Less Than a Year After Foray Into Met Coal, Murray Energy Puts Mines up for Sale Author Taylor Kuykendall · ThemeEnergy
Less than a year after entering the metallurgical coal space, the nation’s largest privately held coal miner may be taking the first steps toward removing the volatile commodity from its portfolio.
In the wake of weak coal demand, Murray Energy Corp. subsidiary Murray Metallurgical Coal Holdings plans to sell its metallurgical coal mines in a bankruptcy auction less than a year after acquiring the assets from another coal miner’s bankruptcy auction. Murray Met announced Feb. 12 that it and five subsidiaries were filing for a Chapter 11 bankruptcy reorganization and entering a restructuring support agreement with its principal creditors to access $47 million worth of debtor-in-possession financing.
The metallurgical coal subsidiary was not originally a part of Murray Energy Corp.’s ongoing bankruptcy reorganization. This was partly because the company had a different capital structure as Murray Energy acquired the assets from the bankruptcy of Mission Coal Company LLC and management did not anticipate a restructuring would be necessary. However, fluctuating conditions of the metallurgical coal market weighed heavily on the producer, according to Murray Energy Holdings CEO, CFO and President Robert Moore.
“Although the metallurgical coal market appears to have stabilized after several years of price declines, the coal industry has recently been in a state of turmoil,” Moore wrote in a declaration filed with the U.S. Bankruptcy Court for the Southern District of Ohio. “Coal mining businesses across the United States and around the world have experienced pressure from the downward spiral in commodity prices.”
The price of metallurgical coal declined by 30% since Murray Energy bought its first metallurgical coal mines in April 2019, the company said in a bankruptcy court filing. That decline rendered the company unable to meet financial obligations, it added.
While coking coal prices are low, they have been worse in recent history. Depending on quality, coking coal is presently fetching about $130 to $150 per tonne on the global market. Quarterly benchmark metallurgical coal prices were under $100 per tonne from late 2015 to late 2016 before prices skyrocketed in 2017. A debt-fueled metallurgical coal asset-buying frenzy ahead of a similar rise in coking coal prices about a decade ago was a major factor leading to the bankruptcy reorganizations of some of the biggest names in coal, including Peabody Energy Corp. and Arch Coal Inc.
Now, Murray Met is looking to sell its Maple Eagle mine in an auction backed by the stalking horse bid of Blackhawk Mining LLC’s Panther Creek Mining LLC. Blackhawk recently completed its own bankruptcy court restructuring with more than $1 billion scrubbed from its balance sheet after growing its footprint by buying other companies’ assets in bankruptcy court auctions.
Murray Met proposed a joint bid for the purchase of its Oak Grove mine. The offer is from a newly formed joint venture between Murray Energy Corp. and MC Southwork LLC and would be subject to an overbid process. Murray Energy proposed to continue operating the mine under new, incentivizing terms.
Oak Grove is a longwall mining complex in Alabama that produces mid-vol metallurgical coal. The operation employs 511 people, 389 of which are unionized.
“Although Oak Grove is a relatively old coal mine, it is up-to-date and the vast majority of the infrastructure repairs needed to maximize production from the mine have already been made,” Moore wrote, adding that the company believes the operation still has “much potential” with large reserves and high capacity.
The Maple Eagle mine opened in 2007 and was bought from the April 2019 bankruptcy auction of Mission Coal. An affiliate of Mission acquired the West Virginia mining complex in 2016 from the bankruptcy auction of Walter Energy, and the mine currently has 18 employees.
Both operations were put into “hot idle” in late 2019 in response to weak demand for metallurgical coal. Murray Metallurgical Coal also owns the North River mine, which is not currently operational.
Despite reducing the workforce and “hot idling” the mines to maintain liquidity, Murray Met said it is spending approximately $4 million to $5 million monthly to preserve and maintain value, with no operating income or access to capital to offset those expenses. Murray noted it is marketing the Maple Eagle mine for sale and exploring opportunities to sell Oak Grove, but it was soon clear the sale would require a Chapter 11 bankruptcy proceeding.
Murray Met is “in urgent need of liquidity” and as of Feb. 11 lacked the finances required to fund operations, wrote Amy Lee, senior director at Alvarez & Marsal North America LLC and proposed financial adviser for the restructuring.
“Notwithstanding efforts to improve liquidity, the debtors have faced ongoing funding challenges, even to pay such basic expenses as biweekly payroll,” Lee wrote in a declaration to the court. “The debtors recognize that the failure to pay their employees would make it virtually impossible to preserve operational potential and would jeopardize the marketability of their mining complexes.”
Murray Met currently has $270 million in debt and other liabilities, Lee noted.
