Patriot Coal (OTC: PCXCQ), in bankruptcy protection since July 9, announced Nov. 15 that it has reached a proposed settlement with the Ohio Valley Environmental Coalition, the West Virginia Highlands Conservancy and the Sierra Club regarding claims under the Clean Water Act relating to surface mining of steam coal in southern West Virginia.
As a result of the proposed settlement, the deadline for compliance with selenium effluent limitations at outfalls under the Hobet 22 permit will be extended from May 2013 until August 2014. Also, compliance schedules under the global consent decree announced in January will be extended by 12 months. In exchange, Patriot will agree to certain restrictions on large-scale surface mining activities. Hobet 22 is a major surface mine in southern West Virginia.
“This settlement agreement allows Patriot to defer up to $27 million of compliance-related cash outlays from 2012 and 2013 into 2014 and beyond, which improves our liquidity as we reorganize our company and increases the likelihood that we will emerge from the Chapter 11 process as a viable business,” said Patriot President and CEO Bennett Hatfield. “Importantly, this proposed settlement allows Patriot to continue mining according to existing permits and is consistent with our long-term business plan to focus capital on expanding higher-margin metallurgical coal production and limiting thermal coal investments to selective opportunities where geologic and regulatory risks are minimized.”
The settlement is now up for approval by the U.S. District Court for the Southern District of West Virginia, as well as approval by the U.S. Bankruptcy Court for the Southern District of New York. An environmental group lawsuit over water permitting for Hobet 22 has been ongoing for some time in the West Virginia court, though activity in that suit was largely stayed when Patriot sought Chapter 11 in the New York court.
Notable is that this deal is something of a heads up for power generators, who rely on coal that is strip mined in Central Appalachia by Patriot and other coal producers, including Alpha Natural Resources (NYSE: ANR) and Arch Coal (NYSE: ACI). Some of Patriot’s strip mines in this region used to be controlled by Arch.
Sierra Club says Patriot to phase out mountaintop-removal mining
“Astonishingly, along with its commitment to end large scale surface mining in the region, the company also acknowledged the impact this destructive form of mining has on local communities and announced its commitment to reduce its environmental footprint,” said the Sierra Club in a Nov. 15 statement about the settlement. “Patriot is among the largest mountaintop removal coal mine operators in Appalachia.”
“This is an historic moment for people hardest hit by mountaintop removal coal mining,” said Michael Brune, Executive Director of the Sierra Club. “Tens of thousands of people have worked tirelessly to put an end to this destructive process, and today’s agreement is a major step towards ending this abhorrent form of mining and repairing the damage done to communities and ecosystems across the region. Patriot Coal may be the first company to cease mountaintop removal mining but, because of the tireless efforts of committed volunteers and community organizations, it certainly won’t be the last.”
The agreement requires Patriot to move away from, and ultimately cease, mountaintop removal and all other forms of large-scale surface mining in Central Appalachia, the Sierra Club said. In return, Patriot will be granted additional time to install selenium treatment at several of its mines. Patriot will also retire significant infrastructure required to perform mountaintop removal mining, including the dragline at its Catenary mine complex, which will be retired immediately, and the dragline at its Hobet mine complex, which will be retired in 2015, the club added.
Patriot will also withdraw two unspecified applications for Clean Water Act Section 404 valley fill permits currently pending before the U.S. Army Corps of Engineers, and will surrender its remaining rights under a third permit, the club said. Further, Patriot has committed to not apply for any additional large-scale surface mine permits, has agreed to not open any new stand-alone surface mines, and will only conduct small-scale surface mining in conjunction with existing and planned underground mining, the club said. The agreement allows Patriot to move forward with its plans to open one new metallurgical coal mine for which a Section 404 application is pending, but preserves the right of the groups to challenge that permit in the event that the EPA identifies water quality concerns with the permit.
“It’s heartening any day we learn that a major player decides that mountaintop removal is not in the best interest – of the company or of our mountains, streams, and communities,” said Jim Sconyers, Chair of the West Virginia Sierra Club. “We look forward to the day when full implementation of this agreement is achieved.”
In return, Sierra Club, OVEC, and WVHC have agreed to file a joint motion with Patriot that will extend the time the company is allowed to comply with court ordered selenium controls at the Hobet mine by 15 months. The coalition will also allow Patriot to extend the date of compliance for selenium treatment at 42 other outlets at other mines and facilities by 12 months.
“We’ve been saying for many years that if companies had to pay the real costs of mountaintop removal, it would not be economically feasible,” said Cindy Rank of the West Virginia Highlands Conservancy. “Hopefully, it’s now become clear that when coal companies are required to prevent illegal selenium pollution and pay the costs for cleanup themselves it’s simply doesn’t make economic sense to continue this destructive form of mining.”
St. Louis-based Patriot Coal is a producer and marketer of coal in the eastern U.S., with 12 active mining complexes in Appalachia and the Illinois Basin.