The coal company that emerged from the ashes of the Alpha Natural Resources bankruptcy is getting out of the Powder River Basin just a little over a year since its formation.
Contura Energy announced Monday that it was transferring its Eagle Butte and Belle Ayr mines to Blackjewel L.L.C., a private company based in West Virginia, in order to focus on its metallurgical coal mines in the east.
Even most coal industry observers aren’t clear right now what reshuffling of ownership for two of Wyoming’s largest mines means for the basin. Wyoming coal companies have spent the last year reorienting themselves to the new normal for coal: no new long term contracts and declining demand post downturn.
Companies in the Powder River Basin, which produce some 40 percent of the nation’s thermal coal, have been reporting improvements even as they brace for long term challenges. Earnings have been up and production has risen. A portion of the nearly 900 jobs lost in the downturn have returned. But the sale of Eagle Butte and Belle Ayr came as a surprise.
The company is a blank slate in Wyoming. It registered with the Secretary of State’s office just last week and was formed in July when it acquired a number of coal operations in Appalachia, according to its CEO, Jeff Hoops.
Travis Deti, executive director of the Wyoming Mining Association, said he had no prior knowledge of the transfer before it was announced, and that he was unfamiliar with the buyer, Blackjewel. Contura’s CEO praised the Powder River Basin workers in his statement Monday.
“While these PRB thermal assets will not be part of our company’s operational strategy moving forward, the purchaser is acquiring two solid mines with decades of minable reserves, a top-notch, professional workforce and a great operating track record,” said Contura CEO Kevin Crutchfield.
For the workers in Campbell County, Blackjewel will be their third owner in little more than a year.
Belle Ayr employed 236 miners as of June this year, down by more than 100 workers from pre-bust levels. Eagle Butte had a little over 300 miners in June, comparable to average employment of recent years.
In response to a question about the security of those jobs, Hoops said in an emailed response that the Wyoming workers “are a great addition to the team.”
Deti, of the Wyoming Mining Association, said it’s generally a wise practice for new owners to keep the workers already in place.
“There is always that sense of uncertainty when a change comes,” Deti said. “But what we’ve seen in the past is when someone sells, or a new buyer comes in, it always behooves them to keep the workers that are on the ground.”
To some, the news that a small company is buying up the old Alpha assets is an odd development in Wyoming coal, which is largely dominated by big, publicly traded companies like Peabody Energy and Arch Coal.
In contrast, the virtually unknown firm seems like a prospector, said Clark Williams-Derry, a financial analyst for the Sightline Institute, a Seattle-based think tank advocating for a move to renewable fuels.
“In short, the new reality is that the PRB now attracts small companies and risk-hungry investors,” he said.
Contura was created as part of Alpha Natural Resource’s reorganization plan, after Alpha went bust in the coal downturn. Laden with debt from bad bets on the rising price of metallurgical coal, Alpha was one of a number of companies operating in Wyoming that staggered when coal demand declined over a series of warm winters, natural gas competition began to shoulder coal out of its dominant position in the electricity market and the volatile met coal sector failed after a meteoric rise.
After bankruptcy, Alpha moved out of Wyoming, though it still owes Campbell County millions in unpaid taxes from the bankruptcy years, according to the county treasurer. It has recently made payments bringing that debt down to $12 million.
Alpha’s senior lenders, however, formed Contura, and bought what were considered Alpha’s “crown jewel” assets: the dependable Eagle Butte and Belle Ayr coal mines of Wyoming.
The crown jewels haven’t performed well for Contura. In the first nine months of 2017, the firm’s Wyoming operations reported net losses, according to the company’s financial statements.
Contura also scaled back its Wyoming outlook earlier this year, when it retracted an application with the Bureau of Land Management in June to expand Belle Ayr.
General sentiment is that the PRB coal sector is improving, but some of the lower-heat coal from mines like Eagle Butte and Belle Ayr have been a tough sell, as noted in earnings calls between investors and the big Powder River Basin players like Cloud Peak Energy and Arch Coal who also sell 8,400 Btu coal.
The sale proves that right now low-heat coal is the “weakest link in the PRB,” said Williams-Derry of Sightline.
It appears Contura is not really transferring the mines for cash, he said, but rather to get rid a liability.
Contura expects to get a tax write off of between $400 million and $450 million after the transfer, as well as lose about $200 million in reclamation liabilities it currently has on the books associated with the mines, according to its statement Monday.
Williams-Derry says that’s telling for Powder River Basin coal.
“The real point of this transaction is to dump underperforming mines, shed long-term cleanup liabilities, and free up cash that had been tied up as collateral for mine reclamation,” he said.
Clean up at these mines was a key debate during the bankruptcy period when Alpha guaranteed clean up based on the health of its financial statements. It was essentially an IOU payment that’s since been replaced with collateral and third party sureties.
According to Contura, the transfer to Blackjewel will include the full transfer of clean-up costs associated with the mines.
As of Monday, the companies had not yet begun that process with the Department of Environmental Quality.
Contura will remain responsible for those liabilities, until the state has signed off on the permit transfer, according to the DEQ.
Blackjewel’s CEO said that despite unfavorable winds against low-heat coal, his team was up to the challenge. The small company is partnered with a marketing firm in the United Kingdom and a German utility.
The coal sector at large is also balancing the problem of low-heat coal in the current market, and it’s adapting to the reality of operating without long term contracts, where the spot price of coal is more variable, said Deti, of the Mining Association.
As for Blackjewel, Deti said he wasn’t yet familiar with its record or experience.
“I would hope they’ve done their homework,” he said. “But I can’t comment on that one.”