Coal Age

OCT-NOV 2017

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4 October/November 2017 news MEC, Bowie Partner to Create Canyon Consolidated Resources Murray Energy Corp. (MEC), Bowie Resource Partners, Javelin Global Commodities, and Grupo CLISA have agreed to form a stra- tegic partnership called Canyon Consolidated Resources (CCR), which will produce approximately 13 million tons per year (tpy) and own 214.8 million tons of coal reserves. CCR will combine the assets of Bowie, the marketing and lo- gistics platform developed by Bowie, MEC's management and op- erational expertise and coal from MEC's Lila Canyon mine, and the coal marketing expertise of Javelin and CLISA to create a west- ern U.S. bituminous coal producer and marketer. The partnership will operate three underground coal mines in Utah — the Sufco mine, which produced 5.4 million tons in 2016, the Skyline mine (4.5 million tons) and the Dugout Canyon mine (650,000 tons in 2016). The Lila Canyon mine produced 1.6 million tons in 2016 and currently has 42.3 million tons of coal reserves. MEC will hold a 30.5% stake in CCR. Chairman of Bowie John Siegel will also control 30.5%, and 28.5 % will be held by second lien lenders via warrants. Javelin and CLISA will control 7.25% and 2.25%, respectively. Javelin is headquartered in the U.K. and CLISA is a trading and investment group based in Mexico with a focus on the energy industry. CCR will purchase and market coal produced from Lila Canyon. Through a services agreement, MEC will provide certain operational, procurement and administrative services for CCR. The CCR investors expect to finance a portion of the partnership, and pay related fees and expenses, with the proceeds of debt financing. A portion of these proceeds will be used to recapitalize Bowie's existing capital structure. Jefferies is acting as sole finan- cial advisor on the transaction. In connection with the transaction, Bowie will refinance its existing senior secured credit facilities with new debt financing. Specifically, Bowie Resource Holdings LLC and Canyon Finance Corp. intend to offer up to $375 million of senior secured notes due 2022 through a private placement. Bowie intends to use the proceeds to refinance its existing senior secured credit facilities and finance the acquisition of Bowie by CCR. In addition, Javelin and CLISA will contribute cash to CCR in exchange for equity in CCR and certain exclusive export marketing rights. Jefferies is act- ing as sole initial purchaser and book-runner for the notes. Armstrong Files for Bankruptcy Illinois Basin coal producer Armstrong Energy Inc. filed petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Missouri on Novem- ber 1. The company took this action in order to transfer all of its b r e a k i n g n e w s Alpha Completes Transfer of Idle Assets to Lexington Coal Alpha Natural Resources (ANR) has closed the deal with Lexington Coal Co. (LCC) to convey real and personal properties located in Ken- tucky, Tennessee and West Virginia. While transferring mostly idle and non-active assets, substantial reclamation equipment and ongoing royalty payments associated with the properties, the conveyance also eliminates self-bonding in West Virginia nine years early. New Lexington Coal CEO Steven Poe said the conveyance includes approximately 250 permits and bonding representing $192 million. "Having five mines that are currently in coal production, substantial infrastructure and capital, and an experienced, talented workforce will enable LCC to accelerate reclamation on a five-year timetable with less contingent exposure for the states in which we operate," Poe said. Poe says LCC will mine to reclaim, which will lower the cost of reclamation and will bring in revenue while the company continues to divest isolated assets as markets warrant. "Our management team knows the properties and permits, and has a demonstrated track re- cord of success," said Poe. "Having 100 million tons of reserves will ensure a long runway for the assets, providing job security and contin- ued opportunities where we operate." Specific economic terms were not disclosed, but LCC will receive approximately $199 million in cash and $126 million in installment payments to assist in the fulfillment of bonding, reclamation, water treatment and other obligations. Alpha Natural Resources CEO David Stetson called the conveyance a win-win for the regulatory agencies and the communities in which the assets are located. According to Stetson, "LCC is well-capitalized to meet its responsibilities to those local communities and to do so years earlier than originally planned. The transaction also eliminates the risks associated with self-bonding, making this a transformational deal for West Virginia." Funding for the transaction provided by key shareholders under a $150 million credit facility. "The deal with Lexington Coal represents a major step forward for Alpha," Stetson said. "The transaction is immediately accretive to Alpha's business through the elimination of more than $70 million of annual cash costs and will allow Al- pha to improve its operations and balance sheet to the benefit of all stakeholders. The financing facilitating the transaction was provid- ed by certain of our key shareholders, who were willing to offer very competitive terms and, in doing so, make a further commitment to Alpha's future." Alpha will continue to operate 20 mines and nine prep plants in West Virginia, and the company still expects to produce 14 million tons of metallurgical and thermal coal in 2017. The now-closed Bowie portal in Colorado, the namesake for Bowie Resource Partners, will be folded into CCR.

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