Published: February 12, 2016 |

[Click image to enlarge]

Alpha Natural Resources’ Wyoming mines are on the auction block.

The bankrupt coal company said in court filings Monday it had received a $500 million offer from its secured creditors to buy the Virginia-based firm’s core assets, including the Belle Ayr and Eagle Butte mines outside Gillette.

The announcement marks a new chapter in Alpha’s bankruptcy case. The company had previously said it planned to restructure its debts and emerge from Chapter 11. But the court filing signals the coal miner is also considering the sale of some or all of its assets.

Analysts said the move appeared designed to spark a bidding war. Alpha had previously floated proposals to sell some of its eastern mines, but had never publicly expressed a willingness to part with its Wyoming operations.

By offering its core assets as a package, the company is likely looking to entice prospective buyers to take some of its best assets along with the less desirable counterparts, they said.

The proposal by the company’s lenders represents a so-called “stalking horse” bid. It effectively amounts to creditors’ valuation of the company, establishing what lenders are willing to pay if no other parties submit bids for Alpha’s assets.

Monday’s court filing would also establish a process for auctioning off Alpha’s assets, allowing the company to sell if it receives a bid that surpasses its creditors’ valuation. Third parties would be given until March 28 to submit bids.

“The lenders may be hoping this is a starting point, where someone will come in and offer $550 million or $600 million or some higher value,” said Bob Burnham, who heads the Colorado-based consulting firm Burnham Coal LLC. “They’re trying to salvage what they can. They probably figure, for $500 million, if they do end up with it, they will be able to generate a cash flow.”

The list of Alpha’s core assets also included its natural gas operations in the Marcellus shale formation, the McClure, Nicholas and Toms Creek mines in West Virginia and Virginia; all its Pennsylvania coal operations; and its stake in an eastern Virginia coal port.

But whether the company is able to prompt a bidding war is unclear. The market of prospective buyers is likely thin.

And while mines like Eagle Butte and the Cumberland Complex in Pennsylvania could be potentially attractive, others are less so. The Belle Ayr mine, for instance, has some of the highest production costs in the Powder River Basin, said John Hanou, of Hanou Energy Consultants. High-cost mines are likely to see production curtailed sharply in a declining market, he said.

The company’s reclamation liability of $411 million at Belle Ayr and Eagle Butte alone is slightly less than the $500 million valuation given to the company’s core assets by its creditors. The mine’s reclamation would be assumed by creditors if they take control of Alpha’s assets.

“In my personal opinion, the value of those two mines are zero or probably negative in a way because Belle Ayr is the high-cost mine,” Hanou said.

A company official noted market conditions have continued to deteriorate in the wake of Alpha’s August bankruptcy filing. With few projecting a quick turnaround, the company opened discussions with creditors over the possibility of liquidating assets.

The arrangement called for in court filings is required as part of the $692 million debtor-in-possession loan Alpha received to finance operations during bankruptcy, the company said.

Monday’s court filing “will also help inform our decision if certain properties should be sold, and which operations will remain upon completion of our reorganization in the coming months,” Alpha said in a statement. “As part of our overall restructuring effort, we believe this process will provide the best chance of preserving jobs and maximizing the value of the broader enterprise for all stakeholders.”

The $500 million valuation of the company’s core operations underlined the rapid deterioration in Alpha’s financial condition. In 2009 the company paid $1.5 billion to acquire Foundation Coal, the former operator of Belle Ayr and Eagle Butte, along with a host of eastern mines. Alpha paid $7.1 billion for metallurgical miner Massey Energy two years later.

“You have to take into account that when they were paying the big bucks, the metallurgical coal market was sky high,” Burnham said. “Where they made the mistake is they assumed those prices would hold. Those prices didn’t hold and the value of the assets dropped dramatically.”

Source: (February 9, 2016) Star Tribune

To stop by Alpha’s website, CLICK HERE

Be in-the-know when you’re on-the-go!