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US coal miner Mission Coal files for Chapter 11 bankruptcy

Highlights

Mission has about $175 million in debt, cash balance of $55,000

Company had stockpiles of 700,000 st this spring from rail issues

Houston — Mission Coal filed for Chapter 11 bankruptcy protection Sunday with the US Bankruptcy Court for the Northern District of Alabama, according to court filings.

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The Kingsport, Tennessee-based company, which produces and markets mostly metallurgical coal, was formed in January through a reorganization that combined and consolidated the operations of Seneca Coal Resources and Seminole Coal Resources.

Mission Coal has two deep mines and one surface mine in West Virginia and one deep mine in Alabama with coal qualities varying between low-volatility, mid-volatility and high-volatility coal. Through Sunday, the company had spent roughly $28 million upgrading the mining complexes, according to the filing, but "despite favorable market forces and commodity pricing," Mission was unable to maximize the value of their operations.

Mission has roughly $175 million in debt, including $104 million outstanding under a first lien secured term loan and $71 million outstanding under a second lien secured term loan. As of Sunday, the company's total cash balance is about $55,000, and does "not have readily available sources of additional financing," according to the filing.

The company said an asset sale through the Chapter 11 process will maximize the ultimate realized value for its stakeholders and its aim is to "conclude negotiations with all key stakeholders, propose a Chapter 11 plan with the support of as many of [the] other stakeholders and creditors as possible, and comply with milestones provided in ... debtor-in-possession financing to expeditiously and efficiently execute a sale of Mission Coal's assets."

Mission was projected to produce 6.5 million st of coal in 2018, but due to adverse mining conditions and rail/port disruptions, the company lowered its 2018 forecast to 4.5 million st. However, at the end of September, only 2.1 million st of coal had been produced, which "severely limited [Mission's] liquidity and has prevented [it] from implementing [an] operational upgrade program, including fully performing the necessary maintenance on [the company's] mining operations."

GEOLOGICAL AND OPERATIONAL CHALLENGES

In 2017, a roof collapse at Seneca Coal Resources' Oak Grove mine in Alabama slowed production, while the company faced another hurdle in the spring of 2018 in the shape of rail issues.

"Norfolk Southern was underperforming due to bad weather and freezing conditions. Despite assurances that the railroads would catch up through the addition of additional crews, service remained shallow throughout 2018," limiting the company's coal sales, according to the filing. Inventories at the mines grew to about 700,000 st of clean coal on the ground this spring, or about $70 million worth of coal.

The Pinnacle mine in Wyoming County, West Virginia, also faced geological and operational challenges affecting productivity. The mine "relies on a plow that requires flat mining conditions with a thick coal seam," but conditions at the mine are "undulating with seam displacements and faults." Mission said the cost to bring the mine back to full production was likely in the multi-million dollar range, so the company issued a Worker Adjustment and Retraining Notification Act of 1988 or WARN notice to all of its 360 workers on August 6.

As of Sunday, the mine's final closure date had not been decided, but a decision is expected by October 19. The mine is currently idled, but the preparation plant at the complex is still functional. The company plans to shut off the ventilation and pumping equipment after extracting the mining equipment at the site and to repurpose that equipment to its other mines.

Not all of the company's mines faced issues. The Maple Eagle underground mine in Fayette County, West Virginia, currently produces between 400,000 st/year to 800,000 st/year, but the company expects a third super section to be in operation, as well as additional surface mines with high wall miners, which will increase annual production capacity to 1.2 million st. The mine has 4.89 million st of clean recoverable reserves.

The company said "its most promising alternative to an in-court Chapter 11 process was a long-term forbearance proposal that would extend a forbearance through March 31, 2019, and have invested $34 million into Mission Coal to strength liquidity, catch up on any outstanding payments, and allow the [company] to commit to more planned expansion of [its] operational assets. After several productive rounds of negotiation and discussion, however, this additional funding could not be secured, and the [company's] dire liquidity situation became too much for the lenders and Mission Coal to bear, making the long-term forbearance no longer viable."

Mission owes $32.1 million to its top 50 creditors with the largest claims, including $9.73 million to United Mine Workers of America members' pensions and benefits trustees, $4.9 million and $4 million to Michael Hollard and Bluestone Coal, respectively, for litigation purposes. The company also owes $3.2 million to Natural Resource Partners, $2.1 million to Carter Machinery and $1.95 million to Alabama Power.

Mission also has $18.2 million in black lung benefit obligations and over $30 million in asset retirement obligations at Seneca and Seminole.

-- Tyler Godwin, tyler.godwin@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com