Xinergy adds to growing asset base with Kentucky coal buy

Tennessee-based Xinergy Ltd., which has a stock listing in Canada and rapidly-expanding Central Appalachia coal production, said Jan. 5 that it has completed a purchase of coal assets in Bell, Clay and Leslie counties, Ky.

The buy includes reserves that significantly increase Xinergy’s thermal coal reserve base in Kentucky by effectively expanding the reserve profile of the company’s already-in-hand Straight Creek mining complex.

Xinergy President Bernie Mason said: “The additional reserves will nearly double the Straight Creek reserve base on a property at which our management team has a tremendous knowledge and operating experience. The close proximity of the reserves, which are immediately to the north of Straight Creek, will allow us to take advantage of certain synergies, including transporting the coal directly through Straight Creek utilizing our existing facilities, and utilizing Straight Creek’s excess productive capacity.”

The purchased coal assets include leases, permits and equipment. The company estimates there are 12,000 leased acres containing about 15 million tons of proven and probable reserves of which 4 million are permitted and which share a common boundary with the current Straight Creek operations. The company also receives a 600-ton per hour heavy media preparation plant with fully permitted refuse storage facility, a batch weigh unit train loadout on the CSX railroad and miscellaneous surface and underground mining equipment including two highwall miner units.

The total purchase price for the coal assets is about $13.4m, including the replacement of $2.8m of reclamation bond collateral at closing.

Xinergy noted that and updated National Instrument 43-101 technical report for Straight Creek, including the recently-acquired property, is being written. Those reports are required of Canada-listed companies and include a lot of specific details about a property.

Headquartered in Knoxville, Tenn., Xinergy Ltd., through its wholly owned subsidiary Xinergy Corp. and its subsidiaries, is engaged in coal mining in eastern Kentucky, West Virginia and Virginia. Xinergy sells high-quality coal to electric utilities and industrial companies throughout the southeastern U.S.

Xinergy Corp. was incorporated in October 2007. In December 2009, it completed a reverse takeover of Greenwich Global Capital Inc., which was previously listed on the NEX Board of the TSX Venture Exchange in Canada. That reverse takeover effectively launched it as a public company under the new name of Xinergy Ltd.

The company commenced mining in April 2008 at the Straight Creek property in Kentucky and expanded thermal coal operations into West Virginia in April 2010 with the acquisition of Raven Crest Mining LLC. In March 2011, it entered into leases with Penn Virginia Operating Co. LLC on a tract of land known as Brier Creek, which is adjacent to and north of the Raven Crest properties in Kanawha and Boone counties, W.Va The leases included surface and coal leases of underground thermal coal reserves and also included active permits for a prep plant and refuse area adjacent to the Raven Crest unit train loading facility. Xinergy began construction on a new prep plant and upgrades to the existing unit train loadout facility in the third quarter of 2011. Upon completion of this prep plant, which is expected in the third quarter of 2012, it will begin mining operations from the two fully-permitted underground mines on leases obtained from Penn Virginia, the company noted in an October 2011 earnings statement.

In January 2011, Xinergy acquired coal mineral leases in Greenbrier County, W.Va., through its wholly owned subsidiary, South Fork Coal Co. LLC. The acquisition included permits on the area known as Lost Flats, with production now being started.

In July 2011, through wholly-owned subsidiary, Xinergy of Virginia LLC, the company acquired 100% of the membership interest of True Energy LLC, an active high-volatility metallurgical surface mining operation in southwestern Virginia.

As of Sept. 30, 2011, Xinergy’s mining complexes included five active mines in Kentucky, two active mines in West Virginia and one active mine in Virginia. At that point, it has under lease the mineral rights to about 77,000 acres of land, comprised of 37,000 acres in Kentucky, 39,000 acres in West Virginia and 1,000 acres in Virginia. In addition, it had one prep plant and one unit train loadout facility in operation in Kentucky and one unit train loadout facility in operation in West Virginia.

For the third quarter of 2011, about 95% of Xinergy’s revenue was generated from coal sales to electric utility companies in the southeastern U.S. and its largest customers represented approximately 39%, 25% and 16% of its revenues, respectively. In its March 2011 annual report, the company said that 75% of its 2010 coal sales revenue came from two customers, Southern Co. and the Tennessee Valley Authority.

Xinergy’s coal sales in the third quarter of 2011 increased 29% to $48.7m from $37.7m in the same quarter of 2010 on sales of 532,000 tons as compared to sales of 434,000 tons in the year-ago quarter.

In July 2011, Xinergy entered into a long-term coal supply agreement with J.P. Morgan Ventures Energy Corp. for the delivery period beginning Jan. 1, 2012 through December 31, 2014. The agreement provides for the delivery of a total of 2.16 million tons of thermal coal or 720,000 tons per year from the company’s Raven Crest/Brier Creek mines in West Virginia. The agreement has a minimum aggregate value of approximately $170m (or $78.70 per ton) in revenue over the term with significant potential upside from index-based escalators and fuel cost adjustments.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.