Contura Energy has entered into an agreement with an Alabama coal company to take over the Eagle Butte and Belle Ayr coal mines in the Powder River Basin. The deal is dependent on Contura reaching a resolution with the federal government and other entities in court to become the owner of both mines.
The potential new operator, Eagle Specialty Materials, is an affiliate of FM Coal, LLC, a company formed in 2017. It plans to assume all of Contura’s reclamation obligations and certain liabilities including debtor-in-possession (DIP) financing, reclamation fees, royalties, and taxes. Contura hoped to complete a similar deal with Blackjewel, but the mine permit transfer was never completed.
According to Contura’s CEO and Chairman David Stetson, this is a path towards "providing long-term employment opportunities for hard-working miners and ongoing revenue to local, state, and federal governments.”
Contura will pay the company $90 million to rid itself of those liabilities. It will also pay $13.5 million to Campbell County in owed ad valorem taxes. Campbell County is owed $37 million in ad valorem taxes from the two mines.
If this deal goes through, Contura would be fully disconnected from the western assets.
Expectations and Intentions
On July 25, Contura Energy announced it would be the stalking horse bidder for Blackjewel’s two mines. It paid nearly $8.1 million to keep the orderly Chapter 11 bankruptcy from falling into a Chapter 7 situation.
During an August 14 earnings call, Andy Eidson, Chief Financial Officer and executive Vice President at Contura, said laid out two possibilities for its mines. It’s plan A was to find a buyer with long-term intentions. Plan B was speedy reclamation.
In a press release, Contura CEO Stetson said, “we’ve been clear that operating long-term in the PRB was not in Contura’s strategic plans, and that the best possible outcome for all interested parties would be for another responsible operator to step up that was interested in doing just that.”
In 2017, it was Contura’s goal to release itself of liabilities in selling the two mines to Blackjewel, but the mine permit transfers never went through. Contura even paid $21 million then to help Blackjewel acquire its own bonds to help finalize the deal.
Clark Williams-Derry, director of energy finance at Sightline Institute, said it’s now paying another $90 million get rid of mines it had already tried to leave behind.
"It’s like a game of hot potato: whoever is holding these two mines when the reclamation bill comes due is the loser. And Contura is paying $90 million so that it doesn’t have to play that game,” Williams-Derry said
FM Coal, LLC
Little is known about FM Coal, LLC except that it formed in July of 2017.
Williams-Derry said, "It appears to be a relatively small, Alabama-focused coal producer. Whether it has the financial or technical chops to run two troubled Wyoming mines in a contracting market – well, that’s anyone’s guess.”
Andy Blumenfeld, head of market analytics at Doyle Trading Partners, found that the Choctaw Mine in Walker County, Alabama is listed under the company’s name.
Blumenfeld said, aside from the company itself, market challenges have not shifted. Coal prices have stayed the same with more coal-plants retiring.
Eagle Butte and Belle Ayr have largely been idle despite minimal production adding to immediate, upfront costs just to restart operations.
Eagle Specialty Materials won’t be able to take over Eagle Butte or Belle Ayr quite yet. The company itself will have to reach agreements with debtors and third parties regarding the sale. Contura’s Board of Directors will need to sign off. Plus, the court hasn’t finalized a deal for Contura to retake the two mines.
The root of court negotiations has been between Blackjewel and the federal government: the company owes over $50 million in unpaid fees. Blumenfeld said it’s possible this sale could smooth negotiations.
"Eagle Specialty Materials, LLC will use part of that payment to settle other debts and presumably allow them to obtain third-party bonding to replace the $237 [million] in Contura-held reclamation bonds. This must clear many hurdles, including approval by the court and the Debtors [Blackjewel],” he said.
A long-term operation plan could ease federal concerns as well. Contura’s press release said Eagle Specialty Minerals agreed to pay certain royalties and taxes which could help pay back government debt over time.
But Shannon Anderson, staff attorney with the Powder River Basin Resource Council, a landowners’ group, said even after court resolution there will be hurdles.
"There will need to be some major regulatory filings and public processes associated with these decisions, including a permit transfer proceeding and resolution of our current EQC [Environmental Quality Council] case,” Anderson said.
Blackjewel, after all, had yet to conclude its permit transfer proceeding despite owning the properties for nearly 20 months.
With much still pending, furloughed Blackjewel miners have not received additional information or a call-back to the mines. A recent letter from Blackjewel did take a head-count of who could return to the mines.
The letter was sent on September 10. Today is the deadline to receive workers’ response.
"If we don't hear from you on or before September 19, 2019 that you are available… the company will assume that you have voluntarily departed from the company."
In the case that the sale does go through, Contura has taken extra precaution to rid itself of Western liabilities. The company sought assurance with a federal agency that it would not be held accountable if Eagle Specialty Materials runs into future issues.
"Contura nor its subsidiaries, directors, officers, or employees would be held liable for any violations or other conditions related to mining operations of Eagle Specialty Materials regardless of the status of planned permit and lease transfers related to the Western Assets."
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