Bankrupt Blackjewel LLC has found another buyer and wants to fast-track a deal to be done in less than a week after being unable able to consummate its sale of the a pair of Wyoming coal mines to Contura Energy Inc..
In a late Tuesday night filing with the U.S. Bankruptcy Court in West Virginia, Blackjewel has asked for an emergency court hearing Wednesday to approve the sale of the Eagle Butte and Belle Ayr mines to Eagle Specialty Materials, a subsidiary of Alabama-based FM Coal.
Under the sale agreement, ESM will pay Blackjewel $16 million for the mines, about $4.3 million to cover unpaid bills accrued so far during bankruptcy and $1.8 million for former employees who are still owed unpaid wages and other benefits. Eagle also will pay Blackjewel’s senior debt holder, Riverstone Credit Partners, $24 million of what its owed.
Contura also has agreed to pay Eagle Specialty Materials $90 million to assume the nearly $250 million worth of reclamation obligations connected to the two mines.
Contura Energy and the federal government couldn’t come to an agreement over unpaid royalties, which was a condition of its sale closing. Because of that, it’s not a surprise another buyer for the mines has emerged, said Robert Godby, director of the Center for Energy Economics and Public Police at the University of Wyoming.
Blackjewel is arguing that the sale to Eagle Specialty Materials has an Oct. 7 deadline to protect existing contracts with the mines, so “is likely more a tactic to try and move this sale through,” Godby said.
“Still, it’s unlikely that deadline is really a drop-dead-type of thing,” he said. “It’s not like Oct. 7 wasn’t known before as important for those contracts. But it does look like ESM is making every effort to reopen the mines. They’re dotting their I’s and crossing their T’s and getting everybody on their side to open the mines.
“Basically, (it’s) everything we didn’t see from Contura.”
FM Coal has previously expressed its plan to reopen both mines and recall some of the nearly 600 displaced former Blackjewel workers. They were locked out of their jobs July 1 when the company filed for Chapter 11 bankruptcy protection, then shut down the mines when its financing fell through.
In Tuesday’s filing, Blackjewel notes that except for Contura Energy and a $20 million credit bid from Riverstone, the auction to sell the Wyoming mines hasn’t drawn any other interest except for Eagle Specialty Materials. However, Aspen Coal & Energy, led by owner Tom Clarke, also made an offer for the mines.
“At this point, Tom Clarke is probably just noise in the process,” Godby said about his offer to buy the mines, which came after failed attempts to buy the Kemmerer mine and Cloud Peak Energy’s three mines during its ongoing bankruptcy process.
“Even if he’s not part of why they filed (for the sale to go through quickly), Blackjewel probably just wants to move the sale forward,” he said. “Tom Clarke was pulling on that lever and pulling every trick in the book to get his bid considered. It was kind of like trying to butt in line.”
Godby also said that it would be understandable if some of the former Blackjewel coal miners may be skeptical of a sale to ESM. That’s because on the company’s filing to register with the state of Wyoming, former Blackjewel executive Jeoffrey Pilon is named as chief operating officer for Eagle Specialty Materials.
While that in itself isn’t a red flag and doesn’t outweigh the potential for ESM to reopen and operate the mines successfully and responsibly, any Blackjewel connection will be viewed with skepticism in the Powder River Basin, he said.
“Blackjewel did itself no favors with respect to keeping relationships intact,” Godby said. “They burned a lot of bridges, and part of this is an effort to get the community on its side, because at this point it needs that.”
He said that Blackjewel appearing to have a potential stake in the sale because it includes some of its personnel “is what makes these bankruptcies always seem like an inside job.”
What about Cloud Peak?
The potential for the Eagle Butte and Belle Ayr mines to reopen and begin producing again could also impact the impending sale of Cloud Peak Energy Corp.’s three Powder River Basin mines to Navajo Transitional Energy Co., Godby said.
NTEC was named the winning bidder for Cloud Peak’s Antelope, Cordero Rojo and Spring Creek mines in August. The Farmington, New Mexico-based Native American corporation agreed to pay a $15.7 million deposit when the sale closes, assume a $40 million second lien promissory note, pay a 15 cents per ton royalty for five years on coal sold from Antelope and Spring Creek and the same for any tons in excess of 10 million at Cordero Rojo, pay about $94 million in tax liabilities and about $20 million in expenses incurred during the bankruptcy process.
A recent analysis of the deal by consulting group Energy Ventures Analysis calls the move “a prudent investment for NTEC and the Navajo Nation.”
That analysis, however, was based on the assumption that Eagle Butte and Belle Ayr remain closed, Godby said. If they reopen and create more competition in an already shaky market for PRB coal, it could make the NTEC purchase less attractive.
That sale hasn’t close, and with rumblings from within the Navajo Nation that NTEC acted without knowledge and approval of the tribal council could be a stumbling block in closing the sale.
“The big question is, could this (sale to ESM) potentially undermine Cloud Peak keeping all its mines open through its sale?” Godby said. “All eyes will be on Cloud Peak now.”
The bottom line
That Eagle Specialty Materials has agreed to pay mineral production taxes monthly is a good step forward, said Shannon Anderson, an attorney for the Sheridan-based Powder River Basin Resource Council, a land management watchdog group.
“We’re pleased to see the commitment to make monthly payments, because that way everyone will know sooner if things get off track,” she said. “Nonpayment of taxes is often a warning sign for worse things to come with a company, so it will benefit everyone to have more regular payments and greater transparency about what is happening.”
She also said the Resource Council is “pleased that the deal keeps Contura’s reclamation bonds on the hook for reclamation until the permits are transferred.”
In the end, what matters most now is that Blackjewel LLC supports the sale to Eagle Specialty Materials and is pushing for it to go through quickly, Godby said. And while there may be some trepidation about whether ESM would be any better of an operator and community partner than Contura or Blackjewel, there’s no evidence it won’t be.
“All signs now are FM Coal and Eagle are a good faith bidder and trying to move this forward,” he said. “It sounds like a good deal for everybody.”