Arch Coal (NYSE: ACI) said in a Sept. 11 SEC filing that the prior day, the Wyoming Department of Environmental Quality notified Arch through its applicable subsidiaries that the state has completed its review of self-bonding applications related to two permits that were under renewal and reaffirmed self-bonding eligibility for both permits.
In addition, Arch said its other permits in the state continue to qualify for self-bonding. This is a major financial win for the company, which like other major coal producers is facing a protracted downturn in the coal markets. Alpha Natural Resources, which recently sought Chapter 11 bankruptcy protection, had reported before the bankruptcy filing that it was having trouble with self-bonding at the Wyoming DEQ.
Federal and state laws require Arch Coal to obtain surety bonds or post letters of credit to secure performance or payment of certain long-term obligations, such as mine closure or reclamation costs. It uses self-bonding to secure performance of certain obligations in Wyoming. Self-bonding commits it to pay directly for reclamation costs rather than obtaining a traditional surety bond, which is kind of like an insurance policy.
As of June 30, Arch had self-bonded an aggregate of approximately $457 million in Wyoming. The Land Quality Division of the Wyoming Department of Environmental Quality periodically re-evaluates the amount of the bond, so the current amount is subject to increase. The Wyoming Department of Environmental Quality indicated to Arch that it will continue to monitor the company’s performance and could re-evaluate its renewal of self-bonding eligibility at any time.
“There can be no assurance that the amount of our self-bonding obligations will not be increased or that we will continue to qualify to self-bond,” Arch noted. “To the extent we are unable to maintain our current level of self-bonding, due to legislative or regulatory changes or changes in our financial condition, our costs would increase and it could have a material adverse effect on our financial condition and results of operations.”
Arch has two coal mines in Wyoming. The Black Thunder surface job produced 49.8 million tons in the first half of this year and 101 million tons in all of 2014, according to U.S. Mine Safety and Health Administration data. The Coal Creek surface mine, which has a low-Btu coal and tends to swing down its coal output in especially tough markets, turned out 3.5 million tons in the first half of this year and 9.4 million tons in all of 2014.