A new coal company will soon join the crowded Powder River Basin.
Navajo Transitional Energy Company received court approval Monday to purchase three coal mines owned by bankrupt operator Cloud Peak Energy, according to a statement released by the purchaser Monday afternoon. The Navajo Nation coal company will soon take over Wyoming’s Antelope and Cordero Rojo mines — the third and fifth-largest mines in the country.
“Despite solid performance at the mines themselves, (Cloud Peak) was unable to sustain the finance costs associated with this debt,” the successful bidder stated Monday. “By making the purchase through the bankruptcy process, (Navajo Transitional Energy Company) has acquired the assets free and clear of this debt burden.”
The two Wyoming mines produced nearly 36 million tons of coal in 2018 but struggled to keep up with financial obligations in a tightening coal market. The publicly traded company filed for bankruptcy in May.
Nonetheless, the thermal coal mines have hummed along and continued to produce coal throughout the bankruptcy process, employing some 800 Wyoming miners. The company reported hiring dozens of out-of-work miners from the neighboring Belle Ayr and Eagle Butte coal mines in July too.
The Spring Creek mine in Montana was also included in the sale of Cloud Peak’s assets to Navajo Transitional Energy Company.
Although the sale received approval from the judge, it has yet to close. According to court documents, the Navajo Nation coal company was the sole bidder with secured surety bonding, a form of insurance for reclamation liabilities.
What’s more, the other two bidders would have required third-party financing to complete the purchase, according to court documents.
The Navajo Nation coal company conducted an assessment of the economic viability of the three mines before making the purchase, government affairs director Steve Grey told the Star-Tribune on Monday afternoon.
“When the Navajo Nation created (the coal company), they asked us to continue to grow,” Grey said. “We saw that (this sale) was in line with our goals.”
The new acquisition would bring in an additional $1 billion in revenue, according to the company.
“This purchase is both exciting and historic. Indian tribes have long had a deep connection to the earth, and for the first time, a tribal company will now lead thoughtful and diligent energy development on a national level,” Tim McLaughlin, management committee chair at the Navajo Nation company, said in the statement. “Since NTEC was created, we have shown that we can not only improve operations, become financially successful and support job growth but also balance economic development and environmental protection.”
The company owns a coal mine on the Navajo Nation just south of Farmington, New Mexico. It contracts the operation of the coal facilities out to North American Coal Company. The mine provides coal to the neighboring Four Corners Power Plant, which is set to retire in 2031.
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The Navajo Nation company “does not know yet” if the three Powder River Basin mines will be operated by a third party, according to Grey.
North American Coal Company did not return a request for comment.
“We have a lot of things to look at,” Grey said of the forthcoming sales agreement. The details of the deal have yet to be ironed out, he added.
But according to court documents, the purchaser will make a $15.7 million cash payment for the three mines, in addition to a $40 million second lien promissory note and payment of royalties for coal produced over the next five years. At the time of filing, Cloud Peak owed $8 million in royalties to the federal government and $8 million to Campbell County in ad valorem taxes, among other debts, according to court documents.
The Navajo Nation coal company will assume $78 million in pre- and post-petition taxes in addition to that $16 million.
Cloud Peak Energy folds
Cloud Peak first emerged in the Powder River Basin in 2009 when international mining corporation Rio Tinto decided to sunset its American coal operations and sell its mines. Once ranked as the third-largest coal producer in the nation, Cloud Peak entered bankruptcy with $400 million in debt in May after several months of rocky finances and thin profit margins.
“(The three mines) sold for so little money — $15.7 million in cash,” said Joshua Macey, a professor specializing in bankruptcy law at Cornell Law School. “My first reaction was that that is really strong evidence that the market for coal has contracted pretty significantly.”
On Aug. 14, Cloud Peak named Aspen Coal & Energy Company as the stalking horse bidder, setting the base price for auction at approximately $282 million, according to court documents.
Two days later, the company received final bids from the each of the three qualified bidders. Cloud Peak selected the Navajo Transitional Energy Company as the successful bidder, noting in court documents that its final bid was “substantially higher” in value than its pre-auction bid.
An insolvent company unable to turn a profit and keep up with high costs of operating can file for Chapter 11 bankruptcy and auction off its assets, often bringing new ownership to mines.
Bankruptcy has become the new norm in the basin in recent years. Half-a-dozen coal companies that operate in Wyoming have stumbled into bankruptcy proceedings since October. The depressed demand for thermal coal and overproduction in the basin have squeezed the once-prosperous mecca of coal producers.
But Grey, of the Navajo Transitional Energy Company, said he did not have concerns about the recent downturn in the coal market: “The revenue stream we will continue to capture we believe will be beneficial to the (Navajo) Nation,” he said.