Cloud Peak denies charges in Ambre answer and counterclaim

Western Minerals LLC and parent Cloud Peak Energy (NYSE: CLD) denied on Sept. 10 allegations by units of Australia’s Ambre Energy Ltd. that they are deliberately trying to block efforts to keep the jointly-owned Decker mine in Montana open beyond 2013 and shipping coal into the export market.

Western Minerals initially sued Ambre Energy, claiming that Ambre since its November 2011 purchase of half of Decker has unilaterally acted in matters related to the mine, which is 50-50 owned by a joint venture of Cloud Peak and Ambre. The lawsuit was filed July 9 at the U.S. District Court for the District of Montana against Ambre Energy and its KCP Inc. and Ambre Energy North America Inc. units.

After the November 2011 Ambre buy of the 50% share of the mine then held by Level 3 Communications, “the relationship between KCP and Western Minerals has taken a dramatic and negative turn,” said the lawsuit. “Under its new ownership and with the direct involvement, direction and assistance from the other Ambre Entities, KCP is significantly abusing its obligations and responsibilities as day-to-day Manager, unilaterally acting outside the approved budget and underlying mine plan, engaging in a campaign of public and other unauthorized communications to pursue the Ambre Entities’ unapproved agenda for Decker, and engaging in various self-dealing transactions among the Ambre Entities and their affiliates, all of which are in breach of KCP’s legal duties and are causing ongoing substantial harm to Western Minerals.”

Ambre Energy North America and KCP on July 30 filed a counterclaim against Cloud Peak Energy and Western Minerals. 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 public statement about the lawsuit response. “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 and is 100% owned by Cloud Peak. “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. “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 July 30 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.”

Cloud Peak’s Sept. 10 answer denies the Ambre charges

In their Sept. 10 answer to the July 30 Ambre answer and counterclaim, Cloud Peak and Western Minerals made a point-by-point denial of the Ambre claims. Western Minerals and Cloud Peak Energy did admit certain basic facts, like that production at the Decker mine has steadily declined over the last few years and that Decker Coal has been operating at a loss since 2009. “Western Minerals and Cloud Peak Energy expressly deny that they have discouraged potential purchasers from the Decker Mine and state that, to the contrary, they have repeatedly demonstrated their willingness to consider economic proposals to continue production at the Decker Mine,” said their answer.

Ambre and KCP had said the remaining major purchaser of coal from Decker is Detroit Edison. However, KCP said it is in discussions with Detroit Edison and other potential U.S. buyers of this coal and is seeking to negotiate long-term sales contracts that it can present to Decker Coal’s management committee for approval. In addition, Ambre said it has entered into long-term sales contracts with two Korean utilities for coal to be sourced from the western United States. Western Minerals and Cloud Peak Energy said they admit that the sole remaining utility customer of Decker coal is Detroit Edison, but have no knowledge about contract talks by Ambre for other Decker sales.

Western Minerals and Cloud Peak Energy admitted that Spring Creek has encountered increasing demand for coal to export to Asia, including Korea. Western Minerals and Cloud Peak Energy admit that in 2011, Cloud Peak Energy exported approximately 4.5 million tons through the Westshore Terminal Facility, as stated by Ambre/KCP, but deny that such figures apply to its “current” exports.

Due to the fact that KCP and Ambre have refused to provide Western Minerals or Cloud Peak Energy with information regarding Ambre’s commitments to sell U.S. coal to Asian customers, including Decker Coal’s production, Western Minerals and Cloud Peak Energy said they lack knowledge or information sufficient to form a belief about the allegations related to those sales and therefore deny them.

Among the Ambre/KCP allegations that Western Minerals/Cloud Peak denied:

  • that Western’s desire to close the Decker mine is dictated by Cloud Peak, as confirmed by statements made by representatives from both entities;
  • the closure of Decker would directly benefit Cloud Peak by eliminating the closest and most obvious competitor to the Spring Creek mine;
  • Western and Cloud Peak have informed, and continue to inform, potential purchasers of coal from Decker that such coal is not available for long-term contracts since Decker Coal will no longer produce coal after 2013; and
  • Cloud Peak is causing and/or threatening to cause Western to close Decker to coerce Ambre into causing its subsidiaries to allocate coal-handling capacity at their planned West Coast export ports to Cloud Peak, thereby enabling Cloud Peak to ship coal to Asia without making its own investment in port facilities.
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.