Contura May Close Wyoming Mines Sooner Than Anticipated
By Cooper McKim & Catherine Wheeler
August 9, 2019 - On August 6, West Virginia Judge Frank Volk approved the motion for Contura Energy to purchase Blackjewel's assets in Wyoming pending resolution of tax conflicts with the federal government. In a Blackjewel filing, it wrote a sale to Contura would keep both Eagle Butte and Belle Ayr mines open "for an estimated minimum of six to twelve years."
In an earlier hearing, Judge Volk spoke in favor of Contura's bid.
"This appears at the present time to be the only path forward to get some of the going concern value out of these assets and also to pull back what may very well be the majority of employees," he said.
But multiple anonymous sources close to negotiations say Contura is suggesting it will only be keeping its two Wyoming mines - Eagle Butte and Belle Ayr - open for the short-term in order to lower its reclamation costs.
A final deal is yet to be released, but one source said Contura plans to keep the mines open for up to 12 months, instead of the six to 12 years Blackjewel originally stated.
One source said Contura's plan, as they heard it, is to mine the coal that has already been exposed by Blackjewel, sell it, then move on to the reclamation process. They added that could mean Contura would only keep a small portion of its staff around to handle reclamation. That timeline is a part of its plan to get out of Wyoming as quickly and as cost-effectively as possible, the source said.
The Sole Bidder
Blackjewel announced its bankruptcy on July 1 putting around 600 employees in Wyoming out of work.
Contura previously owned both Eagle Butte and Belle Ayr mines, but gave Blackjewel the mines at the end of 2017 in hopes of focusing on its eastern mines. They gave Blackjewel the mines with the expectation it would assume reclamation liabilities and a promise of royalty payments. The company even paid to help Blackjewel acquire its own bonds plus $21 million to finalize the deal.
Since then, Contura never successfully transferred its mining permits over to Blackjewel. In a press release last month, Andy Eidson, interim co-chief executive office, explained Contura's rationale in offering to buy Blackjewel's assets.
"Absent another qualified purchaser for the assets, we have determined that the most prudent path forward is to reacquire these mines to reestablish operations, resume safe and responsible coal production, and bring hundreds of miners back to work," Eidson said.
The reclamation bonds total to roughly $250 million. In the absense of a deal, the mines would go into reclamation, and that amount would only in play if the state had to call the bonds for third-party sureties. Then Contura would enter the reclamation process. Contura has had negative cash flow for three of the past five quarters, according to public filings. The western assets never did receive additional bids.
The company originally offered $20.6 million to fund the sale process and pay for all of Blackjewel's assets. Since then, a deal with a high-priority lender Riverstone Credit Partners pushed that number up to $33,750,000.
When Contura's bid was first announced on July 25, Josh Macey, visiting law professor at Cornell University, already had doubts the company would commit to a long-term mining plan. He said it could turn into exactly what Blackjewel was trying to avoid: a Chapter 7 liquidation.
"I think that Contura realized they didn't have much leeway, and this is faster and simpler than what would have happened in liquidation, but it's a similar result," Macey said.
Lawyers raised questions of Contura's intentions during court hearings as well. Campbell County attorney Steve Thomas said the debtor has cherry-picked who can be involved during the expedited sale process.
"We are concerned with the fox guarding the hen house on Contura's right to make judgments about whether other competing bids should be qualifying bids," he said.
Attorney for Caterpillar Financial Services Corporation Greg Pavey wondered during court why Contura could purchase these mines for so little money.
"Neither the debtors motion nor the affidavits filed in support explain why Contura is entitled to $74 million worth of equipment plus all the other assets of the western division and Pax mines and related assets including Caterpillar's equipment for only $12.5 million. We have seen no justification for such a significant loss," Pavey said.
The Federal Government
The West Virginia court has yet to finalize Contura's deal. The final sale is dependent on Contura and Blackjewel's negotiations with the federal government over substantial debt owed. A filing on behalf of the Department of Interior states it's owed more than $50 million in overdue unpaid rental payments, royalties, income taxes, and other amounts. The federal government's approval is required for Contura to be able to mine and take control of the property.
Per Contura Attorney Damian Schaible, a payment plan with the government would involve a continuation of royalties from Contura-run mines to pay back taxes.
"We would be providing, effectively, 20 percent of the free cash flow to the federal government and to the various government entities," said Schaible.
The anonymous source said Contura is projecting that the coal it plans to mine would only make them $4 to $7 million. Not nearly the amount Blackjewel owes the federal government or Campbell County, which is owed about $37 million.
Federal negotiations may be held up by Contura's tentative short-term timeline. Six to 12 months would provide significantly less revenue than six to 12 years.
If that's the case, the source says it could be the federal government that's fighting for mines to stay open longer, not Contura.
On July 25, Blackjewel wrote that Contura expected to bring back 700 employees if a sale went through. On August 6, Contura's lawyer Damian Schaible said he expects the sale would only bring back 500 people to work. In a recent court filing, Contura stated it has proposed to "fund a $5 million displacement trust with the sole purpose of assisting employees whose lives and jobs are being disrupted as a result of the fallout from the Blackjewel collapse."
Negotiations are still underway to finalize a deal with Contura.