illinois coal, says David Khani, an FBR Capital
Markets analyst in Arlington. Even as coal booms, some investors
are worrying that the amount of cash Cline needs to build mines
-- mixed with an economic slowdown -- could jeopardize dividends
for NRP's limited partners, Khani says.
Investor Backing
Investor John Musgrave, an analyst at Swank Energy Income
Advisors LP in Dallas, doesn't have such doubts. He expects NRP
to maintain its 7.99 percent tax-deferred dividend because Cline
and other general partners have postponed taking the income
they're entitled to. He says NRP's dividend, quadruple the S&P
500 average, compensates investors who are waiting for Cline to
grow. Swank owned 1.1 million NRP shares in June. They rose 9.6
percent in six months to $27.30 on Oct. 11.
Foresight's newest mines are taking shape in Illinois.
On a June day, Cline parks his pickup at the bottom of the slope
for his Sugar Camp mine, 12 miles northeast of Pond Creek. He
points upward in a room as big as a cathedral. He describes how
workers suspended 19-ton rollers for the coal conveyor from the
ceiling and lowered them into place.
More Mines
Sugar Camp may have four longwall machines mining 30
million tons annually. The first one will arrive in the fourth
quarter of next year. Cline's Hillsboro mine, 100 miles
northwest, may deliver 25 tons per man-hour when finished in
2011, says Dwayne Francisco, the operation's president.
Even with his yacht, plane and Palm Beach mansion, Cline
remains a miner at heart. He goes underground to inspect his
operations twice a month. While flying over his Macoupin County,
Illinois, site in June, he told Foresight CEO Michael Beyer to
remove trash and to ship off a pile of coal that was hot enough
to release steam in the bright sunshine.
Cline says he may reach top speed in eight years, when his
sons Christopher, now 16, and Alex, now 15, will be old enough
to join the firm. He says he has no plans to sell, especially if
Foresight becomes a public company that trains his boys.
"There's a good possibility they'll be the fourth
generation," Cline says. "I'm hoping they will."
The Next Generation
Before his sons take over, Cline says they'll need college
educations to understand the global economics and politics of an
industry whose surge has confounded critics. They'll need to be
toughened up for life underground. Safety laws, unlike those
during his early years, prevent him from taking the boys into a
mine.
To help them appreciate their privileged lives, Cline
sometimes makes his children fly commercial aircraft instead of
the G550. He introduces them to miners, and he shows them videos
of when he started out; he says he hopes the films instill a
sense of what it took to rise from life in a West Virginia
backwater and become a billionaire.
He also wants them to learn what it may take in the future
to overcome forces aligned against a black rock that -- despite
outrage over its environmental, health and safety history -- has
proved its staying power as the world struggles to go green.
For Related News and Information:
Coal mining: TNI COAL MNG <GO>
Coal and the environment: NSE CLIMATE COAL <GO>
Top energy news: ETOP <GO>
Top power news: PTOP <GO>
Top climate news: TOP ENV <GO>
Coal markets: COAL <GO>
U.S. heat rates: EIAH <GO>
Power Generation by source: EIAG <go>
Regional fuel costs: EIAF <GO>
--With assistance from William Mellor in Sydney and Chris
Stratton in Stollings, West Virginia. Editors: Gail Roche,
Jonathan Neumann
To contact the reporter on this story:
John Lippert at +1-312-443-5930 or jlippert@bloomberg.net
Mario Parker at +1-312-443-5927 or mparker22@bloomberg.net
To contact the editor responsible for this story:
Michael Serrill at +1-212-617-6767 or
mserrill@bloomberg.net.
To write a letter to the editor, send an e-mail to
bloombergmag@bloomberg.net or type MAG <GO>
