A landowner group has asked state regulators not to renew Eagle Specialty Minerals’ permit to mine coal at Eagle Butte until the company settles delinquent royalty payments, addresses outstanding environmental violations outside Wyoming and answers questions about the long term viability of its Wyoming operations.
The objection to a typically routine permit-renewal — filed by the Powder River Basin Resource Council in December and debated before regulators in a public hearing Thursday — adds fresh uncertainty to the troubled Eagle Butte mine which was acquired by ESM from bankrupt Blackjewel LLC in 2019.
Many of the concerns cited in PRBRC’s objection stem from the Blackjewel bankruptcy and the tug-of-war over permissions, obligations and liabilities that have ensued.
When ESM acquired the Eagle Butte and Belle Ayr coal mines from bankrupt Blackjewel LLC, the Department of the Interior did not grant transfer of the federal coal leases at the mines. Federal coal leases provide the authority to extract the resource but also oblige the holder to abide by numerous federal mining laws. Since ESM lacks both the authorities and the constraints that come with a federal lease, critics say, there’s no legal basis for Wyoming to grant a mine permit renewal for Eagle Butte.
Coal industry observers claim Interior’s decision not to transfer ownership of the federal coal leases at Eagle Butte is one of the few levers regulators can use in the bankruptcy case to ensure that Blackjewel resolves myriad outstanding environmental violations at its mines in the eastern U.S. as well as federal mineral royalty payments related to coal already mined in Wyoming.
Blackjewel is delinquent in about $50 million in royalty payments based on volumes of federally owned coal it had mined and shipped from the two Wyoming mines.
Federal mineral royalties are split between the federal Treasury and the state of origin — the feds get 52% and the state gets 48%. That means Wyoming is missing out on about $24 million in federal mineral royalty payments in the unresolved Blackjewel bankruptcy.
None of the parties involved, including ESM, want to get stuck with the $50 million tab. But critics say that’s part of the cost associated with acquiring a coal mine — even one in a bankruptcy sale; a new operator must be held accountable to all state and federal mining laws. Applying state and federal mining laws should result in denying the mining permit renewal at Eagle Butte, critics say, until the owner acquires the rights and obligations associated with federal coal leases at the mine.
“ESM should have done its due diligence before rushing to buy these mines in a bankruptcy,” Powder River Basin Resource Council staff attorney Shannon Anderson said. “If ESM wants these federal leases, they’re going to have to make good on Blackjewel’s [federal royalty] debt.”
Troubled industry
The Sheridan-based PRBRC filed an objection to the Eagle Butte mine permit renewal application in December. The Wyoming Department of Environmental Quality heard arguments in the case during a public hearing on Thursday.
The intent of the organization’s objection to the permit is not to shut down the Eagle Butte coal mine, Anderson told WyoFile. Rather, the PRBRC wants the state to delay any actions that might set precedent or otherwise enshrine ESM’s right to mine at Eagle Butte outside the letter of state and federal mining laws.
In short, according to Anderson, forcing the state’s hand on the legality of renewing the Eagle Butte mining permit might help force ESM, Wyoming DEQ, the federal government and other stakeholders in the tangled Blackjewel bankruptcy to make good on debts and obligations owed to the American people.
Federal and state mining laws support the PRBRC’s objection to the mining permit, Anderson said. ESM attorneys dispute that point.
Beyond the legal questions, however, the PRBRC wants to urge the state to hold coal operators accountable in an era of industry bankruptcies and precipitous declines that point to potential mine closures in the near future.
“As more mines change ownership in and out of bankruptcy, proceedings like this will become more important as a marker to ensure compliance with our coal mining laws,” Anderson said.
An attorney representing ESM disputed the PRBRC’s interpretation of federal and state mining laws that were cited to support the objection. Jim Seward of Crank Legal Group said the transfer of federal coal leases to ESM is in the works but currently held up in bankruptcy court. The Interior recently extended a deadline to settle the federal coal lease transfer from Dec. 31 to March 31.
Meantime, ESM has kept current on federal mineral royalty payments for its ongoing production at the Eagle Butte and Belle Ayr mines. Seward told Wyoming DEQ officials at last week’s hearing that the delay in transferring federal leases from Blackjewel to ESM shouldn’t warrant a rejection or delay in granting the Eagle Butte mining permit renewal.
“All parties that have authority to grant ESM the right to mine have done so,” Seward said, referring to the Interior Department and other federal and state agencies.
The Crank Legal Group filed a brief to Wyoming DEQ regarding the case just one day before the hearing. In it, the firm claimed the PRBRC’s objections are “baseless” and “all these arguments are without merit and must be rejected.”
ESM employed approximately 235 miners at Eagle Butte in the third quarter of 2020, according to the U.S. Mine Safety and Health Administration.
Wyoming DEQ Administrator Todd Parfitt will decide whether to approve or deny the permit by March 18.
Tangle of liabilities and lost coal contracts
The PRBRC raised other concerns with ESM’s mining permit renewal request in its objection.
Numerous outstanding environmental violations related to mining permits are tied to ESM holdings in Appalachia. Anderson said a mine operator must be in compliance with state and federal mining laws in order to obtain or renew a mining permit — outstanding violations at a different mining operation under “common ownership and control” in another state are grounds to deny the application for permit renewal, she said.
A coal company and its affiliates’ unresolved compliance issues — even if they are related to properties outside Wyoming — are a concern for Wyoming miners and residents, Anderson said. Those unresolved issues call into question ESM’s potential legal and financial liabilities, as well as its ability to meet obligations in Wyoming.
ESM attorneys contend, however, the company’s eastern and western business liabilities are legally separate. ESM has no outstanding violations in Wyoming, Wyoming DEQ officials said at last week’s hearing.
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A state-issued mining permit is valid for a term of five years, and an application to renew triggers several checks to make sure the mine and mine operator are in compliance with state and federal laws. Anderson said a mining permit renewal application is an opportunity for Wyoming DEQ to request and review mining plans and forecasts for future production and operations.
“What is the future of this mine?” Anderson asked during Thursday’s hearing. “How much mining will occur and what’s the reclamation plan? We’re very concerned about this mine and its overall drop in production, future customers and economic viability into the future.”
Coal production at Eagle Butte has declined by more than half in recent years, from 25.3 million tons in 2011 to 11.6 million tons in 2019, according to U.S. Mine Safety and Health Administration data.
In the PRBRC’s written testimony to Wyoming DEQ, the organization cited several shrinking and lost coal contracts between Eagle Butte and its customers, using mostly U.S. Energy Information Administration data. Among them:
- Coal shipments from Eagle Butte to the mine’s largest customer, the Jeffrey Energy Center power plant in Kansas, fell from 6.8 million tons in 2016 to 4.7 million tons in 2019.
- Shipments to the Robert W. Scherer Power Plant in Georgia declined from 3.6 million tons in 2016 to 1.6 million tons in 2019.
The outlook for the Powder River Basin coal industry continues to dim for all operators in the region. Even the basin’s two largest operators — Arch Resources and Peabody Energy — plan to shift their focus away from the PRB and toward metallurgic coal operations elsewhere.
Wyoming DEQ ought to request more information about Eagle Butte — as well as other mines in the Powder River Basin, Anderson said, regarding projections for future production to ensure that operators have realistic reclamation schedules, among other considerations.
“This is a real issue in the coal world right now,” Anderson said. “We’re asking you to do due diligence and take a hard look at the viability of the Eagle Butte mine.”