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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.

October/November 2017 www.coalage.com 5

news continued

assets to a new entity to be jointly owned by Knight Hawk Hold-

ings LLC (Knight Hawk) and the company’s secured noteholders.

Armstrong expects its mining operations and customer ship-

ments to continue throughout the chapter 11 process.

“We remain firmly committed to serving our customers and to

being a good employer by maintaining safe, productive operations

as we undertake this process,” said Armstrong Executive Chairman

J. Hord Armstrong III. “We are confident that this court-supervised

process is the best way to close the transaction expeditiously.”

Upon the close of the transaction, Knight Hawk will take con-

trol of Armstrong’s ongoing operations.

The company filed various motions with the Bankruptcy

Court requesting authorization to continue paying employee

wages and providing health care and other benefits. Armstrong

has also asked for authority to continue existing customer pro-

grams and intends to pay suppliers in full under normal terms for

goods and services provided after the filing date of November 1.

As of June 30, Armstrong controlled more than 445 million

tons of proven and probable coal reserves in western Kentucky

and currently operates five mines. Armstrong also owns and oper-

ates three coal processing plants and river dock coal handling and

rail loadout facilities, which support its mining operations.

In August, Armstrong Energy Inc. mentioned it was facing

possible bankruptcy because it continued to experience operating

losses and the inability to repay an interest payment. The compa-

ny’s net loss for the first six months of 2017 was $32.6 million, high-

er than a net loss of $28.4 million in the second quarter of 2016.

Pruitt Proposes Repeal of Clean Power Plan

U.S. Environmental Protection Agency (EPA) Administrator Scott

Pruitt issued a Notice of Proposed Rulemaking (NPRM) proposing

to repeal the so-called Clean Power Plan (CPP). After reviewing

the CPP, the EPA determined that the President Barack Obama-era

regulation exceeds the agency’s statutory authority. Repealing the

CPP will also facilitate the development of U.S. energy resources

and reduce unnecessary regulatory burdens associated with the

development of those resources, keeping with the principles es-

tablished in President Donald Trump’s Executive Order on Energy

Independence, the EPA said.

w o r l d n e w s

Exxaro Signs Long-term Agreement With Transnet Exxaro Resource Ltd. signed a coal export transportation agree- ment with Transnet, which will increase coal volumes from Water- berg to Richards Bay Coal Terminal (RBCT). The 10-year agreement between Exxaro and Transnet will allow for the transportation of a total of 7.8 million metric tons (mt) of export coal, of which 3 million mt will come from the Waterberg once all the projects are ramped up.

“Exxaro is proud to be developing the Waterberg area in collab- oration with Transnet,” said Mxolisi Mgojo, CEO of Exxaro. “This is an exciting milestone for Exxaro and is a realization of our vision to contributing to the unlocking of the Waterberg, thus creating jobs and powering economic development in South Africa. As such, we will be investing 50% of our R20 billion ($1.5 billion) coal capex program over the next five years in coal in the Waterberg area.”

This agreement, which supersedes the old agreement, will enable Transnet to increase rail infrastructure capacity to service both domestic and export markets from the Waterberg area, Mgojo explained.

The new agreement comes at the time when Transnet’s Water- berg program is in full swing with plans to complete the second phase of the project in March 2019. The Waterberg upgrade Phase 2 will grow export rail capacity to 6 million mt through incremental upgrades of the existing rail networks and yards using additional loops, while maintaining the existing axle load, electrical upgrades and improved train control systems.

CEZ Cuts Power Plant Emissions in Czech Republic The largest Czech energy utility, the CEZ Group, has invested 100 billion crowns ($4.6 billion) in the second wave of greening of North Bohemia’s brown coal power plants, Ota Schnepp, the CEZ spokesman for North and Central Bohemia, told Czech News Agency CTK.

“Power plants will always rate at the top positions among air pollution sources, as even after they decrease emissions to an ab- solute minimum, they will still be the biggest production giants,” Schnepp said.

Compared to the early 1990s, emissions have been decreased by 92% for sulfur dioxide (SO

2 ), by 95% for particulate matter, by

50% for nitrogen oxides (NOx) and by 77% for carbon monoxide (CO), Schnepp said.

In the next years, all measurable emissions will drop by an- other 50% thanks to the investments within the second stage of greening, owing to the completely restored Tusimice and Prunerov 2 plants and the newly built plant in Ledvice, among other invest- ments, he said.

The long-term strategy of CEZ is to achieve a carbon neutral energy production by 2050. In the past decade, CEZ has invested more than 5 billion euros in low carbon technologies. Some coal- fired blocs will be shut down by 2020 due to the end of their life cycle and stricter emission limits, Schnepp said.

The modernized Tusimice and Prunerov plants depend on coal from the Tusimice coal mines, therefore they will operate for as long as the mines are operating, with 25 years being the guaran- teed operation span, he added.

The life cycle of the new, environmentally friendly plant in Ledvice is about 40 years, which covers the whole estimated re- maining life of the Bilina mine supplying coal to it, Schnepp said. Schnepp said the life cycle of the Pocerady plant cannot be antici-

Continued on p. 7...

top 10 coal-producing states

(in Thousand Short Tons) Week Ending (10/21/17)

YTD ‘17 YTD ‘16 % Change

Wyoming 260,821 232,011 12.4

West Virginia 75,454 63,626 18.6

Pennsylvania 41,807 36,027 16.0

Illinois 39,307 35,095 12.0

Kentucky 35,583 34,300 3.7

Texas 30,027 31,269 -4.0

Montana 26,047 25,121 3.7

Indiana 25,723 23,166 11.0

North Dakota 23,261 22,398 3.9

Colorado 12,859 9,554 34.6

U.S. Total 635,561 575,457 10.4

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