By Heather Richards
April 12, 2019 - Wyoming’s third-largest coal producer faces possible bankruptcy in the days ahead as the deadline approaches for a $1.8 million debt payment that the firm has left unpaid.
Cloud Peak Energy, a pure Powder River Basin operator, goes into default if it elects not to pay Monday, the last in a 30-day grace period.
Cloud Peak owns the Antelope and Cordero Rojo mines in Wyoming and the Spring Creek mine in Montana.
Troubles have been accumulating over the last year for Cloud Peak, a company that until recently was considered a sharp and aggressive powerhouse in the basin. Facing debt and plummeting profit per ton of coal sold, the company has tightened its belt, cut benefits for retirees and laid off some personnel.
Its Antelope mine is one of the best in the basin -- as far as quality of product and cost to mine. But it’s faced some operational challenges in recent quarters. The firm’s Cordero Rojo mine, a lower heat quality producer between Gillette and Wright, however, is expected to be uneconomic for 2019, according to the company.
The New York Stock Exchange announced Thursday that it would delist Cloud Peak on April 22. The company was suspended in late March, following a warning in December for having a sustained price under $1 per share.
Wyoming coal producers are all in a difficult position as the demand weakens for their product, but while large firms Peabody Energy and Arch Coal are buoyed by operations in other regions -- and have cut production guidance in Wyoming according to falling demand -- Cloud Peak is purely a Powder River Basin operator.
For some time Cloud Peak’s one bright spot in otherwise middling to dismal earnings reports was the tons it was sending to Asia. That marginal export market became a greater share of the business as the firm lost customers in the U.S.
The weakening of the Wyoming coal sector has been a reality on the horizon for years, particularly since the downturn that hit in 2015 with the first of three big bankruptcies in the basin. But while stability returned following those bankruptcies, the pressures on coal have not diminished and the weakness of individual miners to the risk of increasing coal plant closures could have dramatic consequences in Wyoming coal country.
“Coal funds a great deal in our state,” said Rep, Mike Greear, R-Worland, in a recent interview with the Star-Tribune. “It’s our baseload of funding, just like it’s the baseload for electric generation.”
Greear is the chairman of the House Minerals Committee. He said that though coal’s decline is something lawmakers have been watching for some time, Cloud Peak’s difficulties in particular were disconcerting to him.
Earlier company troubles -- those that defined the downturn of 2015 -- hit in large part because firms like Peabody and Arch had overleveraged themselves, making bad bets to expand in the metallurgical coal sector. Cloud Peak is just struggling to make its business profitable.
“It’s a different animal,” he said.
Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming, said Cloud Peak is an illuminating story.
It was the company that did everything right from sharp operations to community involvement. Cloud Peak focused on the Powder River Basin. Its attempt to diversify was to look at exports to Asia, but otherwise it operated its Wyoming and Montana assets. So its trouble is revealing.
“What's the big picture? The company that was all PRB is about to go belly up,” Godby said. “You can’t blame that on anything but the difficulty of operating a PRB mine right. That’s the scary one.”
Companies are also a crucial local economic driver and mine difficulties can have a direct impact on county dollars.
Blackjewel LLC, the firm that owns the Eagle Butte and Belle Ayr mines, defaulted on its tax bill late last year and is now on a payment plan to pay its debt to Campbell County, plus 18 percent in interest. The Gillette News Record recently reported that county officials expect Cloud Peak will pay its $8 million tax bill, due May 10, despite the firm’s troubles.
Godby estimates that about 3 jobs in every 10 households in the Powder River Basin are coal dependent. By Godby’s count there was approximately one railroad job for every four in the coal sector and one power generation job for every 10 in mining.
The economist, who worked with fellow UW economist Roger Coupal on an analysis of how coal’s decline could impact Wyoming, noted at a recent conference in Jackson that Wyoming policymakers and the governor face an enormous challenge that may arrive sooner than expected.
“If the PRB really winds down, we lose coal mining jobs, railroad jobs, all the support jobs, then the jobs that depend on all of those other jobs’ income,” he said in an interview. “It’s just a big negative feedback loop.”
Godby also raised questions about how Wyoming could or should respond, with options like a tax increase on coal production that would effectively be borne by out-of-state coal buyers and could be squirreled away to help the people and communities of Wyoming coal as the industry declines.
Coal miners have contributed more to the benefits of the state than they’ve benefited from as individuals, he said. How much the state owes them as their industry faces secular declines is a question Wyoming needs to ask itself, Godby said.