Operator adds OEM hat with IL subsidiary

WITH active operations in nearly all major US coalfields, producer Murray Energy has added a new capability to its business portfolio – original equipment manufacturer.
Operator adds OEM hat with IL subsidiary Operator adds OEM hat with IL subsidiary Operator adds OEM hat with IL subsidiary Operator adds OEM hat with IL subsidiary Operator adds OEM hat with IL subsidiary


Donna Schmidt

Published in the December 2009 Coal USA Magazine

The company chose Centralia, Illinois, as home for American Equipment and Machine, near its Illinois Basin mines, and brought with its August grand opening more than 100 new skilled labor jobs.

“The idea behind establishing our own equipment and machine facility is to build longwall components and systems that are specific to our own mining processes, characteristics, and to our way of doing business,” vice-president of business development and external affairs Rob Murray said of the impetus for his father, MEC chief executive Robert E Murray, to launch the division, which will rebuild and overhaul as well as produce new equipment for the company’s mines.

“Although the basic mechanics of longwall mining are similar in each mine where the technique is used, the geology of a specific mine, production goals, safety considerations ... all affect the specifications and operation of a longwall mining unit [and] each operator will tend to adjust or ‘tweak’ the process over time to meet their own needs.”

Heading up AEMI will be Billy Williams, the company’s longwall manager, who has worked with the elder Murray for more than four of the CEO’s five-plus decades in the industry. It was the combined expertise of the two, as well as other longwall managers, in engineering solutions to complex longwall mining challenges that was harnessed in AEMI’s creation.

VP Murray said the idea for the subsidiary was one that had been “percolating” in his father’s mind for some time, but plans went ahead once it was decided that the autumn of 2008 was the appropriate time to move forward. The company very rapidly secured a suitable facility in a location central to operations and transportation options, and with an open field of skilled candidates, soon was making renovations to its chosen 460,000-square-foot building.

The building, a former automotive parts manufacturing facility, has its own electric substation and sufficient floor space which is well appointed to the needs of an OEM. Having purchased the building in November 2008, AEMI was in full operation by June 1. A ribbon cutting and open house was hosted August 14.

Murray said the company made the decision to launch its own subsidiary versus partnering with a third party, as this allowed for production to its own specifications, and that decision had worked “beautifully” thus far.

“We’ve worked with various vendors of equipment for more than two decades,” he said.

“Obviously, these folks want to manufacture a reliable and competitive product and, for the most part, they do a good job. But with our expertise and knowledge of the business, we believe we can make a better, more affordable product ourselves.”

The company has used its decades of research and development work to stay ahead of the curve on the latest technologies and innovations – as Murray noted, all successful operators remain so by doing just that.

“With AEMI, we now have the ability to incorporate innovation more quickly and even pioneer solutions by evaluating the performance of our products in the mines and making necessary changes back at the shop in real time,” he said.

“It is really a textbook definition of a backward vertical integration in our business plan.”

The engineering staff – an integral part of AEMI’s total payroll of 104 – are currently testing a 1.75-meter shield they designed with unique features and metallurgy, and also evaluating several other new designs that will be standard for longwall equipment.

By completing manufacture and rebuild/overhaul functions in-house, the producer feels it can save as much as 40% in costs – a figure it will realize over a period of years but can realistically achieve, according to cost analyses.

“We expect to realize the majority of these savings in two main areas: first, in the increased productivity and longevity of the equipment that we produce, and second, in the procurement of raw materials,” Murray explained.

“We can negotiate favorable prices for raw materials directly with producers, including steel mills, and in doing so we can greatly reduce our costs.”

With that rationale and potential cost savings, one would think that many other operators would quickly take on such an expansion – but many factors, including Murray Energy’s stance as an independent operator, have made it one of the very few that are at home wearing the hats of both producer and OEM.

All longwall operations will rotate two to three complete systems to run a proper exchange. The company operates five underground longwall mines across the US, but significant growth is in the cards, Murray hinted.

“There are plans to develop additional, new longwall mines. We expect that we will need about 10 or so complete longwall systems to operate [all] our longwall mines,” he said.

As those expansion plans continue to transpire, the Centralia plant – the only OEM facility MEC is planning – will service all of the company’s longwalls regardless of location.

“Our plan is to service all of our longwall systems from this facility. We expect to integrate the new longwall systems we are manufacturing there into all of our mines over the next five years,” Murray said, noting that transportation and logistics were important considerations in the decision to choose Centralia because of the size and weight of equipment that must be trucked and railed to and from the plant.

“As mine operator, equipment transport is always important to maintaining operations, so it is something we’ve dealt with on many levels already. While we don’t plan to start or operate our own trucking company, we do have a trucking dispatcher in our purchasing department who arranges and controls the trucking of parts and equipment to our various operations.”

The timing for AEMI’s establishment would lead one to believe that the market slowdown prompted its establishment. Murray pointed out, however, that the dream had been in his father’s thoughts for a long time before then.

“That the development of AEMI somewhat coincided with the market slowdown is coincidental; the market conditions did not affect our decision one way or the other,” he said.

“We had always seen this as a way to lower costs to sustain our mining operations and we had the expertise on hand to do it. The decision to proceed with this was internal and not market-driven.”

However, the market conditions have presented some advantages to the producer/manufacturer, including a more favorable real estate market, more competitive vendor pricing for its needed supplies, and a larger labor pool from which to choose its skilled staff. Additionally, despite the slowdown, the company’s mining operations still need the equipment AEMI is producing.

“Clearly, low-cost energy is essential for products to compete in the global marketplace. It also allows businesses to create jobs, which is what we need right now,” Murray said.

Despite the lofty plans and great expertise behind the motivation to create a more efficient, cost-effective machine, he said the company’s work would always benefit MEC’s mines exclusively.

“Our plans are only to manufacture proprietary equipment for use in our own operations. This will keep AEMI busy for many years.”