Gunvor wraps up financing for its stake in Montana coal mine

Geneva-based commodities trader Gunvor Group Ltd. said June 6 that it has “mandated” BNP Paribas and Raiffeisen Bank International AG to arrange a US$250m Secured Acquisition Facility to finance 33.33% of the outstanding equity of Montana coal producer Signal Peak Energy’s coal mining operations and associated companies with a purchase price of US$400m.

The Facility, which was fully underwritten by the Bookrunners, represented 62.5% of the total investment financing, coupled with equity contribution and Gunvor’s promissory notes for a total consideration of US$150m representing the remaining 37.5% of the investment.

Gunvor formally became co-shareholder of Signal Peak upon the signing of a Shares Purchase Agreement in October 2011. Its partners in the mine are FirstEnergy (NYSE: FE) and Ohio-based Boich Cos.

The syndication was formally closed with full allocation to 11 investors on May 23. Natixis, Rabobank, ICICI, Caterpillar Financial Services, Credit Suisse, Raiffeisenlandesbank Niederösterreich-Wien, Banque Cantonale Vaudoise, VTB Bank (Austria) and Federated Project and Core Fund joined the deal.

Gunvor Group is one of the top five independent energy trading companies in the world providing trading and logistic solutions to off-takers in all major energy markets. A planned five new offices together with their 12 existing offices will ensure a global coverage with strong Asian focus stemming from continuing energy demand in that region.

Signal Peak’s longwall mine is located in Musselshell County, Mont. This mine, with relatively high-Btu thermal coal compared to Powder River Basin mines elsewhere in Montana, has an extensive reserve base for roughly 30 years mining and secured port access to serve Asian markets, Gunvor noted.

FirstEnergy in 2008 acquired a stake in Signal Peak with an idea of buying back most of the mine’s 10+ million tons per year of coal production for its Midwest power plants. But, in announcing the sale of the stake to Gunvor, FirstEnergy said it was drastically cutting its planned take from the mine and cutting its equity stake in the operation to one-third.

FirstEnergy and Boich originally purchased Signal Peak in 2008 as a joint venture, with FirstEnergy acquiring a 45% interest for $125m. In 2009, FirstEnergy invested an additional $8.5m, increasing its interest to 50%.

“This transaction will continue to maximize both the mine and rail investment we have made in Montana over the last three years and make our operation even stronger,” said Wayne Boich Jr., President and CEO of Boich Cos. in the October 2011 deal announcement. “One of the key advantages that Gunvor Group brings to this venture is the ability to utilize their commodity trading relationships in such markets as Japan, China, Korea and Chile to sell more coal.”

“We’re very excited about entering the coal business with two leaders in the field like FirstEnergy and Boich Companies,” said Timothy Legge, chairman of Gunvor S.A. in the October 2011 announcement. “Signal Peak represents our first investment in a coal mine located in the U.S. It presents Gunvor with the opportunity to use the existing rail and port operations to market this high quality, low sulfur bituminous coal to expanding markets around the world, particularly in the Pacific and Asia markets through our arrangements with Westshore Terminals in Vancouver, the prime coal moving terminal on the West Coast. Because Westshore is a deep water port we can utilize large bulk carriers capable of holding up to 200,000 tons of coal.”

As part of the new agreement, FirstEnergy Generation, a subsidiary of FirstEnergy, revised its original coal purchase agreement with Signal Peak to reduce from 7.5 million tons annually to no more than 2 million tons per year of the mine’s production. Overall, the production forecast for Signal Peak, including future surface operations, is expected to rise to about 15 million clean tons per year, which can be sold to Gunvor as well as other domestic and international customers.

Since 2008, operations at Signal Peak have been expanded, new equipment, including the longwall, has been installed and a 35-mile rail spur to an existing BNSF Railway line was built. The existing mine is called Bull Mountains No. 1, which struggled through some problem geology early last year that the company says is now behind it. The mine produced 2.1 million tons in the first quarter of this year, putting it well ahead of a pace that saw output of 5.1 million tons in all of 2011, according to U.S. Mine Safety and Health Administration data. The company is also working on developing surface mining operations nearby along a seam outcrop line.

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.