Coal Age

MAY 2017

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May 2017 www.coalage.com 5 news continued year. The company primarily sells coal to electric utilities in the Midwest. Eagle River is owned by Tom Franks and his family of Saline County. Franks formed Arclar Co., also located in Saline and Gall- atin counties, in 1983. Arclar was acquired by St. Louis-based Pea- body Energy Corp. in 2002. Franks, who was unavailable for com- ment, then formed the family-owned Eagle River Coal LLC. No. 1 is the company's only active mine. Knight Hawk, which expects to produce 4.7 million to 4.8 mil- lion tons of steam coal this year, is majority owned by the Carter family of southern Illinois, although St. Louis-based Arch Coal Inc. owns a 49% stake in the company. Armstrong Faces Financial Difficulties Armstrong Energy, the parent company of high-sulfur Illinois Ba- sin steam coal producer Armstrong Coal, said it may not be able to continue unless it is able to successfully restructure about $207 million in long-term debt with bondholders. The St. Louis-based company, which produced more than 9 million tons from its west- ern Kentucky operations just a few years ago but considerably less since, has been affected by the downturn in the U.S. steam coal market blamed on low natural gas prices, lower electric utility demand and more stringent government environmental regula- tions, among other factors. Armstrong recorded a net loss of $20.7 million in the fourth quarter of 2016 and $58.8 million for the entire year. Losses were expected to continue in 2017, although Armstrong had not re- leased first quarter earnings as of the end of April. "We will con- tinue to incur losses from operations, raising substantial doubt about whether we will be able to meet our obligations as they come due in the next year," Martin Wilson, Armstrong president and CEO, said in a quarterly and year-end conference call with analysts on March 31. "There is substantial doubt about our abil- ity to continue as a going concern unless our debt is restructured. We're hopeful we can reach a restructuring agreement with our creditors to benefit both sides in the very near term." The company has engaged a consultant to conduct a strategic review and chart a future course of action for the company. It is unclear when the review will be completed. w o r l d n e w s Eskom Policies Cause Shift Among South African Coal Operators Just a few years ago, South Africa's coal industry was on the up and up, shrugging off the malaise affecting the industry else- where. Now, many producers face closure in a stunning reversal of fortunes. As coal mines closed in the U.S., the U.K. and elsewhere, South Africa's mines appeared to thrive. The world's sixth largest export- er, the country's mines were, however, geared mostly toward a sin- gle local customer — state electricity utility Eskom. Only a third of South Africa's coal is shipped abroad. The rest is sent to a fleet of local power plants, mostly in Mpumalanga province to the east of the country. More than 96% of Eskom's electricity came from coal. For producers such as Anglo American, BHP Billiton, Xstrata and others, it was a sweet deal with a guar- anteed customer. According to Statistics South Africa, coal mining contribu- ted approximately $3 billion to the economy in 1993, with gold contributing $8.5 billion. By 2013, the picture had changed, with coal's contribution nearly $4 billion compared with gold's $2.2 billion. In addition, Eskom had begun a new round of power station builds, including two of the world's largest dry-fired facilities in the north of the country. Each would consume 15 million metric tons per year (mtpy) for the next half a century at least. Now Eskom is looking to shut stations, not build them. In March, Eskom interim CEO Matshela Koko said five coal-fired pow- er stations were earmarked for accelerated decommissioning. "Eskom trucks supply 40 million mt of coal to our power sta- tions," Eskom spokesman Khulu Phasiwe told The Citizen. "We have already reduced that demand by 3 million mt and it will be further reduced to 15.6 million mt over five years in 2022." To be sure, these are older plants dating back to the 70s, but the speed at which Eskom is moving to shut them down has caught producers by surprise. In early March, hundreds of coal trucks blocked the freeways leading into Pretoria, the country's capital city. Their motivation was to protest the sudden cutting of contracts that threaten several thousand jobs and will leave truck fleets standing idle. Another indication of the turnaround is Anglo American's deci- sion to dispose its coal assets. Just four years ago it was planning a bid to set up at least one mine-energy plant combo, using revo- lutionary fluidized bed technology. Now Anglo wants out. In April, Anglo sold its Eskom-tied domestic thermal coal operations to a local consortium for $166 million. The buyer, Seriti Resources, is a black-owned firm, which fits with Eskom's drive to source all its coal from majority black-owned suppliers. The mines included in the sale are New Vaal, New Den- mark and Kriel collieries, as well as four closed collieries. Seriti will become the second largest thermal coal supplier to Eskom, fulfill- ing almost a quarter of Eskom's current annual coal requirements. The deal is expected to close by the end of 2017. "Eskom's current policy of 51% black owners and to discard cost-plus mines will create a very big obstacle for its future coal procurement," said Xavier Prevost, senior coal analyst at XMP Consulting. "After 2020, most likely their supplies will dwindle to about 20%-25% of the required 120 million mtpy, not considering the two new power stations." Continued on p. 6... top 10 coal-producing states (in Thousand Short Tons) Week Ending (4/1/17) YTD '17 YTD '16 % Change Wyoming 99,024 82,721 19.7 West Virginia 29,548 24,722 19.5 Texas 17,000 12,476 36.3 Pennsylvania 16,987 13,594 25.0 Illinois 16,178 14,574 11.0 Kentucky 14,495 14,221 1.9 North Dakota 11,461 9,804 26.2 Indiana 10,703 9,245 15.8 Montana 10,300 9,231 11.6 Utah 5,589 4,375 27.0 U.S. Total 258,187 219,609 17.6

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