Brink's, a company known for its security and logistics business,has found itself in the sights of a group seeking to claim millions over undevelopedcoal properties in West Virginia.
Brink's arose from what was formerly known as The Pittston Co.Pittston had become one of the country's largest metallurgical coal export businessesby 1978 and was also then amassing contracts with domestic electric utilities.
According to a recent complaint in the Circuit Court of LoganCounty, W.Va., a group of land companies and other entities collectively known inthe complaint as the "McDonald heirs" were approached by Pittston in 1978to obtain the rights to mine their "valuable low-sulfur steam and metallurgicalcoal." The group believed they would be getting royalties from coal Pittstonwould mine and sell.
"Pittston and Elkay had the mining expertise, infrastructure,and customer base, and the McDonald heirs had the high-grade coal to make an agreementbetween the parties a lucrative one for both sides," the filing states.
Brian Glasser is an attorney with Bailey & Glasser, a firmthat among other areas of law specializes in energy leases and contracts. He isalso counsel for the plaintiffs suing Brink's over allegedly "squandering"the potential of property leased decades ago. He said Brink's refusal to pay upor develop major leases has been "totally unfair" and that it is time"to get their checkbook out and pay the damage."
"They managed to sit on this piece of property for somethinglike more than 30 years and it's ridiculous," Glasser said. "They're tryingto recover the money that they owe Bruce McDonald for doing nothing — by not doingwhat they're supposed to do."
Depending on how the case goes, the complaint suggests Brink'scould be on the hook for well over $100 million in missed royalties.
"It used to be the most prominent, successful metallurgicalcoal mining company in America," Glasser said. "That's what my clientssigned up for. It's not what they got."
Project held as companytransitioned
The agreement included rights to coal seams underlying more than3,000 acres of property in the Huff Creek area of Logan County with a primary termof 40 years from 1978 through 2018. One part of the lease included a guaranteedminimum annual production for certain years, including a 250,000-ton annual minimumfor years since 2006.
While Pittston began exploration and development of at leastseven mines proposing to recover 30 million tons of coal early in the lease stage— even obtaining a permit from West Virginia — the mines were never completed. By1984, Pittston was pointing to "deteriorating market conditions" it saidrendered the coal "no longer merchantable and minable" in an unsuccessfulchallenge to the McDonald lease.
Subsequent efforts to develop a mine to access the coal reserveswere also unsuccessful. The complaint said each lease year since 2006, the assigneeof the lease, Brink's subsidiary Addington Inc., has paid a $500,000 deficiencypayment each year.
While holding off on development of the McDonald lease, the attorneyssaid Pittston continued to develop other mining projects and spent millions developingthose properties. One developed mine was sold to what would eventually become thecoal giant Massey Energy. The company eventually sold many of its assets piecemealuntil Appalachian Fuels LLC bought most of Pittston's West Virginia assets in 2003when Pittston became Brink's.
Though the company is now better known for its security services,as of its 2015 annual report, the company still maintains contractual obligationsrelated to United Mine Workers of America retirement plans. The company had largelyexited the natural resources business by 2002.
"As Brink's entered the new century, a series of financialtransactions rapidly transformed the company's management structure," the company'swebsite states. "The sale of coal, natural gas and timber interests removedmajor financial liabilities and allowed the firm to concentrate on core businesses."
Missing the met boom
In the late 2000s, the price of metallurgical coal surged. Metcoal properties around the McDonald property were being developed into lucrativeproperties that were fueling a booming demand for steelmaking, particularly in Asia.
The McDonald heirs even attempted to reassign the lease to Masseyto take advantage of rising prices in 2008. Though Pittston rejected that, it alsolater entered into a contract mining deal with Massey that was never materializedor shared with the McDonald heirs.
"Reasonably prudent coal operators developed their reserves,especially their metallurgical coal reserves, to take advantage of these recordcoal markets," the filing states. "As of today, the defendants have notmined any coal from the McDonald reserves."
That same boom — and its subsequent bust — is also a part ofwhat led to the downfall of bankrupt companies such as James River Coal Co. and Alpha Natural Resources Inc. that bought up metallurgicalcoal assets as prices were surging to records of over $300/tonne.
Even long after the met coal market had drifted from those highs,the complaint said Ramaco LLCwas interested in mining the reserves in 2015. After that did not work out, theMcDonald heirs also tried to work with BlackhawkMining LLC, who was interested in the reserves.
"Brink's and Addington have not only failed to take eventhe first steps to mine the McDonald reserves, but they have also prevented miningon the McDonald reserves by refusing to assign or sublease the lease to other entitiesthat anticipated mining the property," the complaint states. "Brink'sand Addington's lack of diligence and reasonable prudence has squandered the opportunityfor the coal from the McDonald reserves to be sold at the highest possible pricesas required by the lease."
The complaint seeks judgment over Brink's alleged failure ofits duty to diligently mine under the lease. The breach of contract, the complaintsaid, has cost a loss of royalties on more than 20 million tons of coal that couldhave earned royalties as high as $27.50 per ton, or $550 million. The complaintalso seeks other judgments related to minimum annual production royalty paymentsand deficiency payments it says should have been adjusted based on sales price ofsimilar coal.
"They probably could have made the same kind of money thatpeople like [Imagin Natural Resources] or Massey made or other miners like [billionaireWest Virginia gubernatorial candidate Jim] Justice made doing transactions,"Glasser said. "Brink's has only themselves to blame for missing any opportunities."
Brink's did not immediately respond to requests for commentssent to their media and investor contacts.