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Employee recall at Blackjewel mines could mute uncertainty in Powder River Basin

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A coal truck drives around the Eagle Butte coal mine in September 2017.
Source: S&P Global Market Intelligence

Blackjewel LLC alerted furloughed western U.S. coal employees to a possible recall in a Sept. 9 letter, a move that could clear up uncertainty around two mines that supply a significant amount of thermal coal to utilities across the country.

The letter, shared by employees on social media and picked up by local media outlets, notes financial difficulties led the company to lay off most of the workers at its Belle Ayr and Eagle Butte coal mines, which together accounted for roughly 11.1% of the coal mined in the Powder River Basin in the second quarter. A monthly operating report for July, filed Sept. 10 with the U.S Bankruptcy Court for the Southern District of West Virginia, shows about 190 employees at Blackjewel operations had returned to work to protect the value of the debtors' mines. While "ordinary operations have not resumed," according to the court filing, it is not clear if some coal has continued to be delivered to utilities that depend on its supply.

"The company is currently considering restarting production efforts at the facilities and, as a result, may be in the position to recall furloughed workers," the letter states. "The company does not know specifically when it would restart production, but if it is in the position to do so, it could restart operations during the next several days or during the coming weeks."

Blackjewel requested employees express their interest to return to work by Sept. 19. Contura Energy Inc. agreed to purchase the Powder River Basin mines and won a bankruptcy auction to take over the assets last month. However, approval of the sale is conditional on reaching an agreement with government officials, and negotiations have been ongoing since late August.

Contura executives during a recent earnings call framed the purchase as a risk mitigation strategy since the company was a previous and recent owner of the mines. Now focused on metallurgical coal, it also indicated it would explore options to turn the focus at the western thermal coal mines from production to early reclamation or to resell the mines to a buyer interested in being a Powder River Basin operator.

While most bankruptcy filings in the coal sector in recent years saw operations continue through restructuring efforts, a botched attempt to finance Blackjewel's restructuring forced the company to send employees home when it began its reorganization in July. Blackjewel attorneys, its chief restructuring officer and officials with Javelin Global Commodities (UK) Ltd., a company with exclusive marketing rights to the company's coal, did not immediately respond to questions about recent rumors that some coal was potentially being shipped from the mines.

Maia LaSalle, a director of public affairs at BNSF Railway Co., said the rail provider could not divulge the destination of any of its coal shipments. She added that "we have been loading coal trains at both mines," in response to an inquiry about deliveries since Blackjewel's bankruptcy. Union Pacific Corp., another major rail transporter of coal from the two mines, did not immediately return a request for comment.

If existing customers find other means of obtaining coal and are able to exit the contracts that provide operators of the mines with a degree of certainty of future sales, it could end up reducing the value of the Eagle Butte and Belle Ayr mines in the eyes of Contura or other potential buyers. Contura declined to comment on Blackjewel's current operations of the mines.

Several utility customers of the two mines, identified by an S&P Global Market Intelligence analysis of federal fuel contract data, indicated there had not been much disruption to their operations as a result of Blackjewel's challenges.

Oglethorpe Power Corp., a Blackjewel customer according to federal data, has not experienced any impact to its coal plant operations as a result of the Blackjewel bankruptcy, a spokesperson said. Similarly, NRG Energy Inc. reported no problems or concerns and said inventory levels are adequate.

"While these are commercially sensitive issues, we remain confident in the market's ability to respond to changes in supply and demand," said David Knox, a spokesman for NRG Energy.

"Initially, the supply disruption was addressed solely by shifting coal supplies among or around our coal-fired generation fleet to backfill for any missed Blackjewel/Contura train loadings," said Scott Reigstad, a senior communications partner with Alliant Energy Corp. "As the situation continued, we have been supplementing shifted supplies with spot purchases from other suppliers. We are not anticipating the need for any additional actions beyond those we are taking now."

A spokeswoman with American Electric Power Co. Inc. said the company continued normal operations at its plants by making adjustments to its existing coal agreements. Xcel Energy Inc. spokeswoman Michelle Aguayo noted Powder River Basin coal is an important supply source for its Comanche and Pawnee coal-fired power plants.

"Xcel Energy has been monitoring the issues with Blackjewel and had already adjusted for limited production from this supplier and have found other suppliers to keep up with our demand," Aguayo said.

While a representative of Westar Energy Inc. did not respond to a request for comment, the company has sought bankruptcy approval to end a contract with Blackjewel for coal supply to the Jeffrey Energy Center, a 2,181-MW coal plant in Kansas. In a July 22 filing with the bankruptcy court, Westar indicated Blackjewel failed to supply the amount of coal it needed to run its power plant. The plant was the largest customer of the Eagle Butte mine through April in 2019, purchasing 1.8 million tons of coal in the period, according to federal fuel data.

Blackjewel's top competitors in the region — Peabody Energy Corp., Arch Coal Inc. and Cloud Peak Energy Inc. — did not respond to a request for comment about potentially picking up new coal business.