The U.S. Bureau of Land Management office for Montana said Feb. 29 that it accepted a single, high bid of $10.65m ($0.30 per recoverable ton) from Signal Peak Energy LLC for five coal parcels in the Bull Mountains Mine No. 1 federal coal tract in Musselshell County.
The competitive coal lease sale was a reoffer of the coal lease tract the BLM had up for sale in a November 2011 auction. That first bid, also from Signal Peak Energy, was rejected because it did not meet or exceed BLM’s secret estimate of the fair market value of the tracts. The rejected November bid was $5.325m ($0.15 per recoverable ton), about half of the Feb. 29 winning bid. The 2,680-acre lease area contains an estimated 35.5 million tons of recoverable coal reserves.
Some of the factors that could influence an estimate of the fair market value include the size of the tract, the quality of the coal, the tract’s location (whether it’s adjacent to an existing mine with in-place infrastructure or is the start-up of a new mine), the timing of the revenue stream (when will the coal be mined) and sales of other similarly situated or comparable coal tracts, BLM noted. In the case of the Bull Mountains Mine No. 1 federal coal tract, the tract is within the life-of-mine permit boundary and is integral to the continued operation of the existing mine.
In October 2011, Ohio-based utility holding company FirstEnergy announced that Gunvor Group Ltd. purchased a one-third interest in Global Holding, a joint venture that owns the Signal Peak longwall mine and the related Global Rail coal transportation operations. Following the sale, FirstEnergy, through its wholly owned subsidiary, FirstEnergy Ventures, has a one-third interest in Global Holding.
FirstEnergy Generation has a long-term coal supply agreement with Signal Peak for up to 10 million tons per year. FirstEnergy said in its Feb. 28 annual Form 10-K report that FirstEnergy Generation has re-evaluated its coal usage under that agreement and has determined to resell its coal purchased from Signal Peak to an affiliate of Global Holding; provided, however, that such affiliate may require FirstEnergy Generation to repurchase up to 2 million tons annually from the existing underground mine, and, if Signal Peak develops surface mines, it could require FirstEnergy Generation to purchase an additional 2 million tons per year. FirstEnergy remains a 100% guarantor on Signal Peak’s and Global Rail’s $350m senior secured credit facility.
FirstEnergy has said that Signal Peak’s Bull Mountains No. 1 mine cleared some geology problems in 2011 and is scaling up for production of 10 million tons per year or more. The mine produced 5.1 million tons in 2011 and 4.4 million tons in 2010, according to U.S. Mine Safety and Health Administration data.