Royal Coal trying to work its way out of royal trouble

Canada-listed Royal Coal (TSX VENTURE:RDA)(FRANKFURT:RLC), which has coal mining operations in eastern Kentucky, said March 5 that it continues to use every effort to reduce expenditures, seek additional capital and restructure or refinance its indebtedness.

That includes decreasing its workforce and idling production at its Big Branch mine. In addition to seeking to reduce its debt obligations, the company said it is revising its mine plan with the goal of reaching sustainable profitable operations at the Big Branch mine and phasing in over time additional production at the Big Branch mine extension and the Sid mine, with a view to bringing on production more in line with committed sales.

The company had announced Feb. 22 that it has decided to withdraw the preliminary short form prospectus that was filed with Canadian regulators on Jan. 17 covering a proposed offering of units of the company, because it was not able to complete the offering under current market conditions. Royal Coal said at the time that it does not currently have positive cash flow to meet its ongoing operational requirements and debt service and repayment obligations and requires a combination of additional financing and a restructuring of its existing debt structure to enable it to continue its operations. In addition, price realizations from coal sales have been adversely affected by recent weak thermal coal prices.

In a November 2011 financial report, Royal Coal said the Big Branch mine is located near Hazard, Ky. Since the company began operations there in October 2009, its main challenges have been to achieve targeted production levels at Big Branch. The company has not been able to meet its target production levels primarily because the availability of its mining fleet was below projected levels.

In September 2009, Royal Coal completed the acquisition of certain assets and commenced the Big Branch project. The Big Branch project area is bounded to the north by Troublesome Creek, to the south by the town of Amburgey near Elklick Fork of Lotts Creek, to the east by Kentucky Route 1231, and to the west by Clear Creek and Walter’s Branch. The seams to be evaluated at the operation include the Hazard #5A, Hazard #7, Hazard #8, Hindman (Hazard#9), Skyline (Hazard #10), and the Hazard #11 seams. The total project area covers approximately 2,750 acres.

This mine is listed with the U.S. Mine Safety and Health Administration as the Big Branch #1 mine of Royal Coal’s CDR Operations subsidiary. MSHA data shows the mine as current “nonproducing,” with no production in the fourth quarter of 2011, output of 217,492 tons in the first three quarters of 2011, and production of 404,535 tons in all of 2010.

Pursuant to a sale agreement from October 2008 between Sid Mining LLC and CDR Sid Mining, Royal Coal acquired the Sid Mining project. This project is permitted for mining operations. While currently idle, the area was previously mined by Minnehan Mining LLC and contains a pre-existing haulroad facilitating access to the project, said the November 2011 company report. The Sid project covers around 850 acres and lies within the drainage areas of Cam Johnson Branch and Bowling Creek of the Middle Fork of the Kentucky River, lying in Perry and Breathitt counties, Ky. The seams include the Fireclay (Hazard No. 4), Haddix, Hazard No. 5A, Hazard No. 7, Hazard No. 8, and Hindman (Hazard No. 9).

There is currently no Sid mine listed in the MSHA database. The only Minnehan Mining operation in the database is the abandoned Minnehan No. 1 strip job in Perry County.

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.