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Newly opened US thermal coal mine for sale after operational, market problems

Owners of a thermal coal mine that was touted as the first to open under U.S. President Donald Trump's pro-coal administration filed for bankruptcy and is now seeking a buyer.

Paringa Resources Ltd. subsidiary Hartshorne Mining Group LLC cited both market conditions and a slew of technical challenges to getting the Poplar Grove mine in the Illinois Basin operating at full capacity as it filed a petition for Chapter 11 bankruptcy reorganization on Feb. 20.

"While the debtors continue to believe in the Western Kentucky region and the high-quality coal produced from the Poplar Grove mine, they have not been able to produce coal in the volumes necessary to generate a positive cash flow and stave off a liquidity crisis that ultimately necessitated the filing of these Chapter 11 cases," Hartshorne President David Gay wrote in a bankruptcy court declaration.

Several new metallurgical coal mines opened up in the months following Trump's election in response to overseas demand for steelmaking coal that subsequently tempered. Grant Quasha, then the CEO and managing director of Paringa, told S&P Global Market Intelligence in mid-2017 that the company's Buck Creek project in Kentucky, which included the Poplar Grove and Cypress mines, was the first new coal project announced in the U.S. to target thermal coal sales under the Trump administration.

"The build-out of this newly emerging producer may not have been possible without the support of the Trump and [Kentucky Gov. Matt] Bevin administrations," Quasha said.
With expectations of low capital costs and known mine geology, Quasha said he expected the mine to be a "new stalwart in the dynamic Illinois Basin." At the time, the coal executive was also banking on natural gas prices climbing toward $4/MMBtu. Instead, persistently cheap gas continues to challenge the entire coal sector and recently fell below $2/MMBtu.

Even without a rise in gas prices, Quasha hoped the mine could take business from higher-cost coal operations as Paringa looked to expand on a long-term coal contract struck with Louisville Gas and Electric Co. and Kentucky Utilities Co. for above spot market prices for the region. The company was also committed to providing coal to Ohio Valley Electric Corp. and Indiana-Kentucky Electric Corp. through 2020.

Shortly after Quasha's exit from the company, interim CEO Todd Hannigan said in a 2018 interview that the company remained confident it was building the mine at the right time.

"We'll be delivering coal next year into an improving market, and we're fortunate we've got our timing right," Hannigan said. However, the company's predictions about natural gas were not the only oversight in developing the project.

Paringa's first coal shipment from the project was delayed in early 2019. Paringa's bankruptcy declaration shows the company ran into unexpected geological soil issues in 2018, encountered unexpected complications from an underground paleochannel, ran into a geological fault in August 2019, and had problems with soft mine floors affecting the movement of mine cars and creating other impediments. In the fourth quarter of 2019, a previously unidentified geological fault was hit by the company's first mining unit, displacing the coal seam by approximately 12 feet and significantly cutting down on production yields.

By September 2019, the company was trying to raise funds to plug a funding gap that arose due to its slower-than-expected mine ramp-up, but the company still expected to be cash-flow positive by this month. In November 2019, less than two years after Quasha said the mine would be a stalwart player in the basin, Hartshorne hired a firm to investigate a potential going concern sale of the business, the sale of an equity stake in Paringa or the sale of its Cypress mine project.

The company's senior secured lender, Tribeca Global Resources Credit Pty Ltd., indicated it was unwilling to fund Hartshorne's operations without a Chapter 11 filing and the start of a sale process. While Hartshorne will continue to operate the Poplar Grove mine, Tribeca will have the right after the first two weeks of restructuring to require Hartshorne to shift to care and maintenance.

The subsidiary produced about 633,600 tons of run-of mine-coal in the second half of 2019, 351,200 tons of which were salable coal, according to the court declaration. The mine reported realized sales per ton of $41.52 for the six-month period.