Xinergy sells Straight Creek/Red Bird properties to Nix company

Central Appalachian coal producer Xinergy Ltd. (TSX: XRG) said Feb. 4 that it has completed the sale of its Straight Creek and Red Bird thermal coal mining operations in Bell, Clay, Harlan, Knox and Leslie counties, Ky., to affiliates of JW Resources Inc.

The sale is for US$47.2m in cash, subject to adjustment as provided for in a definitive asset purchase agreement executed Feb. 1.

Xinergy CEO Matt Goldfarb said: “This divestiture furthers our efforts to position Xinergy’s asset portfolio towards a greater mix of premium quality, mid-vol metallurgical coal production. Although we continue to view favorably the long-term prospects for low-cost Central Appalachian thermal coal mining, we believe that this transaction is both accretive to our shareholders and value enhancing, from the perspective of enhanced liquidity and operational flexibility, as we position our remaining assets for significant growth.”

The sale to JW Resources is considered a “related party transaction” for the purposes of Multilateral Instrument 61-101 as Jon Nix, a greater than 10% shareholder and the founder of Xinergy, will have an approximate 5.1% direct and/or indirect ownership interest in the buyer at the time of the sale. However, the sale is not subject to the minority approval and valuation requirements under MI 61-101 as there is an applicable exemption from these requirements as neither the fair market value of the subject matter, nor the fair market value of the consideration, for the sale, insofar as it involves the interested parties, exceeds 25% of Xinergy’s market capitalization. Nix is not a member of, nor does he have representation on, the board of directors of Xinergy. The buyer’s other shareholders are not related parties to Xinergy.

Xinergy sees various advantages to this sale

The company’s board of directors unanimously determined that the sale is in the best interests of Xinergy’s shareholders. The sale provides Xinergy with, among others, the following benefits:

  • Deleveraging: The company’s net debt (total debt less cash) is reduced by about 22% from approximately $216.7m at Dec. 31, 2012, to $169.5m after receipt of the net proceeds from the sale and the repayment of equipment debt;
  • Liquidity: Net proceeds from the sale are approximately $42.7m, which is net of a $3m escrow covering indemnity claims under the agreement and the repayment of approximately $4.4m in equipment debt. About $38.2m of such net proceeds, after giving effect to equipment debt extinguishment, transaction-related expenses and taxes, are anticipated to be deposited into a Collateral Proceeds Account under the requirements of the Indenture governing the company’s 9¼% Senior Secured Notes. Xinergy said anticipates paying the entire $20m in estimated infrastructure costs at its South Fork complex in Greenbrier County, W.Va., from the net proceeds from the sale held as restricted cash.
  • Reduced Dependence on Thermal Coal Production: The sale substantially decreases the company’s dependence on CAPP thermal coal production, and positions the company to benefit from a greater mix of premium quality, mid-vol met coal production. Thermal coal demand has been hit hard lately as coal-fired power plants are shut due to new U.S. Environmental Protection Agency regulations and are backed down due to cheap natural gas available to power producers.

Said Xinergy about the Straight Creek property in a November 2012 financial filing in Canada: “Our Kentucky properties include the Straight Creek thermal coal mining operations in Bell, Clay, Harlan and Leslie Counties. Straight Creek consists of approximately 48,000 acres and currently operates one company operated surface mine and one contractor operated underground mine. We also operate a preparation plant and a CSX unit train loading facility at the Straight Creek complex. We purchased this property in March 2008 and commenced mining in April 2008. In December 2011, we acquired a property adjacent to Straight Creek which we refer to as Red Bird. The Red Bird assets consist of coal properties in Bell, Clay and Leslie counties Kentucky, including permits and mineral reserves that increase our thermal footprint in Kentucky by expanding the mineral reserve profile of the Company’s Straight Creek mining complex.”

Headquartered in Knoxville, Tenn., Xinergy Ltd., through its wholly owned subsidiary Xinergy Corp. and its subsidiaries, is engaged in coal mining in West Virginia and Virginia. Xinergy sells high quality thermal and metallurgical coal to electric utilities, steelmakers, energy trading firms and industrial companies.

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.