Arch Coal settles issues with Patriot Coal, acquires new reserves

Arch Coal (NYSE: ACI) said Oct. 10 that it has entered into an agreement to acquire the Guffy property, which is next to its big new Leer longwall mine development project in northern West Virginia, from Patriot Coal for $16m in cash.

The Guffy reserves are owned in-fee, are contiguous to Arch’s Tygart Valley reserves and the Leer mine, and are of comparable quality to Leer’s high-volatile “A” metallurgical coal. The addition of the Guffy reserves will enable Arch to recover up to an incremental 8 million tons of metallurgical coal at the Leer mine, extending the estimated mine life of Leer by nearly three years.

“The Guffy acquisition represents a valuable, synergistic, bolt-on opportunity for Arch that extends the reserves and mine life at Leer, one of our premier, metallurgical coal operations in Appalachia,” said John Eaves, Arch Coal’s president and CEO.

The Leer mine, in its pre-longwall development phase, produced 187,318 tons in the first half of this year and 55,526 tons in all of 2012, according to U.S. Mine Safety and Health Administration data. The mine is located in Taylor County, W.Va., within a large reserve area that is expected to support at least two more major deep mines.

Arch also said that it has resolved all pending and potential legal claims with Patriot stemming from Arch’s sale of coal companies to Magnum Coal, a subsidiary of ArcLight Capital Partners LLC, in 2005 and the subsequent purchase of those companies by Patriot in 2008. Arch will pay $5m in cash to Patriot upon its exit from Chapter 11 bankruptcy protection, which Patriot entered in July 2012. The settlement includes the release of a $16m letter of credit posted by Patriot in Arch’s favor for surety bonds related to the companies sold to Magnum. Under this agreement, Patriot is required to replace the bonds in its own name or repost an $8m letter of credit in Arch’s favor by Dec. 31, 2015.

“This comprehensive settlement with Patriot relieves Arch of costly legal expenses, resolves the distraction of litigation claims, and allows Arch’s management team to remain focused on steering the business through current market conditions and preparing for a recovery,” said Eaves.

Following the settlement with Patriot, Arch said it remains in active discussions on a potential resolution with the United Mine Workers of America union on outstanding litigation claims. Basically all of the operations it sold to Magnum were unionized, relieving Arch of massive union obligations. A U.S. District Court recently dismissed the ERISA claim the UMWA had filed against Arch.

“In the wake of the U.S. District Court decision in favor of Arch, we have put forth a good faith offer to the UMWA for a settlement that would resolve all pending and potential legal claims brought by the UMWA, and we are in discussions with them on a potential resolution,” said Robert Jones, Arch Coal’s senior vice president-law, general counsel and secretary.

St. Louis-based Arch Coal is one of the world’s top coal producers for the global steel and power generation industries, serving customers in 25 countries on five continents. Its network of mining complexes is the most diversified in the United States, spanning every major coal basin in the nation.

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.