Cloud Peak Energy Corp., one of the Powder River Basin’s largest coal mine operators, has accepted a bid from Navajo Transitional Energy Co. to buy “substantially all of Cloud Peak Energy’s assets.”
Cloud Peak announced the sale Friday, which will be considered for approval by the U.S. Bankruptcy Court on Monday.
Navajo Transitional Energy has agreed to buy the company’s Antelope and Cordero Rojo mines in Campbell County, along with the Spring Creek mine in southern Montana, according to a Cloud Peak statement announcing the winning bidder. Navajo also will own the Sequatchie Valley reclamation project.
Navajo has agreed to pay a cash deposit of $15.7 million when the sale closes and assume a $40 million second lien promissory note and five-year royalty on future tons of coal produced at the PRB mines. Navajo also will pay up to $20 million in post-petition debts accrued during the bankruptcy process.
The company also has agreed to assume pre- and post-petition federal, state and local tax liabilities for the company, make state and federal royalty payments and assume all reclamation obligations.
That’s good news for Campbell County, which is owed an $8.3 million production tax payment that was due just hours after Cloud Peak filed for Chapter 11 bankruptcy reorganization on May 10.
“I am excited they’re doing right by agreeing to pay the taxes and we’ll look forward to hopefully seeing (Navajo Transitional Energy) in Gillette and get familiar with their management,” said Campbell County Commissioner Mark Christensen.
He also said that the company has bid on all of Cloud Peak’s operational mines is a good sign it plans to continue mining coal in the Powder River Basin, which is good news for the nearly 1,200 workers at the three operations.
“Right now on this day, I’m just happy there was a bidder wanting to keep these going and pay the tax,” he said. “It looks to me like they want to be a good neighbor and I think that’s all really exciting. … this is really the best possible option we could have had.”
It’s also the result of a successful bid and auction process. said Cloud Peak President and CEO Colin Marshall in statement announcing the successful bid.
“We are pleased to announce the conclusion of our robust and competitive marketing process,” he said. “We have achieved an outcome that we believe supports the interests of all our stakeholders.”
Marshall also said the mines will “continue to operate as normal” during the sale transition.
Based in Farmington, New Mexico, Navajo Transitional Energy Co. owns the Navajo Mine in the Four Corners area and is organized under the Navajo Nation.
While it’s unknown what Navajo Transitional’s plans are for the PRB mines, that it bought all three operational properties and that the deal includes royalties based on future production, “They’re saying is they’re assuming they can operate them and generate enough cash flow to make those commitments,” said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming College of Business.
Because the Navajo Nation governs itself, it also could have some tax advantages as operator of the mines, which could make them more competitive, he said.
“One of the things about the Navajo bid is they probably have favorable tax status for Native corporations,” he said. “What they’re potentially looking at having there is an interesting proposition.
“The bottom line is they assume they can make cash flow there, so that may replace some of the earnings they’ll lose on the Navajo power plant.”
Godby was referring to the Four Corners Power Plant in New Mexico, which gets its coal from the Navajo Mine. The coal-fired plant is on a track to shut down. Because the company has decades of experience owning the Navajo Mine, branching out into the Powder River Basin isn’t that much of a stretch, Godby said.
“They clearly have experience in Western coal,” he said. “This is basically investing in the best coal basin in the country and potentially keep them in coal, where the pending plant and coal mine shutdown would significantly decrease their future revenues.”
It also should be welcome news to Cloud Peak’s 1,200 employees, including more than 950 at the Cordero Rojo and Antelope mines in Campbell County, he said.
“This is promising news for the basin in the sense that production can continue,” he said.