January 7, 2019 Read More →

Reclamation costs a key factor in Westmoreland’s restructuring efforts, experts say

S&P Global Market Intelligence ($):

Analysts said they were not surprised by Westmoreland Coal Co.’s plan to sell one Ohio mine and pay a holding company to take several others because the operations have high reclamation costs and shrinking profitability.

The coal producer, which sought Chapter 11 bankruptcy protection in October 2018, presented the bankruptcy court with a plan to sell its Buckingham mine to an as-yet-unformed holding company for $1 million and transfer another 15 mines in Ohio and Kentucky, which it calls the Oxford assets, to that entity along with a payment of between $16 million and $20 million. Westmoreland said all 16 mines are noncore assets.

Industry analysts told S&P Global Market Intelligence that the low price tag on the Buckingham mine is likely a reflection of both the mine’s value and its reclamation costs. Westmoreland projects the mine’s gross reclamation cost outflows through 2065 to total $6 million, according to a Form 8-K filed Dec. 19, 2018. All of the operation’s coal is shipped to the Conesville power plant, whose contract with Westmoreland expired at the end of 2018 and was not renewed.

B. Riley FBR analyst Lucas Pipes said the $6 million reclamation cost is a “modest amount,” but the new owner may have to deal with the liability sooner rather than later if it can no longer service a power plant. He also noted that the Ohio River Valley is “very competitive” and the buyer may have difficulty competing with Murray Energy Corp. and Alliance Resource Partners LP for deliveries to other generators. Pipes said the holding company may think it can reclaim the mines for a lower price than Westmoreland is estimating and make money from the deal.

Westmoreland told the court it had attempted to market the Buckingham mine to 37 potential buyers.

More ($): Experts: Reclamation liabilities, low value lessened price of Westmoreland mine

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