Takeover target Foresight Energy is poised for further coal expansion in Illinois

Privately-held Murray Energy, which announced March 15 that it will take a controlling interest in Illinois coal producer Foresight Energy LP (NYSE: FELP), will be getting four coal mining complexes with a huge potential for expansion if coal markets demand it.

Murray Energy and Foresight Energy GP LLC (FEGP) announced March 15 that Murray Energy and Foresight Reserves LP (the owner of FEGP) have entered a definitive agreement. Under this transaction, Murray Energy will acquire a controlling interest in Foresight Energy LP (NYSE: FELP) and FEGP to create what its backers call the premier coal mining company in the U.S., controlling over 9 billion tons of coal reserves. Following the closing, Chris Cline, the founder of Foresight Energy, will remain a significant investor in Foresight Energy, maintaining 22.5% equity interest in FEGP and an approximately 35% interest in FELP.

“Mr. Chris Cline, who is very much respected in the United States coal industry, and his team at Foresight Energy, have built and operated four (4) of the most efficient coal mines in America utilizing the longwall mining technique. We are pleased that these operations will join Murray Energy’s twelve (12) mines employing thirteen (13) longwall systems,” stated Robert E. Murray, Chairman, President, and Chief Executive Officer of Murray Energy.

Murray added: “The United States coal markets are severely depressed, due to excessive government regulation and the growing utilization of natural gas for electric power generation. In this extremely distressed coal marketplace, a coal mining company must strive to be the lowest cost producer in any sourcing region. Foresight Energy has continued to be the low cost producer in the Illinois Basin, with a focus on safely producing high quality, high heat coal, strategically located near low cost transportation.”

Foresight produced 22.5 million tons of coal in 2014, up sharply from 18 million tons in 2013. As outlined in Foresight Energy’s March 11 annual Form 10-K report, its four mining operations are:

  • Williamson Mining Complex – It is located in southern Illinois near the town of Marion. Williamson is the first mine Foresight developed, with longwall mining production commencing in 2008. The mine operates in the Herrin No. 6 Seam, using one longwall system and two continuous miner units to develop the mains and gate roads for its longwall panels. Coal is washed at Williamson’s 2,000 tons-per-hour (tph) prep plant, stockpiled and then shipped by rail or truck to market. Williamson’s coal is shipped via the CN railroad to the Ohio and Mississippi Rivers to serve the domestic thermal market or to New Orleans to serve the international market. Williamson has access to several barge facilities on the Ohio and Mississippi Rivers and two vessel loading facilities in New Orleans. Williamson was the second most productive underground coal mine in the United States in 2014 on a clean tons produced per man hour basis based on MSHA data.
  • Sugar Camp Mining Complex – It is located in southern Illinois approximately 12 miles north of Williamson. Sugar Camp’s first longwall system began production in the first quarter of 2012 and the second longwall began production in the second quarter of 2014. Sugar Camp’s original infrastructure, including its bottom development, slope belt, material handling system and rail loadout, supports both longwalls. Sugar Camp operates in the Herrin No. 6 Seam and uses a similar mine design and similar equipment as Williamson. With additional equipment, infrastructure and mine development, Sugar Camp has the capacity to add two incremental longwalls. Coal is washed at Sugar Camp’s two 2,000 tph preparation plants, stockpiled and then shipped by rail to market. Sugar Camp has direct access to the CN railroad which can deliver its coal to the Ohio and Mississippi Rivers to serve the domestic thermal market or to New Orleans to serve the international market. Sugar Camp also has indirect access to the Norfolk Southern, BNSF Railway and CSX Transportation railroads. Sugar Camp was the third most productive underground coal mine in the U.S. in 2014 on a clean tons produced per man hour basis based on MSHA data.
  • Hillsboro Mining Complex – This operation is located in central Illinois near the town of Hillsboro. Hillsboro’s longwall mining system began production in the third quarter of 2012. The mine operates in the Herrin No. 6 Seam and uses similar mine design and similar equipment as Williamson and Sugar Camp.  Coal is washed at Hillsboro’s 2,000 tph preparation plant, stockpiled and then shipped by rail or truck to market. Hillsboro has direct access to the Union Pacific and NS railroads and indirect access to the CN railroad, which allows for the delivery of its coal directly to customers or to the Ohio and Mississippi Rivers to serve the domestic thermal market or the international market through New Orleans. Hillsboro was the most productive underground coal mine in the U.S. in 2014 on a clean tons produced per man hour basis based on MSHA data.
  • Macoupin Mining Complex – This operation is located in central Illinois near the town of Carlinville. Intead of developing it from scratch like the other three mines, Foresight acquired the Macoupin mine from ExxonMobil Coal USA in 2009. Following the acquisition from Exxon, Macoupin sealed the majority of the previously mined area and implemented a new mine plan and design. In addition, the surface facilities were upgraded, including the rehabilitation of the prep plant. Coal production began in 2009 with a single continuous miner super-section utilizing battery powered coal haulers. An additional continuous miner unit was added in 2011 using a flexible conveyor train system rather than coal haulers. Coal is washed at Macoupin’s 850 tph prep plant, stockpiled and then shipped by rail or truck to market. Macoupin has direct access to both the UP and NS railroads and indirect access to the CN railroad, which allows for the delivery of its coal directly to customers or to the Ohio and Mississippi Rivers to serve the domestic thermal market or the international market through New Orleans.

Each of the Foresight mines has a transloading and storage agreement with Foresight’s Sitran LLC, a high-capacity coal transloading facility on the Ohio River near Evansville, Indiana. The facility currently has a single rail loop, a bottom discharge rail car unloader, stacking tubes to facilitate ground storage and blending, barge loading capabilities and throughput capacity of 25 million tons of coal per year. The terminal has the potential for a dual rail loop that would have capacity for two loaded and two empty unit trains.

The Foresight mines also have contractual rights to throughput capacity at the Convent Marine Terminal (CMT), an export facility located near New Orleans that is owned by affiliates. CMT is designed to ship and receive commodities via rail, river barge and ocean vessel. Rail service to CMT is provided by the CN. Water-borne material is received and shipped via the Mississippi River. Based on recent performance, CMT has in excess of 10 million tons of coal throughput capacity per year and is currently increasing throughput capacity to 25 million tons of coal per year, said the Form 10-K.  

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.