Coal Titans Plan Joint Venture
By Dennis Webb
June 20, 2019 - Colorado's two top-producing coal mines would be operated in a joint venture by their owners under an agreement announced Wednesday.
Arch Coal and Peabody Energy say they have reached an agreement to combine the companies' Powder River Basin and Colorado assets in a joint venture aimed at strengthening the competitiveness of coal against natural gas and renewable power.
The proposal includes Arch Coal's West Elk Mine in the North Fork Valley and Peabody's Twentymile Mine in Routt County. West Elk is the top coal mine in Colorado in terms of production, followed by Twentymile. West Elk employs about 300 miners, and Twentymile, about 250, according to Colorado Division of Reclamation, Mining and Safety data as of the end of April.
The Powder River Basin is located in Wyoming and Montana, and the Arch Coal and Peabody Powder River mines involved in the deal all are located in Wyoming. The companies say in a news release that Powder River assets involved in the deal represent five of the 10 most productive mines in the country.
Altogether, four Peabody mines and three Arch Coal locations are part of the agreement. The joint venture would be 33.5 percent owned by Arch and 66.5 percent owned by Peabody. It is subject to regulatory approval and satisfaction of customary closing conditions, the companies say, and the companies will continue to operate the assets involved independently until the deal closes. Officials expect it will take months to be finalized.
They say the agreement would result in cost savings projected to be about $120 million over the first 10 years.
"This new joint venture should allow us to realize the full potential of our valuable assets in the Powder River Basin and Colorado and benefit our customers in the process," Arch Coal Chief Executive Officer John W. Eaves said in the release. "The significant operating synergies will enhance the competitiveness of these assets and also enable us to continue to generate long-term, sustainable returns for our shareholders."
Peabody President and Chief Executive Officer Glenn Kellow said in the release, "We believe this joint venture allows us to offer enhanced products and security of supply for customers, increased value for shareholders, greater efficiencies for railroads, long-term opportunities for employees and strength for the communities in which we operate."
The joint venture would be governed by a five-member board appointed by Arch and Peabody. Peabody plans to operate the assets, managing all activities, including marketing the coal. The companies would share in profits, capital requirements and cash distributions proportionally to their ownership percentage.
The companies say cost savings would come in areas such as optimizing mine planning and production sequencing, more efficient procurement and warehousing, enhanced coal blending capabilities to better meet customer requirements, and creation of a combined rail loadout system and other rail efficiencies.
Much of the savings would come from combining operations of two Wyoming mines, Peabody's North Antelope Rochelle Mine and Arch's Black Thunder Mine. Combined, those mines accounted for about 170 million tons of coal sales last year, and they share a property line of more than seven miles, allowing for them to be operated as a single entity.
By contrast, the West Elk sold 4.8 million tons last year, and Twentymile, 2.9 million tons, Peabody said in a slide presentation on the joint venture.
The deal is likely to face antitrust questions from regulators, in terms of potential price impacts for utilities due to an agreement involving major amounts of coal production for power production. But in a conference call with analysts Wednesday, Kellow suggested customers could benefit from the cost efficiencies of the joint venture.
He added, "Coal's not just competing against coal. It's competing against natural gas and renewables."
He was referring to the increasing role natural gas and renewables are playing in power production. Coal has become less cost-competitive in that realm and faces concerns about emissions of global-warming carbon and other pollutants.
Some coal mines produce what's called thermal coal, such as that mined at West Elk and other mines in the deal, for use in power production. Peabody says the joint venture demonstrates its strategy to optimize its lowest-cost, highest-profit-margin U.S. thermal assets. Arch Coal says the deal will strengthen the competitive position of its western thermal coal operations, as it focuses its growth on production of coking coal, which is used in steel production.
Although the West Elk Mine is in Gunnison County, many of its miners live in Delta County. Delta County Commissioner Mark Roeber, whose district encompasses the North Fork area, said he'd support anything that keeps the mine operating.
The valley several years ago also had the Elk Creek and Bowie #2 mines operating, but Elk Creek now is permanently closed and Bowie has been idled and shows no signs of reopening.
"We've kind of bounced back from the two mines closing but those large employers are hard to replace," Roeber said. "Hopefully the (West Elk) mine will keep operating and be the good neighbor that they have been. … I wish them luck in their venture."