Foresight Energy plans IPO fueled by growing Illinois coal production

Foresight Energy Partners LP, a rapidly-growing Illinois coal producer founded by coal operator Chris Cline, has plans to go public through an IPO, according to a Feb. 2 Form S-1 statement it filed with the SEC.

There will probably be several S-1 amendments filed by the time the company goes public, though none had been filed as of March 12. The company said it would apply to have its common units listed on the New York Stock Exchange under the symbol FELP.

The rapid growth of Foresight is keyed by numerous SO2 scrubber installations lately at coal-fired power plants in the eastern U.S., which allow those plants to cleanly burn this high-sulfur coal. The Illinois coal business, located within the Illinois Basin coal production region, had taken a huge hit in the 1990s due to the 1990 Clean Air Act, since many power generators chose to comply by switching their plants to low-sulfur coal instead of installing expensive scrubbers. Ever-tighter air emissions standards put into place in recent years mean that scrubbers, in many cases, are now the only compliance option.

“Many domestic utilities have installed or are planning to install scrubbers, which is expanding the market for high sulfur coal from the Illinois Basin and the Northern Appalachian region,” said the Foresight Form S-1. “According to Wood Mackenzie estimates, 198 GWs, or 63% of total capacity, of electric generating units in the United States was scrubbed in 2011. Wood Mackenzie expects scrubbed capacity to increase to 268 GWs, or 100% of total capacity, by 2025. In addition, Wood Mackenzie forecasts domestic Illinois Basin demand increasing by over 75 million tons within the next 15 years, with much of the demand deriving from the southeastern and midwest regions. Shortages and decreases in supply in the eastern United States continue to affect pricing in the entire United States market.”

Foresight said it has invested over $1.5bn in four Illinois mining complexes with long reserve lives which it believes will provide it with significant sustainable free cash flow. “We have significant near-term and long-term growth opportunities through our approximately 3 billion tons of coal reserves,” said the Form S-1. “We believe our first operation, Williamson, was the most productive underground coal mine in the United States for the fourth quarter of 2011 on a clean tons produced per man hour basis. Our leading productivity translates into low costs, and we believe we are the lowest cost underground coal producer in the United States at $19.41 per ton in 2010. We have developed infrastructure to provide each mining complex with multiple transportation options, providing widespread cost competitive access to both domestic and international markets. We believe we are among the largest United States exporters of thermal coal, and in recent years, we have exported approximately 33% of our coal to Europe, South America, Africa and Asia.”

The Foresight Energy Partners operations will be conducted through, and the operating assets will be owned by, its wholly-owned subsidiary, Foresight Energy LLC, and its subsidiaries. Notable is that two problem mines that Cline has in Ohio and West Virginia, in the Northern Appalachia production region, are not part of Foresight Energy Partners.

Coal landholder Natural Resource Partners LP (NYSE:NRP) has done several sale-leaseback deals at some of the Foresight operations in Illinois, including the Shay No. 1 mine, which means that a company that is already public has a big stake in some of the Foresight coal reserves and infrastructure. NRP is also involved in asset ownership at the two problem mines in Northern Appalachia.

Up to eight high-production longwalls in the works

The four Foresight mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin) are designed to support up to eight longwalls, giving them a combined productive capacity of up to 65 million tons of high-Btu, high-sulfur coal per year. Foresight currently operates one longwall at Williamson and plans to commence one longwall at each of the Sugar Camp and Hillsboro operations in the first nine months of 2012.

For 2012, 2013 and 2014, Foresight has secured coal sales commitments for about 12.8 million tons, 14 million tons and 11.7 million tons, respectively, of which all in 2012, about 9.2 million tons in 2013 and approximately 5.3 million tons in 2014 are priced, said the Feb. 2 Form S-1.

The company has developed infrastructure that provides each of its mining complexes with multiple transportation outlets and have direct and indirect access to all five Class I railroads giving it unique access to multiple domestic and seaborne markets. In 2011, the company completed the rail spur at the Hillsboro complex, finished development of a state-of-the-art dock facility located on the Ohio River and gained control of a seaborne export terminal in Louisiana.

In August 2011, an affiliated company owned by Foresight Reserves acquired the IC Rail Marine Terminal in Louisiana from the Canadian National Railway and renamed it as the Convent Marine Terminal. It is designed to ship and receive commodities via rail, river barge and ocean vessel. Rail service to the terminal is provided by the Canadian National. Waterborne material is received and shipped via the Mississippi River. The Convent Marine Terminal plans to expand its capacity from 5 million to 8 million tons of coal throughput capacity per year in the near-term to 16 million tons of coal throughput per year in the long-term.

Sugar Camp alone would get half of the longwall systems

By operation, the number of potential longwalls and potential peak production levels are: Williamson, one longwall, 7 million tons per year; Sugar Camp, four longwalls, 28 million tons per year; and Hillsboro, three longwalls, 27 million tons per year.

The Macoupin complex, also known as Shay No. 1, is shown as just a room-and-pillar mine with up to 3 million tons per year of peak production, though this operation did have a longwall in a prior life under a different owner. Shay No. 1 is the only one of these mines that Foresight hasn’t built from scratch, though Shay No. 1 did get a total revamp after Cline bought it.

These four operations produced a combined 7.9 million tons in the first nine months of 2011, with Sugar Camp and Hillsboro producing minimal pre-longwall coal during that period. Annual productive capacity is an estimate of the design capacity at each mine based on the number of potential longwall mining units and two continuous miner units supporting each longwall at each of Williamson, Sugar Camp and Hillsboro, and two continuous miner units operating at Macoupin.

In 2010, one of Foresight’s subsidiaries, Foresight Coal Sales (FCS), filed a breach of contract action in federal court against the Tennessee Valley Authority for failure to accept and pay for any coal sold by FCS under a coal purchase confirmation executed by the parties in September 2008. “The coal sales confirmation requires FCS to sell and TVA to purchase 700,000 tons of coal per year for each contract year beginning January 1, 2009 and ending December 31, 2011,” said the Form S-1. “This suit is stayed to allow the parties to discuss settlement.” TVA has contended in the lawsuit that it never signed a binding final contract for this coal.

Cline, Beyer among top company execs

The Form S-1 named several officers of the new company, including:

  • Chris Cline, who is the Chairman of the Board and Principal Strategy Officer. Cline, who started in the southern West Virginia coal business and has since branched out, has more than 30 years of experience in the coal industry.
  • Michael  Beyer, who is the President and CEO and a member of the Board of Directors. Beyer has more than 30 years’ experience in management, operations, finance and acquisitions related to coal and other energy-related businesses. Before joining Foresight in 2006, Beyer served as President of AEP Coal Inc., Vice President of Business Development at Enron Corp. and Senior Vice President and Manager of the Natural Resource Department at PNC Bank.
  • Oscar Martinez, who is the Senior Vice President-CFO. Before joining Foresight in August 2011, Martinez served as Vice President and Treasurer at coal producer Cloud Peak Energy from 2009 to July 2011.
  • H. Drexel Short, who is the Senior Vice President-Mining Operations. Short has more than 30 years’ experience in managing underground coal mining operations. Prior to joining Foresight in 2007, Short was Senior Vice President-Group Operations for A.T. Massey Coal from 1995 to 2007.
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.