With the purchase of Cloud Peak Energy Inc.'s Powder River Basin coal mines through a bankruptcy auction sale, the Navajo Transitional Energy Co. LLC will become the third-largest coal producer in the U.S. by production volume.
The company, or NTEC, estimated that annual production from the three former Cloud Peak mines plus its Navajo mine will generate total annual revenue of over $1 billion and provide financial resources to the Navajo Nation through increased tax revenue. The purchase transfers the Wyoming and Montana mines to NTEC free and clear of their previous debt burden as the Navajo Nation company aims to "re-focus operations on diligent mining and marketing fundamentals to achieve the same levels of operational and financial success it has accomplished at the Navajo mine."
"This purchase is both exciting and historic," NTEC Management Committee Chair Tim McLaughlin said in a news release. "Indian tribes have long had a deep connection to the earth, and for the first time, a tribal company will now lead thoughtful and diligent energy development on a national level."
After a delayed auction process, NTEC's winning bid was announced Aug. 16 but was subject to a court's approval that was received Aug. 19. The transaction is expected to close in October. The acquisition will position NTEC for "transitioning to and investing in other forms of energy and thoughtful development of energy resources," a release from the Navajo Nation said.
In 2018, Cloud Peak produced about 49.5 million tons from its three mines and generated $832 million in revenue, the NTEC release said. Production at Cloud Peak's mines fell sharply ahead of its bankruptcy reorganization as flooding in the Midwest and heavy rains at its Powder River Basin mines disrupted coal production and deliveries against a backdrop of intense competition from natural gas and weakened opportunities to sell its coal into export markets.
Bankruptcy documents show that NTEC secured a winning bid made up of $15.7 million in cash and a $40 million note secured by a first lien on all assets, which is subordinated to collateral for certain permitted senior lien debt. The purchase also includes other considerations, such as a royalty of 15 cents per ton payable quarterly for five years on some of the company's coal production.
Unlike Blackjewel LLC, another Powder River Basin coal producer that filed for a bankruptcy reorganization, Cloud Peak's mine operations have continued to operate and will continue to do so, according to a release from Cloud Peak.
Among other considerations, NTEC also agreed to assume pre- and post-petition non-income-tax liabilities and coal-production related royalties valued at about $93.9 million and $20 million worth of post-petition accounts payable.
Cloud Peak entertained bids from NTEC, Aspen Coal & Energy LLC and Lighthouse Resources Inc., according to an Aug. 19 bankruptcy declaration of Marc Puntus, a partner with investment banker Centerview Partners LLC, which was hired to help with the restructuring process.
Aspen's bid provided distributable value to the estate of $282.3 million and was designated as the original baseline bid. Aspen is associated with Clarke Investments LLC, an entity that shares an address used by Thomas Clarke's Virginia Conservation Legacy Fund Inc., according to documents from the Colorado Secretary of State.
Clarke has either purchased or attempted to purchase several distressed coal assets in the past several years including those that were used to form Mission Coal Co. LLC, which later filed for bankruptcy itself. Clarke also was involved in an offer on Westmoreland Resource Partners LP's Kemmerer mine that was ultimately rescinded during that partnership's bankruptcy sale process.
The filing also noted that Cloud Peak received various bids for less than substantially all of its assets, including a bid for just one of its mines. NTEC's bid was the only one submitted with committed surety bonding and did not require third-party financing while also offering the lowest credit risk, Puntus wrote.
NTEC was formed in 2013 to acquire the Navajo mine. NTEC also tried to buy the Navajo Generating Station and Peabody Energy Corp.'s Kayenta mine in a bid to make a vertically integrated energy company operable through 2029 but ultimately gave up on that effort earlier this year due to required liability guarantees associated with decommissioning the plant.
