A proposed sale of the Eagle Butte and Belle Ayr coal mines to Contura Energy Corp. “is dead,” according to a Tuesday afternoon U.S. Bankruptcy Court filing in the case of Blackjewel LLC.
In a response to a Blackjewel motion to separate the Pax Surface Mine from Contura’s deal to buy it along with the Wyoming mines, the company’s senior debt holder, Riverstone Credit Partners, claims Blackjewel “recently advised Riverstone that Contura’s proposed acquisition of the Western mines ‘is dead.’”
The document goes on to say the deal-killer was Contura’s plans to shorten the time it will operate the Wyoming mines. Previous reports have said the company’s plan was to open Eagle Butte and Belle Ayr only long enough to mine the exposed coal, which could take an estimated six to 12 months.
During Blackjewel’s bankruptcy court sale hearing, it was presented that the lifespan of Contura operating the mines would be six to 12 years.
While Tuesday’s Riverstone court filing doesn’t detail how short of a span Contura planned to operate the Wyoming mines, it says the negotiations with the federal government over unpaid royalties are going nowhere “as a result of Contura’s insistence on shortening the existing mine plans at the Western mines.”
It goes on to say that’s why Blackjewel has petitioned the court to separate the Pax mine from the deal.
“With the sale of the Western mines blocked, the Debtors and Contura have abandoned both the successful and back-up bids for the combined Western and Pax mines and entered into a new purchase and sale agreement for the Pax mine only,” the Revelation filing says.
After an auction process, Contura agreed to pay $33.75 million for the three mines. That included an $8.1 million deposit paid to Blackjewel when it was approved as a stalking horse bidder and $24 million to Riverstone upon closing the sale.
With the sale of the Western mines unlikely, “Contura’s proposed acquisition on a stand-alone basis of the Pax mine effectively breaches its agreement in principle with Riverstone,” according to court documents.
Riverstone also argues that abandoning the proposed sale of the mines as a combined deal nullifies the $24 million settlement with Riverstone, which holds $38 million in senior Blackjewel debt.
A Contura Energy spokesperson said the company hadn’t yet seen Tuesday’s filing from Riverstone and that Contura continues to negotiate with the federal government to resolve the sale of the Wyoming mines.
Until there’s some official word from Contura, it’s not really known whether any deals are “dead” or not, said Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming College of Business.
“It’s pretty clear that the deal is not going smoothly,” he said. “The creditors (Riverstone) are unhappy with it and clearly it’s not going well.”
He said the statements in the filing are “only one side” of the problem between the companies. Because Riverstone stands to lose millions of dollars in settlement money if the Western assets aren’t sold, it’s trying to protect the $24 million it stands to gain by the sale of all three mines going through, Godby said.
“This is potentially both a power play by Riverstone to keep Contura bargaining and making sure they maximize the value,” he said. “They don’t want to sever those (Wyoming mines) because if Contura walks away from the Western mines, Riverstone gets substantially less.”
That Contura still hasn’t made a deal with the government over royalties and federal mine leases also could bolster the speculation that the company may be “very much reconsidering the claim it’s going to reopen the mines and operate them,” Godby said.
Along with statements from a high-ranking Contura company official during its second quarter earnings call that Contura doesn’t want to operate Eagle Butte and Belle Ayr for the long term, the evidence is mounting to support Riverstone’s claims, he said.
Riverstone’s reservation of rights filing comes less than 24 hours before a scheduled hearing on separating the Pax mine in West Virginia from the Wyoming mines in the sale deal. The hearing is scheduled to start at 11:30 a.m. Wednesday before Judge Frank W. Volk in the U.S. Bankruptcy Court of the Southern District of West Virginia.