Alpha Natural Resources, one of the largest coal miners in the Powder River Basin, announced Friday that it has been informed by Wyoming regulators it no longer meets the state's self-bonding requirements.
The Bristol, Virginia-based company said in a statement it disputes the state's claim, saying it is reviewing all options to "reverse or rectify" the decision.
The announcement represents uncharted territory for a large coal company working in Wyoming and comes at a time when many mining firms are struggling with low prices and a tightening regulatory environment.
The decision leaves Alpha facing an uncertain future. The company could choose to appeal the decision in court. Company executives said they were "concerned" by the lack of transparency in the Department of Environmental Quality's bonding calculations.
“While we wait for further clarification from the (Land Quality Division) regarding its review methodology and process, we are investigating a range of options to address this new determination,” said Philip Cavatoni, Alpha chief financial and strategy officer.
But if the decision stands, Alpha will need to come up with $411 million in 90 days to cover its reclamation obligations in Wyoming. That could be posted in the form of corporate surety bonds, government securities or cash. Self bonding is a system where a mining company agrees to pay for the future reclamation costs associated with its operations, provided it meets certain financial criteria.
State regulators defended their calculations and said they have repeatedly informed the company of their concerns. The DEQ sent Alpha a letter on April 20 saying it may not meet the threshold needed for self-bonding and giving the company 30 days to provide additional information. The issue was addressed the next day in a conference call between company officials and Wyoming regulators, which resulted in state officials sending the firm their calculations.
After another meeting and a letter, the DEQ officially informed Alpha it was no longer in compliance with Wyoming's self-bonding regulations on May 21.
"We’ve been open and transparent with them along the way and what they are looking at," said Keith Guille, a DEQ spokesman.
It is unknown if Alpha would be able to come up with the funding to meet the bonding requirements. The company has been plagued by bankruptcy speculation in recent months. The owner of the Eagle Butte and Belle Ayer mines in the Powder River Basin, Alpha announced earlier this month it was idling a mine in West Virginia and laying off 71 employees in Kentucky and Virginia.
State regulators expressed confidence Alpha would be able to meet its $411 million in reclamation obligations. But in financial filings the company has described the risk of losing its self-bonding status, saying it could impact the firm's creditworthiness, reduce its cash reserves and adversely impact its operations. For the quarter that ended March 31, Alpha reported $1.9 billion in cash, cash equivalents and investments.
William T. Gorton III, a mining lawyer at Stites & Harbisob in Lexington, Kentucky, said he expected state regulators and Alpha would reach a deal over the company's bonding obligations.
"It is in no one’s interest to force the issue," Gorton said. "It’s not the end of the world. They’re not puckering up and leaving holes in the ground."
Gorton said he was aware of only one other mining firm, Luminant Mining in Texas, that has encountered similar troubles.
Bonding, and surface mining in general, is regulated by the federal Surface Mining Control and Reclamation Act. The law is enforced by the states, which must have regulations at least as stringent as the federal standards.
Wyoming regulators said Alpha failed to meet at least one of four criteria needed to qualify for self-bonding status, though they declined to name which one. The four criteria are: a tangible net worth of at least $10 million; a ratio of total liabilities to net worth of 2.5 times or fewer; a ratio of current assets to current liabilities of 1.2 times or greater; and a bonding amount not to exceed 25 percent of the company's net worth.
"They are a good company with a great reputation in Wyoming," said Jonathan Downing, executive director of the Wyoming Mining Association, an industry group. "They are meeting their reclamation obligations. We haven’t heard anything from DEQ or elsewhere that they are not meeting their ongoing reclamation obligations."
Among the main points of disagreement between the state and company is what financial information is used to calculate the self-bonding threshold. Alpha's self-bond status was also under review in West Virginia, but regulators there concluded the company ultimately met that state's threshold after reviewing the firm's first-quarter financial information.
Wyoming regulators say their rules require the state to calculate a company's self-bonding status using audited year-end figures. They noted Alpha could reapply for self-bonding status next year.
"We have to keep the integrity of the program," Guille said, noting the standards have been in place for 30 years.
Alpha's Belle Ayr and Eagle Butte mines produced a combined 36 million tons of coal last year, ranking them among the largest mines in the country. The two mines employed a combined 585 people at the end of 2014, according to federal statistics. Alpha was the 11th largest taxpayer in Wyoming in 2013, according to the most recently available state statistics, paying some $384 million in production taxes.
Self-bonding has emerged as a national issue in recent months, as concerns over coal companies' financial health have grown. The Office of Surface Mining Reclamation and Enforcement has convened an informal working group in recent months at the request of states to discuss best bonding practices, according to a federal official. In Wyoming, coal companies owe $2.1 billion in self-bonding obligations.
The issue is being discussed with regard to other companies, not just Alpha, said Gorton, the mining lawyer. He said Friday's announcement had not come as a surprise since many smart people have been working on the issue.
Still, he added, "What’s new is that you’ve got larger companies that, due to the cycles in the industry, find they don’t meet the threshold criteria."
Shannon Anderson, a lawyer at the Powder River Basin Resource Council, a Sheridan landowners group, applauded Wyoming's decision. She said it was evidence of the DEQ doing its due diligence to protect the public. But she said Alpha's struggles speaks to a larger need of reforming the self-bonding program.
"We think that with the state of the coal industry it is time for a big picture look at this program and whether it protects the public interest," Anderson said.
Guille took another view. The DEQ's Alpha decision shows the program works, he said. The DEQ spokesman noted that an audit of the self-bonding program was conducted in February and identified no issues with its operations. Talk of reform is for policymakers to debate, he added.
"We follow the rules that are set forth," Guille said.
Alpha shares were trading for 50 cents at the close of business Friday.