Contura Energy Inc. is keeping several options on the table should it secure the bankruptcy auction purchase of certain Blackjewel LLC coal assets, including a resale or relatively quick pivot to reclaiming the acquired Powder River Basin mines, executives said on an Aug. 14 earnings call.
Contura served as the stalking horse bidder for Blackjewel's Eagle Butte and Belle Ayr thermal coal mines in Wyoming and the Pax metallurgical coal mine in West Virginia in a bankruptcy auction earlier this month. The company increased its initial $20.6 million bid to about $33.8 million and won the auction. Executives noted a part of the reason the company was involved in the auction was to mitigate risks around permits for the Powder River Basin mines that had not yet transferred since Contura sold the mines to Blackjewel in 2017.
"While this acquisition was obviously not our plan six months ago, we are confident it was the right decision to be proactive with these assets and work to secure a resolution that will both create near-term value and mitigate any adverse financial impact to the enterprise," said Contura's new CEO and Chairman David Stetson on an Aug. 14 earnings call.
The deal is pending the resolution of an objection from the federal government related to the company's operations in the Powder River Basin. Contura Executive Vice President and CFO Andy Eidson said the company is considering a range of options that includes finding another buyer for the Powder River Basin assets, operating the mines on a short-term basis and moving to an orderly reclamation process, or if negotiations with the government fail, a more immediate reclamation process.
"I believe strategically, we got out of [the Powder River Basin] for a reason. I don't know that we're terribly interested in doing anything longer term. That said, pursuing this transaction ... gives us a lot of options around different things to do with the assets, whether it's pursuing additional transactions or just attacking a more short-term operational approach just to get us to a point where we can do a more orderly reclamation," Eidson said.
The company, Eidson said, would most prefer to find an interested buyer and initiate a transaction, while being forced into an immediate reclamation process would be least favorable, though not as bad of a scenario as the company's share price, which opened at $29.88 per share Aug. 14, might reflect.
Should Contura become responsible for an immediate reclamation of the mines, Eidson said they would be looking at a net present value cost in the ballpark of about $100 million spread over eight to 10 years, net of the impact of the separate Pax mine transaction. While the publicly stated face amount of the bonds posted for the Wyoming mines is about $250 million, that calculation accounts for things such as needing to purchase a $30 million piece of equipment for reclamation even though it is already at the mine and other built-in contingencies that may not actually be required, he explained.
The $100 million cost would equate to roughly $5 per share of the company's current share count.
"Given our share price decline of approximately 40% since Blackjewel initially filed on July 1, we believe the market has probably punished us a bit more than the numbers would support just due to the exposure to [Powder River Basin]," Eidson said. "It's certainly something we would rather not deal with. ... We continue to believe that the net impact of the company will be very manageable going forward."
The less troubled Pax mine, when fully operational, can produce up to half a million tons of metallurgical coal annually and should generate enough return to roughly cover the cost of the company's total bid for Blackjewel's assets, Stetson said.
Despite a strong quarter, the company announced it would be rationalizing production for the year in light of market weakness in places such as Europe and South America instead of aggressively selling coal for low returns into a buyer's market.
Stetson, on his first call as Contura's CEO, also highlighted his vision for leading the company. Lowering the company's cost structure back to historical levels and improving coordination between sales and operations, for example, will be a focus as the company acknowledges it can run safe and efficient operations, but markets cannot be controlled. He will also maintain a focus on keeping a strong balance sheet "in concert with a robust capital return program." Stetson added he will be "actively managing Contura's asset portfolio" through potential acquisitions or divestitures that enhance or expand the company's focus on metallurgical coal.