Westmoreland Coal’s (NASDAQ: WLB) coal supply contract with the Coyote Station, located adjacent to its Beulah lignite strip mine in North Dakota, expires in May 2016 and the company is still figuring out what to with the mine when it at that point loses Coyote as a customer.
“On May 3, 2012, Coyote Station informed the Company they were entering into a mine development agreement with another provider and on October 15, 2012, Coyote Station entered into a coal supply agreement with that provider,” said Westmoreland’s Nov. 8 quarterly Form 10-Q report. “As a result, Coyote Station will likely not purchase coal from the Beulah Mine after the expiration of its current contract.”
Based on the uncertainty of securing a new contract, Westmoreland said it has revised various accounting estimates beginning in the fourth quarter of 2011 to reflect the impact on mining operations of the current contract’s expiration in 2016. These changes resulted in revised depreciable asset and coal reserve lives and asset retirement obligations. For the past several years, Beulah has averaged 2.4 million tons of coal sold per year to Coyote.
“The Company is currently considering strategic alternatives for its Beulah Mine, which also provides approximately 0.5 million tons of coal to the Heskett Station power plant on an annual basis,” the Form 10-Q added. “The Company will continue to evaluate the effect of this development and potential strategic alternatives on various employment-related liabilities, which could result in revised accounting estimates related to those liabilities in future periods.”
The Coyote plant owners – Otter Tail Power, Montana-Dakota Utilities, Northwestern Energy and Northern Municipal Power Agency – announced in May that they had entered into an agreement with North American Coal to begin developing the Coyote Creek mine near the Coyote power plant.
Said Montana-Dakota Utilities parent MDU Resources Group (NYSE: MDU) in its Nov. 7 Form 10-Q report: “On October 10, 2012, the Company entered into a new coal supply agreement that will replace the Coyote coal supply agreement that expires in May 2016…. The new agreement provides for the purchase of coal necessary to supply the coal requirements of the Coyote Station for the period May 2016 through December 2040.”
Otter Tail Power on Oct. 15 said that the Coyote owners have entered into an agreement with Coyote Creek Mining Co. LLC, a subsidiary of North American Coal, for lignite coal supply to the station beginning May 2016. Otter Tail Power is the operating agent of the Beulah, N.D., power plant. Under a development agreement signed earlier this year, Coyote Creek Mining has taken preliminary steps to open a new mine near the 427-MW plant.
Jan Rudolf, Otter Tail Power vice president of energy supply, said that, because the existing 35-year coal contract expires in 2016, the owners in 2010 issued a request for proposals for coal supply to North Dakota lignite providers. The owners also considered western subbituminous coal as an option for the plant.
“We reviewed options to provide the lowest-cost and most reliable electricity to our customers,” Rudolf said. “After considering plant performance, the cost of capital investments that may be required for future environmental compliance, and delivered coal prices, our final decision was to negotiate a lignite coal supply agreement with North American Coal.”
Otter Tail Power is a subsidiary of Otter Tail Corp. (NASDAQ Global Select Market: OTTR). North American Coal is headquartered in Dallas, Texas, and is a wholly owned subsidiary of NACCO Industries (NYSE: NC).