Patriot Coal’s announcement two weeks ago that it is closing the huge Samples Mine, one of the largest mountaintop removal operations in the region, rightfully got a lot of media attention.

A lot of folks, including coal industry lobbyists and Coal Tattoo readers, blamed environmentalists and the push to end or at least much more strictly regulation mountaintop removal. Patriot officials made no mention of any permit holdups or other such issues, instead blaming the poor coal market and a corporate decision ” to concentrate production at lower-cost mining complexes.”

But there’s another part of this story that is pretty important … Patriot is making a concerted effort to re-examine its ability to mine its coal reserves with underground mining, rather than with huge mountaintop removal operations. And what are they finding? Well, here’s what Mark Schroeder, Patriot’s senior vice president, told industry analysts during a conference call just a few days before the announcement that Samples was closing:

The positive … for us is that as things get more difficult on the surface side, we have wonderful underground  reserves that are out there, some of which are ready to go.

Whenever someone calls for a ban on mountaintop removal or even for slightly tougher regulations, the National Mining Association says such moves would jeopardize thousands of jobs and threaten the nation’s energy supply.  But that’s not what Patriot Coal (the third largest producer of coal in the eastern U.S.) is telling its stockholders …

Schroeder was responding to questions from stock analysts — the guys who advise investors about whether to buy coal company stock or not — about what impact continued controversy over mountaintop removal permits was going to have on Patriot. He continued:

It’s certainly on the negative side if the permits don’t come around, but we are blessed with having a good base of underground reserves as well.

The coal out there in many of the properties is interchangeable and we typically in our contracts have the ability to substitute from one mine to another mine, so it gives us some additional latitude to move things around. If a surface mine is not operating because of a permit issue, we can go underground, we can continue to source the customer, etc.

Patriot officials complained that there “continues to be a logjam in the granting of permits by the Army Corps of Engineers.”  They also noted that EPA has decided to become more involved in the review by the West Virginia Department of Environmental Protection  of water pollution permits for coal-mining operations.

Patriot President Rick Whiting also gave the stock analysts the standard coal industry line about the Obama administration’s plans to more closely regulate mountaintop removal:

Clearly, these actions and delays make the permitting process more burdensome. They also threaten to reduce surface mining activity or at a minimum, substantially lengthen the permitting process.

Coal Tattoo readers will recall the guest blog Why Surface Mine? by Gene Kitts, vice president for International Coal Group, which explained — and defended quite strongly — why coal companies decide to mine certain reserves by surface methods, rather than underground. But read on, and see another possible industry reaction to the pressures being put on mountaintop removal because of its obvious and very serious environmental impacts …

Whiting said:

Every trip that [Patriot Chief Operating Officer] Paul [Vining] and I have made to the individual mining complexes in recent weeks and months … we continue to be presented with more potential underground projects. We asked our guys earlier in the year to roll up their sleeves and consider that, and they are indeed identifying and we’ve got some good previous drilling … we’ll probably accelerate our drilling … that can go through our existing infrastructure and continue to supply our customer base.

Not surprisingly, Patriot  is most concerned about permit applications to continue mining at its huge Hobet 21 complex down along the Boone-Lincoln County border here in West Virginia (shown above in one of Vivian Stockman’s photos). One such permit, for a 400-acre operation called Hobet 22,already ran into problems, because of the WVDEP’s failure initially to require any limits on the operation’s selenium discharges to area streams. (This despite evidence that existing selenium discharges from Hobet’s existing operations were already pushing the Mud River watershed “to the brink of a major toxic event.”)

You’ll recall that Hobet last year warned employees of potential layoffs because of a challenge to that permit.  That prompted the typical ” we’ll do whatever we have to do ” rhetoric from United Mine Workers President Cecil Roberts, and Gov. Joe Manchin ended up intervening. A deal was reached for more selenium monitoring and pollution controls, and the company promised to hire a forestry reclamation expert recommended by citizen groups.

But now, another Hobet extension permit, called Hobet 45, is on the list of strip-mining proposals that the federal EPA wants to take a closer look at before their Clean Water Act permits are approved by the Army Corps.

Whiting told stock analysts that if the permit isn’t issued soon, the company is looking at losing 500,000 to 1 million tons of production at Hobet sometime in the second half of 2010. But because of the time it’s already taken to get the permit, there will probably be some production lost:

We’re looking at some alternate plans to keep the dragline working for perhaps a few more months … we’re to the point that we’ve already waited long enough. There will be some impact.

Without the permit, production at the Hobet surface mine  will wind down over the next two or three years. About 350 workers are employed at the operation. Said Whiting:

Frankly, it’s pretty hard to run that mine without the dragline swinging because it puts an awful lot of burden on the infrastructure, on just the truck and shovel component.

So it is important that we ultimately get that permit or move on to underground reserves or other projects.

Still … when asked point blank if not getting the surface mining permit would mean that Hobet couldn’t get the reserves proposed to be mined by Hobet 45, Whiting said this:

There may be some other more innovative method we could come up with over time to avoid those drainage areas and maybe so some pockets of it at certainly a higher cost in a different market.

There may be an engineering answer where we could get some of those reserves.

Make no mistake, Patriot Coal wants its strip-mining permits, as Whiting said:

It would be a travesty for these permits not to come through, because they are low-cost fuel for all of our customers and their customers and the citizens of this country.

… We certainly will be fighting the hard fight and making our case that when we’re complying with the laws of the land we should be granted these permits.

But, Whiting said:

… We’re hedged to manage through it either way it goes.