Blackjewel Cash And Market Struggles Leads To Bankruptcy Filing

Jul 1, 2019

Doc 14-2 Exhibit B - a map of Blackjewel's Wyoming assets
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Blackjewel LLC, a West Virginia-based coal company, has voluntary filed for relief under a Chapter 11 bankruptcy filing. The company operates 32 properties and holds more than 500 mining permits around the country. Blackjewel acquired its two Wyoming assets, the Eagle Butte and Belle Ayr mines, in late 2017 through Alpha Natural Resources bankruptcy.

In its first day filings, the private company revealed it had been struggling with liquidity since 2014, meaning the company wasn't generating enough cash to pay off its debt. Its cash problems came to a head when it couldn't finance debt that was ready to mature by July 17, 2019. Riverstone Credit Partners alerted Blackjewel on June 26 that it would not extend its loan of $28 million. According to calculations by Sightline Institute, the company owes about $245 million in debt with only $138,000 in the bank.

Blackjewel points to weakened coal markets, operational challenges, strict regulatory compliance, and reduced domestic demand as a few culprits for its liquidity problems. The company came to Wyoming already weighed down by debt. In one document, CEO Jeff Hoops explained their business strategy: "Blackjewel's assets were primarily acquired from struggling coal mining firms and then revitalized."

Clark Williams-Derry, director of energy finance at Sightline Institute, an environmental think-tank, said the company also saw losses from something called hedging.

"That is locking in prices in advance. It turns out that they locked in prices at the wrong time; they locked in prices too low and wound up losing about $100 million or between $100 and $150 million on a bad hedging strategy," Williams-Derry said.

Blackjewel will undergo a court-supervised restructuring. However, Andy Blumenfeld, head of market analytics with Doyle Trading Consultants, said it's not clear what the new ownership's plans are to get out of bankruptcy.

"I would think that it at this point management is trying to try to retain control of and they're going to try and clean the balance sheet of some of the debt that they've gathered over the years," Blumenfeld said, but it's up to the new ownership to decide whether the mines will be sold, liquidated, or something else entirely.

"This does not mean that the mines shut down or be liquidated at this point. Now, sometime in the future that could happen. But based on what's going on today the mines will continue to produce coal."

Williams-Derry said he worries this could be a case of mine abandonment given the minimal cash in Blackjewel's coffers.

According to calculations by Sightline Institute, the company owes about $245 million in debt with only $138,000 in the bank.

"That is the potential that Blackjewel may not be able to find a buyer for some of its mines and what they [might] do is abandon the property. If that happens then somebody somewhere in the country is going to have to pay an awful lot of money for reclamation because there's no money in Blackjewel to pay for that kind of cleanup cost," Williams-Derry said.

The Eagle Butte and Belle Ayr mines employ about 600 people in northeast Wyoming. Current employees will keep getting their paychecks and benefits as coal contracts run out. But Gillette Senator Michael Von Flatern said the bankruptcy is concerning for the local workforce.

"You got a lot of people that could be laid off. Those contracts are going to continue in possibly somebody else's mine, but they're only 1-year [coal] contracts, 2-year contracts max," Von Flatern said. "The next year, some people may shift over and go work at another pit basically, and they'll lose their jobs in a year or so."

Von Flatern mentioned another big concern: the over $17 million in ad valorem taxes Blackjewel owes to Campbell County. Those are the county version of severance taxes that contribute to local services and state education. Under current state law, the county's lien position falls near the bottom of the list to collect on debt. A recent bill moves the county ahead, but it's yet to go into effect.

"I just wished we passed the legislation a few years ago and it would only be 60 days at the most behind and now they're a year and half [behind]," Von Flatern said. "Like, 4 years ago and it would've been right on time right now."

Just a few days ago, Blackjewel missed a million-dollar ad valorem tax payment. He said the county will surely regroup and come up with a plan of action.