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Judge Approves Sale of Blackjewel Coal Mines to Contura



By Camille Erickson

August 7, 2019 - Hundreds of coal miners moved one step closer to returning to work at two idling Powder River Basin mines Tuesday, after a federal judge approved the sale of mines owned by bankrupt coal giant Blackjewel to previous owner Contura Energy.

Contura said it planned to “reinstate immediately” 500 jobs at Eagle Butte and Belle Ayr mines if the sale is finalized. But the sale hinges on the final approval of the federal government, after it objected to outstanding royalties and leasing terms of the Wyoming mines.

“It’s in everyone’s interest to return these properties to productive use as soon as possible,” U.S. District Judge Frank Volk said at Tuesday’s hearing. The judge approved the sale despite myriad objections from creditors.

The sale to Contura comes more than five weeks after Blackjewel filed for bankruptcy, lost a key creditor and closed 32 mines across the country — all on July 1. About 1,700 workers found themselves out of work indefinitely.

In addition to approving the sale of the two Wyoming mines and one West Virginia surface mine to Contura, Volk also authorized the sale of several other mines and equipment speckled throughout the Appalachian region to seven additional companies during the two-day sales hearing.

“If the Contura transaction proceeds, your honor has been quite focused, as you should be, on jobs, on the value coming into the state and on getting the land back to useful life,” Contura attorney Nick Sage said to the judge. “That is what the Contura sale would do.”

Although Blackjewel attorneys said in a statement they intended to finalize the sales as soon as this week, reopening the idling mines in the Powder River Basin may not be that easy, University of Wyoming economist Rob Godby said Monday.

“It’s unclear where their customer base stands and how many miners will report back to work, so (there could be) immediate operational challenges,” he said.

Even after the judge’s decision Tuesday, the future of Wyoming’s two idling mines remains opaque, said Shannon Anderson, an attorney with the Powder River Basin Resource Council, a group advocating for Wyoming landowners.

“Unfortunately, we are in the same position we were this morning,” she said.

Not only do multiple agreements with Contura need to be finalized with both local and federal governments, but the logistics of reopening the mines could also be complicated, she said.

“There is quite a bit of cleanup to do,” Anderson added. “I hope for the sake of the workers that there is some clarity soon … but the logistics of all of this is fairly staggering.”

Bids and Objections

Contura initially offered $20.6 million on July 26 to assume ownership of three Blackjewel mines. In doing so, the company effectively became a stalking horse bidder in the sale, setting a “floor,” or base, price for the mines.

But at a three-day auction launched by Blackjewel attorneys on Aug. 1, Riverstone Credit Partners, a senior secured creditor, submitted a credit bid of $20 million for the same mines, challenging Contura’s proposal.

The bid from Contura ultimately climbed to nearly $34 million by the auction’s close, with $24 million of that sale dedicated to Riverstone Credit Partners.

The auction ultimately brought in $54 million in total sales, including about $42 million in cash bids, according to court documents. But of that amount, only about $1.6 million will fall under the debtor’s estate, leaving a paltry amount to divide among more than 150 creditors, with priority given to senior secured creditors.

The state of Blackjewel’s finances has likely slashed any remaining hope held by creditors, some industry experts said.

A deluge of objections weighed on the sales hearing, leading the judge to institute breaks throughout the hearing to encourage negotiations between parties. The judge overruled the majority of objections made by creditors.

L&H Industrial, an equipment company with roots in Gillette, also objected to the sale but withdrew its objection after reaching a settlement with Contura on Tuesday. The company ultimately endorsed the transaction in court, cajoling the federal government to consider the benefits of bringing miners back to work and stimulating the local economy connected to the mines.

Komatsu Mining Corporation, an equipment company with multiple locations in Wyoming, filed an objection to the sale, alleging the debtors failed to provide sufficient notice to the company and attempted to transfer two equipment shovels “clear of liens.”

“The Debtor’s breakneck pace through these proceedings has substantially impaired Komatsu and deprived it of due process,” attorneys for Komatsu said in court documents. In its most recent court filing, Campbell County also stated Blackjewel was liable for “tens of millions of dollars of ad valorem property taxes on coal production within the County.” The county ultimately did not file an objection, but said the sale was conditional on a principle agreement, according to an attorney for Campbell County.

