Eastern Kentucky coal producer Lipari to be taken private

Lipari Energy (TSX: LIP), a Canada-listed company with coal mines in eastern Kentucky, said Aug. 22 that it has worked out a deal with management to take the company private.

The company has entered into a definitive agreement with 0976837 B.C. Ltd., a wholly owned subsidiary of a holding company owned or controlled by certain members of the existing management team and their associates, under which the company would be taken private pursuant to a plan of arrangement under the Business Corporations Act (British Columbia). The terms of the deal imply an equity value for Lipari of approximately C$22.7m.

The board of directors of Lipari has unanimously (with John Liperote and Richard Liperote abstaining) determined that the plan of arrangement is in the best interests of Lipari and is fair to holders of common shares.

“Taking Lipari private will allow it to reduce the costs associated with being a public company which will in turn allow it to reduce production as required,” said John Liperote, CEO of Lipari.

The implementation of the plan of arrangement will be subject to approval by the holders of common shares, at an annual and special meeting expected to be held in October.

The arrangement agreement provides for, among other things, a “go-shop” period of 21 days commencing on the date of the arrangement agreement during which Canaccord Genuity Corp. will solicit third party interest in submitting a proposal which is superior to the proposal made by the purchaser.

It is anticipated that the transaction, if approved by Lipari security holders and the Supreme Court of British Columbia, will be completed in early October.

Lipari is a thermal coal producer with current operations and additional development properties in the Central Appalachia, in eastern Kentucky. Lipari has been producing coal since 2008 and has diversified surface and highwall mining operations. Lipari coal sales are predominantly to utilities through a mix of forward contracts and short-term sales. Lipari’s growth strategy includes continued growth of its organic reserves through its enhanced drilling program, as well as from its focused and disciplined approach to strategic acquisitions. Lipari’s corporate office is located in London, Ky.

Lipari said Aug. 12 that its second quarter 2013 tons sold increased by 12.6% and production increased by 21.9% over second quarter 2012 to 280,603 tons and 245,791 respectively. Second quarter revenues increased by 22.9%, as a result of the increase in tonnage sold and the increase in average sales price per ton. Lipari generated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of $4.7m during the second quarter of 2013. Adjusted EBITDA, after accounting for a change in the fair value of warrants, lease expenses and other adjustments, was $5.6m during the second quarter of 2013.

“I am concerned about the current outlook for the Central Appalachia coal market, but we continue our efforts to prepare the Company to make it through this continued downturn. While it is hard to predict prices going into 2014, we can be aggressive and survive going forward. We continue to adjust our operations to adapt to coal demand,” said CEO John Liperote.

During the second quarter of 2013, Lipari’s operations sold 280,603 tons of high quality thermal coal, a 12.6% increase over the prior year’s quarter of 249,194 tons. The average realized sales price per ton of coal sold was $77.00 per ton, a 9.2% increase over the prior year’s average realized price of $70.53 per ton.

U.S. Energy Information Administration data shows that the customers for Lipari’s B&W Resources subsidiary earlier this year included the Crystal River, Marshall and Cliffside power plants of Duke Energy (NYSE: DUK), the Cope power plant of South Carolina Electric & Gas and the Cooper power plant of East Kentucky Power Cooperative.

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.