Cloud Peak Energy announced a $37 million deal aimed at boosting its Asian exports by freeing space to ship its coal at an existing Canadian port.
The Gillette-based company paid Coal Valley Resources, a subsidiary of Westmoreland Coal, to terminate its existing shipping agreement with Westshore Terminals in Roberts Bank, British Columbia. The deal also extends Cloud Peak's contract at the facility from 2022 to 2024.
The company said Friday that it expects Asian sales to increase to between 6 million and 6.5 million tons in 2015, up from an anticipated 4 million to 4.5 million tons this year. Asian exports are expected to increase 7 million to 7.5 million tons beginning in 2019, Cloud Peak said.
Westmoreland is consolidating its shipping operations in the Canadian port of Prince Rubert.
"Despite current low international benchmark thermal prices, we wanted to take this rare opportunity to increase our terminal capacity so we can grow our exports to South Korea, Japan, Taiwan and other Asian countries before new terminals are built,” said Colin Marshall, Cloud Peak Energy’s president and CEO. “We look forward to continuing our strong relationship with Westshore and to further positioning Cloud Peak Energy as a reliable long-term supplier of low-sulfur PRB coal to America’s allies in Asia.”
Wyoming coal mining companies have long sought to increase their Asian sales as the domestic market contracts amid tightening regulations and the growing availability of cheap natural gas. Cloud Peak recently reported a $17.8 million loss through the first six months of 2014.
But accessing the Asian market has been complicated by limited existing export capabilities. Plans for three new terminals in Oregon and Washington have met considerable political opposition in those states. Friday's deal offers a more immediate outlet for Cloud Peak's coal.
Analysts at FBR Capital Markets called the agreement a "positive" for Cloud Peak in a note to investors Friday morning. The deal is expected to boost the coal miner's export capacity by 25 million tons over the life of the contract.
The $37 million paid by Cloud Peak equates to about $1.50 per ton, a relatively cheap price to pay for increased access to Westshore, analysts wrote.
A current supply glut and the resulting low price of Australian coal presents a short-term challenge for Powder River Basin exports, but shipments over the life of the contract should allow Cloud Peak to make money in the long term, they said.
"Overall, we view this as positive for (Cloud Peak), as it gives them a low-cost call option on the eventual recovery in Pacific basin steam coal prices and guarantees increased port capacity, given the uncertainty around the new West Coast ports," FBR analysts wrote.
"In addition, we believe it could help remove some of the pressure that new domestic environmental regulations pose going forward."