Ambre Energy North America and one of its subsidiaries, KCP Inc., have filed a legal counterclaim against Cloud Peak Energy (NYSE: CLD) and its subsidiary, Western Minerals LLC, in a dispute over which company has rights to do what related to the co-owned Decker coal mine in the Montana Powder River Basin.
The counterclaim seeks to expel Western Minerals from the Decker Coal partnership, which owns the Decker mine. KCP and Western Minerals are equal partners in the joint venture, but the mine is managed by Ambre’s KCP unit.
“We are asking the court to oversee the disposal of Cloud Peak’s interests in Decker,” said Everett King, president and CEO of Ambre Energy North America, in a July 31 statement. “We are concerned that Cloud Peak has a conflict of interest resulting from its 100% ownership and control of the adjacent Spring Creek Mine, which competes head-to-head with Decker.”
Spring Creek is located near Decker, is 100% owned by Cloud Peak and competes with Decker in the growing export market for PRB coal.
“The coal produced from the Decker and Spring Creek mines has highly similar quality characteristics and is suitable for sale to the same group of customers,” said the lawsuit answer filed July 30 by Ambre at the U.S. District Court for the District of Montana. “Since 2000, Cloud Peak has implemented a major expansion effort at Spring Creek Mine, resulting in an increase in the coal produced from 8.9 million tons in 2003 to approximately 18 million tons in 2011. Over this period, Cloud Peak has made substantial capital investments at the Spring Creek Mine and has continued to acquire additional mining leases in the area. Over the same period of time, coal production from the Decker Mine has decreased from 8.1 million tons in 2003 to 3.1 million tons in 2011.”
The lawsuit answer added: “One of the principal areas of expansion for the Spring Creek Mine has been in the export market to Asian countries, including Korea. Cloud Peak currently exports approximately 4.5 million tons annually primarily through the Westshore Terminal facility in British Columbia, Canada. In 2011, Cloud Peak entered into a long-term agreement with Westshore Terminal to secure the coal throughput capacity at this port through 2023.”
Ambre says there is no reason to shut Decker at end of 2013
Ambre Energy also responded to earlier claims by Cloud Peak concerning KCP’s role as manager of the mine. In its original lawsuit against Ambre filed on July 9, Cloud Peak demands closure of the mine after 2013, claiming that KCP and Ambre Energy are frustrating what Cloud Peak insists was a closure plan agreed to before Ambre acquired control of KCP last November from Level 3 Communications. Ambre said there is no agreement to close the mine. Cloud Peak said the plan in place has been to shut the mine when a contract to supply coal to Detroit Edison runs out at the end of 2013.
Decker has been in operation for 40 years and continues to be a viable mine, Ambre noted. An independent report earlier this year estimated Joint Ore Reserves Committee-compliant coal resources at Decker of 955 million tons, which included 152 million tons of proved and probable coal reserves. Since Ambre acquired its interest in Decker in November 2011, its subsidiary KCP has increased operational efficiency at the mine while meeting contractual supply obligations, conducting all required reclamation activities and maintaining a safe and productive workplace, Ambre said.
“Instead of welcoming the increased efficiencies, Cloud Peak is complaining that Ambre is encouraging new customers to consider buying coal from Decker,” added King. “Our approaches to potential buyers of Decker Coal have resulted in strong expressions of buying interest from current and past customers. We don’t understand why this is not a good thing.”
Cloud Peak also has alleged that Ambre plans to engage in “self-dealing transactions” designed to cut Cloud Peak out of Decker’s future export-related profits. Ambre’s infrastructure division is developing two rail-to-water export terminal projects on the Columbia River in the Pacific Northwest. However, any coal purchased from Decker for export – by Ambre or any other company – would have to be purchased at fair market value, in order to insure appropriate royalty payments and production taxes, Ambre said.
Subject to the completion of the necessary export facilities – Ambre Energy is currently developing the Morrow Pacific project and Millennium Bulk Terminals – Ambre’s international marketing division will seek to purchase coal from western U.S. producers to fill existing supply agreements with Asian buyers, Ambre said. This will include a proposal to Decker for a long-term sales agreement, which will be submitted to the joint management committee for approval. Ambre anticipates that this offer and other opportunities to increase sales to U.S. domestic buyers will permit the profitable operation of Decker for many years after 2013.
Ambre Energy North America is a subsidiary of Ambre Energy Ltd., a privately-held company with predominantly Australian and U.S. shareholders. It is headquartered in Brisbane, Australia, with U.S. headquarters in Salt Lake City, Utah.