A Tuesday U.S. District Court ruling increases the likelihood that eventual mine closures in the Powder River Basin will happen under the ownership of smaller, less financially stable operators, putting Wyoming miners and taxpayers at higher risk, an expert says.
U.S. District Judge Sarah Pitlyk issued a ruling this week in the Eastern District of Missouri backing the Federal Trade Commission’s decision to block a proposed operations merger between Arch Resources Inc. (formerly Arch Coal) and Peabody Energy, both longtime publicly traded coal producers in the Powder River Basin. Arch and Peabody both indicated they would no longer pursue the proposed merger.
The ruling puts at risk coal miners’ jobs, retirement and health benefits, as well as potential taxpayer liabilities if the industry continues its practice of shedding employee and reclamation obligations through bankruptcy courts, according to University of Wyoming energy economist Rob Godby.
“It appears that the ongoing evolution from well-capitalized, publicly traded companies to less-capitalized, more opaque privately held companies might continue,” Godby said. “The state cannot ignore this.”
A merger would have allowed Arch and Peabody — which, together, account for two-thirds of all coal production in the Powder River Basin — to combine mining operations in Wyoming and Colorado, trimming costs by an estimated $120 million annually. A successful merger, according to coal industry analysts, might have resulted in a more orderly contraction in the Powder River Basin by reducing the likelihood of Arch and Peabody mines being sold to less financially stable and less transparent buyers.
In fact, Arch indicated Tuesday it would accelerate its consideration for divesting its thermal coal assets, which include the PRB’s Black Thunder and Coal Creek mines.
“In the wake of today’s decision, we will be intensifying our pursuit of strategic alternatives for our thermal assets — including, among other things, potential divestiture — while evaluating opportunities to shrink the operational footprint at those mines, reduce their asset retirement obligations, and establish self-funding mechanisms to address those long-term liabilities,” Arch CEO Paul Lang said in a press statement.
Since 2016, several publicly traded companies have sold Powder River Basin mines to smaller private companies willing to gamble on huge assets and liabilities in a U.S. thermal coal market that continues to shrink under pressure from renewable energy and climate change policies.
“The concern is when you have less-transparent, privately held companies that are much smaller, you’re less able to understand the risks that not only face the basin, but face the state,” Godby said.
By merging operations, Arch and Peabody would have had better access than smaller competitors to financial capital to shore up operational plans to remain competitive in a shrinking market, Godby said. Because the companies are both publicly traded, the state has the opportunity to track the companies’ finances on a quarterly basis.
Now with the increased likelihood that Arch mines in the Powder River Basin might be passed on to smaller, privately held companies, the state and its coal miners are more at risk for the type of chaos that unfolded when Blackjewel declared bankruptcy in 2019, closing its gates and sending miners home without warning.
Some of the fallout from Blackjewel’s bankruptcy remains unresolved.
“As these companies have changed hands, the financial footing that they’re on appears to be shakier and shakier,” Godby said. “So the question is, is that what’s next for the Arch assets? The state is at greater risk than it would have been otherwise.”
Cautionary tale of Blackjewel
The Eagle Butte and Belle Ayr coal mines in Campbell County were among some of the first large-scale open pit mines to begin operation in the Powder River Basin in the 1970s. Since 2004, the mines have passed from RAG American Coal Holdings Inc., to Foundation Coal, to Alpha Natural Resources, which formed a new owner, Contura Energy Inc., which sold the mines to Blackjewel, which filed for bankruptcy in 2019.
By the time the mines fell under ownership of the privately owned, West Virginia-based Blackjewel, the state was already under increasing pressure to ensure that newcomers to the Powder River Basin coal industry could meet bonding and surety requirements to cover reclamation obligations. As the state and Blackjewel worked out the details, Contura still held the permitting and reclamation liabilities. That proved critical, Godby said, when Blackjewel declared bankruptcy.
“If Blackjewel was holding those [liabilities], Wyoming could have been on the hook for some real significant liabilities there,” Godby said.
In addition to shirking obligations to miners, Blackjewel left Campbell County in a lurch, delinquent on some $37 million in taxes.
The mines are now under ownership of Eagle Specialty Materials in a deal closed by Contura following Blackjewel’s bankruptcy in 2019. The saga demonstrates an evolution of increasing risk to miners and the state as Powder River Basin coal becomes less profitable and huge assets and liabilities are passed on to smaller companies, Godby said.
Rusty Bell is a commissioner in Campbell County, the epicenter of Wyoming’s Powder River Basin mining complex. News that the Arch/Peabody operations merger will not go forward is concerning, he said. However, he has faith that smaller companies can take over coal mines and make a profit while still meeting obligations to miners and the state.
“We keep getting hit after hit. Unfortunately, we’re getting a little bit used to it; nothing surprises us anymore,” Bell said. “It’s not good for us, but what are we going to do?”
Campbell County worked out a special arrangement for monthly payments by Eagle Specialty Materials to pay back taxes still owed to the county in the Blackjewel fallout — a deal that EMS has made good on so far, Bell said.
“So it has worked,” Bell said. “[EMS is] paying up-front on a monthly basis, so it can be done; [coal] companies can come in here and be successful and pay their taxes.”
Nothing’s certain regarding the presence of Arch and Peabody in Wyoming’s coal industry or potential “divestitures” of their coal mines — but that’s partly the point, Godby said. There’s too much production and mining capacity in the Powder River Basin today to be profitable, which means the mining complex must “right size” itself in order to make sure remaining mines are profitable and to make sure they can meet obligations to miners and to the state, he said.
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Now that Arch and Peabody are prohibited from merging operations to create a sort of last mega-mine standing, the inevitable contraction of the Powder River Basin places Wyoming and its taxpayers at risk, Godby said.
Meantime, there’s no relief in sight for Wyoming coal because its market — U.S. coal-fired power plants — is making a permanent shift away from coal.
“Even the best thermal coal asset in the country now has questionable value; that being the Powder River Basin,” Godby said.