Is Bowie Resource Partners the Next Bankruptcy?

Just last November some in the coal world saw Kentucky-based Bowie Resource Partners as a kind of contrarian growth story. 

Backed by $400+ million from high-powered international energy trading giant Trafigura and its private equity subsidiary Galena Associates, the company appeared to have the deep pockets necessary to carry off any number of distressed acquisitions. With Trafigura’s marketing firepower, especially, Bowie could be a big player in the global thermal coal trade in Asia.

Agreements were in place at the Port of Stockton for about four million tons of export capacity—not enough—and so Bowie embarked on a project to expand West Coast port resources out of Oakland. The State of Utah even agreed to kick in $53 million for the port project. Bowie had jumped on a few small mine acquisitions and had also announced a large three-mine deal with Peabody late last year. For $358 million they would take three of Peabody’s mines.

But there have been some hang-ups:

• The company’s IPO last year has gone nowhere. It was supposed to: 1) take out Trafigura and Galena’s equity position; 2) allow the company to close the Peabody deal, and 3) position the company for further purchases. Bowie remains debt laden, and as we and others have noted, its current coal reserves in Utah are in a declining market.
• The Trafigura and Galena equity buyout is on hold. Does this mean that the markets have determined that the current indebtedness to Trafigura and Galana far outstrips the value of the companies reserves? We think so.
• The mine deal with Peabody is now defunct. Bowie could not find financing for the deal. What happened to Trafigura and Galena’s bullishness? Does this mean that the markets have determined that Bowie is not a viable concern or that the mines they were trying to buy are worthless? Either way, trying to buy more mines and sell more coal in an oversupplied market seems not to be a winning strategic play.
• The Port of Stockton where Bowie/Trafigura has its current capacity agreement is projecting almost no coal flow this year.
• The developers of the Port of Oakland have pledged to the City of Oakland that in addition to the $53 million from the State of Utah there will be a $200 million commitment from private investors. The $200 million was due last June. Even the governor of Utah who signed the legislation for the $53 million out of Utah taxpayers’ pockets has decided to call in a financial adviser to see just what he has stepped in.
• In February, Bowie announced it was idling Bowie # 2 in Colorado.
• Overall, Bowie’s total tonnage in 2015 was down 12 percent from 2014 with most of the losses in Colorado. That’s with coal prices having actually done comparatively well holding in the low to middle $40 per ton but well off the $70 + per ton prices seen less than a decade ago.

How the company will continue to pay the interest on its indebtedness to Trafigura and Galena remains to be seen. How long those investors can withstand weak performance is also an issue. With coal values plummeting all around them and no sign of any resurgence in the global thermal coal trade out of India, the outlook is grim.

Is Bowie the next company to declare bankruptcy?

Tom Sanzillo is IEEFA’s director of finance.

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