Royal Coal Corp. (TSX VENTURE:RDA) (FRANKFURT:RLC), which has coal mining operations in eastern Kentucky, said April 13 that it has received a statement of claim from Sandstorm Metals & Energy (US) Inc. and Black Bullet Coal LLC (an assignee of Sandstorm), in the Perry County, Ky., Circuit Court against Royal Coal and its subsidiaries.
Those Royal Coal subsidiaries are CDR Sid Mining, CDR Operations, CDR Minerals (USA), CDR Big Branch and CDR Laurel Fork. The statement of claim relates to the alleged material breach by the Royal Coal and its subsidiaries of a coal production payment agreement, an additional coal purchase agreement, and a royalty agreement that provide for a commodity purchase and loan arrangement between these companies.
Sandstorm and Black Bullet allege that under the agreements, Royal Coal and subsidiaries have failed to, among other things, deliver and sell coal to Sandstorm, deliver certain certifications to Sandstorm, make monthly royalty payments to Sandstorm and guarantee the prompt payment of due indebtedness. Sandstorm and Black Bullet are demanding an aggregate of C$10,339,903.62, plus interest and costs, for unpaid production payments and unpaid royalty payments. Also, Sandstorm and Black Bullet are requesting that a lien be placed on collateral and Black Bullet be granted possession of collateral under certain security agreements entered into between the parties.
“At this time, the company cannot meet its current obligations to Sandstorm and its other creditors,” Royal Coal said. “The company is in discussions with Sandstorm to come to a mutually beneficial resolution and avoid litigation.”
On March 5, Royal Coal announced that it had suspended production at its Big Branch mine and was taking other steps to try to continue to carry on its business. Current conditions in the thermal coal market are challenging due to the increased use of cheap natural gas by electric utilities and continued lower electric power demand, the company noted. This has resulted in declining prices for thermal coal causing a number of coal producers in the Central Appalachia to shut down some operations. These difficult market conditions have been a contributing factor, along with production challenges, in requiring the company to shut down operations.
Royal Coal is a coal exploration and production company, headquartered in Toronto, Canada, with a regional office in Hazard, Ky.