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Analysts deem Contura's sale of western assets as 'positive harbinger' for 2018

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Analysts deem Contura's sale of western assets as 'positive harbinger' for 2018

Pushing back on a bearish reaction to the sale of Contura Energy Inc.'s Powder River Basin assets to Blackjewel, analysts at B. Riley FBR Inc. said it could be "positive harbinger" for 2018.

According to company CEO Jeff Hoops, Blackjewel is affiliated with Revelation Energy LLC, with the companies sharing some common ownership. Hoops is also CEO of both companies.

On Dec. 11, Contura completed the sale of its Eagle Butte and Belle Ayr mines, along with related reserves, equipment, infrastructure and other properties, to Blackjewel LLC for deferred consideration of up to $50 million. The sale eliminated about $200 million in undiscounted reclamation obligations for the company.

Contrary to some coal pricing concerns due to additional tons from increased production following the sale, analysts Lucas Pipes and Ted Beachley of B. Riley FBR Inc. see M&A activity as a positive catalyst for the domestic coal industry at large.

"As deals often beget more deals, we believe that today's announcement could be a positive harbinger for 2018," Pipes and Beachley said in a research note. "One of the reasons why we consider M&A positive for the industry is that it holds the potential for further production rationalization, especially on the thermal coal side."

The analysts also believe that the exit from the PRB is a "net positive" for Contura's valuation and will allow the company to focus on its higher-margin Eastern thermal coal and met coal operations.