Eagle Specialty Materials, LLC (ESM) can't close on its deal to own and operate two Wyoming mines just yet. The affiliate of Ohio-based FM Coal hit a snag in its attempts to replace surety bonds for the mines; an agreement that guarantees clean-up costs.
Over the weekend, Lexon Insurance Company and Sompo International Insurance (Lexon) alerted ESM that there are conditions to obtain replacement bonds for the Eagle Butte and Belle Ayr mines. An affiliate of FM Coal would have to accept the transfer of 135 Appalachian mining permits owned by Blackjewel and the attending reclamation obligations in excess of $100 million.
Shannon Anderson, staff attorney with the landowner group Powder River Basin Resource Council, said it's a brilliant move by Lexon to protect itself from bond forfeiture.
"The profit margin of these mines was already razor thin, then you add on top of that the back payments on taxes, royalties, and vendors. That's going to just eat into their profit even more. Then you now have reclamation obligations for these 135 Appalachian permits and altogether it just spells out real trouble for FM coal," Anderson said.
Blackjewel is asking the court to approve the transfer, which ESM has agreed to as well. In filing 1196, Blackjewel attorney's acknowledged the 135 permits and associated liabilities are essentially dead-weight.
"Given that the Eastern Permits have no value and that, with one limited exception, no party previously sought to acquire such permits, the Debtors believe it is indisputable that authorizing the Purchaser to acquire the Eastern Permits is in the best interest of their estates and represents a sound exercise of their business judgment," the filing read.
However, no decision was made in court. While there were no objections, Julia Chincheck, an attorney for 11 creditors including Caterpillar Financial Services Corporation and Dean McAfee Holdings, raised several questions that couldn't be answered including: which of Blackjewel's 135 permits are included in Lexon's ask, if there's a deadline to complete the permit transfers, and what happens if that deadline isn't met.
"I don't think it's an appropriate exercise of the debtor's business judgment to simply wash its hands clean of the situation which it created, dump it on FM [Coal], and then demand an emergency meeting when there's nobody here who can answer what everyone agrees are legitimate questions," she said," because it could be significant to the value of lessor's reserves."
Lexon Attorney Lee Woodard said replacement bonds for the Wyoming mines could not be issued without transfer of the 135 permits. A representative of the insurance company is currently meeting with Kentucky regulators to put that transfer on the fast track.
A deal with ESM has been rushed from the start. On October 2, when the court first approved the sale, attorneys wrote a delay would threaten utility contracts.
"If the closing is delayed beyond October 7, 2019, the parties believe that there is a significant risk that the contracts with the end-users of the coal produced at the Belle Ayr and Eagle Butte mines could be terminated."
Nevertheless, Judge Frank Volk announced the court would reconvene at 11 A.M. EST in order to get more information Kentucky regulators including on the timeline of permit transfers.
ESM is looking to replace surety bonds that would cover more than $200 million in reclamation obligations.
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