Blackjewel has little cash on hand. According to court documents filed Monday, Blackjewel spent over $7 million on basic operations at its mines since filing for bankruptcy on July 1. The mines have not produced coal and have instead operated at a loss of over $6 million, according to company reports.

The bankrupt coal operator received three short-term debtor-in-possession payments in the month of July, collecting a total of approximately $13 million. About $8.6 million remained in its bank accounts but was already earmarked for forthcoming payments, according to court documents.

“All cash as of the date of this filing is earmarked for operational and administrative matters, and therefore the Debtors have no additional cash-on-hand available,” company attorneys reported in court documents Monday.

Unpaid Royalties

Meanwhile, Blackjewel has $60 million in overdue royalty payments hanging over its head too. About half of all royalties collected by the federal government flow back to state coffers. The sale of Contura hinges on approval from the federal government, which holds the authority to halt the sale if an agreement cannot be reached between parties.

Attorney for Blackjewel Stephen Lerner urged lawyers for the government to come to an agreement with Contura for the sake of coal miners.

“If the Trump administration wants to have coal miners go back to work, it needs to reach an agreement, and it needs to reach it right away, at least to be able to help our situation and the coal miners,” Lerner said. “... If they want to help out these coal miners in the West, they need to reach an agreement.”

An attorney for Contura emphasized the company’s promise to repay the government and ensure forthcoming royalties would be paid in full: “We would be providing effectively 20 percent of the free cash flow to the federal government and to the various government entities … on top of the ongoing royalties and on top of the ongoing taxes that would all be paid in full going forward.”

“From Contura’s perspective, this contract is a win-win,” he added.

Counsel for the federal government disagreed. Contura and the government were in talks throughout the hearing in an attempt to reach an agreement over the terms of the leases associated with the Wyoming mines and unpaid federal royalties, according to an attorney.

“The reason why we are here is because of what happened with prior management, not the federal government,” counsel for the government said in response. “We are trying to work this out so the mining can be operational. Hopefully, we can work something out. I just don’t know if we will have the time to work it out.”

But the Powder River Basin Resource Council commended the agency for not giving into pressure from Blackjewel’s counsel right away.

“We are the collective owners of these mines and we are owed royalties for the mines,” said Anderson, the attorney with the council. “The Interior (Department) has said rightly that if these unpaid royalties are forgiven, that would set a really bad precedent, because it would allow a company to go through bankruptcy to erase these obligations.”

Former and New Owner

Contura is no stranger to Belle Ayr and Eagle Butte, having once owned the two mines.

The company still holds the permits to the mines, despite having sold the mines to Blackjewel in 2017. It remains on the hook for any cleanup costs, if the mines were to permanently close.

In the weeks following Blackjewel’s unprecedented bankruptcy and mine closures, some industry experts predicted the former owner of the mines would be a likely bidder on Blackjewel’s assets, given the looming threat of liquidation or abandonment of the mines.

In the wake of Blackjewel’s bankruptcy, stocks for Contura plummeted.

Wyoming’s Department of Environmental Quality stalled the transfer of permits to Blackjewel last month following the bankruptcy and corresponding uncertainty. Whitebox Advisors LLC and Highbridge Capital Management — two firms with stakes in Contura — offered $2.9 million in desperately needed short-term debtor-in-possession funding to Blackjewel late last month.

The judge approved the launch of a sale process on July 26 after Contura assumed the role of stalking horse bidder. Multiple bids flowed in for Blackjewel’s other assets, leading to the multi-day auction.

Contura has assumed the role of stalking horse purchaser before too. It submitted a bid to acquire the same two Wyoming mines in 2015 from then-bankrupt coal company Alpha Natural Resources. It owned and operated the mines for about two years before transferring them to Blackjewel.

Still, economist Godby remains skeptical of the long-term health of the Powder River Basin’s coal market. In his eyes, there are too many mines producing too much coal without sufficient demand.

“In the immediate term, it will likely ease the economic stress to see those mines reopen and to reduce the uncertainty,” he said. “ ... Even if (Contura) plans to close (the mines), that will allow people to plan.”

Several mines owned by Blackjewel did not receive bids during the auction. The absence of a new owner sets up the likelihood they will be liquidated or abandoned, further jeopardizing the jobs of hundreds of out-of-work coal miners throughout the Appalachian region.