Patriot Coal’s Federal No. 2 mine gets different treatment, separate sale process

The most prominent Patriot Coal mine not in the proposed bankruptcy sale to Blackhawk Mining LLC is the Federal No. 2 longwall operation in northern West Virginia, which produces high-sulfur coal out of the Pittsburgh coal seam.

On June 3, Patriot Coal filed with the U.S. Bankruptcy Court for the Eastern District of Virginia a proposed plan to sell most of its assets, mainly in southern West Virginia, to Blackhawk Mining, which is based out of Lexington, Ky. Under the proposal, Blackhawk would be a “stalking horse” bidder for those assets at an auction to be held in August. Patriot said that the “Federal Complex,” based on the Federal No. 2 mine, is not part of that sale package, without explaining specifically why.

Said the June 3 Patriot sale motion: “As set forth in the Blackhawk Term Sheet, the Blackhawk Sale contemplates the acquisition of a substantial majority of the Debtors’ operating assets with one notable exception: the Federal No. 2 longwall mine, a 1,350 [tons per hour] preparation plant, and certain related assets (collectively, the ‘Federal Complex’). The Debtors engaged in prepetition marketing of the Federal Complex and determined at that time, in consultation with their lenders and advisors, to defer the sale of the Federal Complex until after the filing of these chapter 11 cases.”

Patriot had petitioned the court on May 12 for Chapter 11 protection in its second round of bankruptcy proceedings this decade. It was able to reorganize in the first round, but not this time.

In its last annual Form 10-K report filed at the SEC, in February 2013, Patriot said about this operation: “The Federal mining complex is located in northern West Virginia and is sourced by one company-operated underground mine, Federal No. 2, utilizing longwall and continuous mining methods. All coal produced at Federal is sold on the thermal market and is transported to customers via the CSX and Norfolk Southern railroads or via barges on the Ohio River. Coal is produced from the Pittsburgh seam. Certain employees at the Federal mining complex are represented by the [United Mine Workers of America union].”

The Form 10-K said that as of the end of 2012, Federal No. 2 had 37 million tons of coal left to it in the assigned proven and probable category. There was no indication in that filing whether there were unassigned reserves available to it.

The status of Federal No. 2 is interesting in that only three other companies operate longwall mines in Northern Appalachia in the Pittsburgh seam. They are privately-held Murray Energy, CONSOL Energy (NYSE: CNX) and Alpha Natural Resources (NYSE: ANR). Certainly the fate of Federal No. 2 would have a significant interest for those producers, as well other operators of smaller mines in the region.

U.S. Mine Safety and Health Administration data shows that Federal No. 2 produced 4 million tons in 2012, 3.4 million tons in 2013, 2.9 million tons in 2014 and 864,420 tons in the first quarter of this year.

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.