Coal producer Rhino Resource Partners LP said in its Nov. 6 Form 10-Q quarterly report that on Oct. 30 it executed a binding letter of intent with an unnamed third party for the purchase of the Deane mining complex, subject to normal closing conditions.
Rhino’s Deane mining complex is located in eastern Kentucky and includes one underground mine that is currently idle. The infrastructure at the Deane mining complex consists of a preparation plant and a unit train loadout facility. The contemplated sale of the Deane complex would transfer the underground mine, related equipment, the preparation plant and loadout facility, while Rhino would retain the mineral rights for the 39.3 million tons of proven and probable steam coal reserves at this complex.
The contemplated transaction would also include a royalty agreement with the third party under which Rhino would collect future royalties for coal mined and sold from the Deane complex. The contemplated sale of the Deane complex would also relieve Rhino of significant reclamation liabilities and bonding requirements.
Rhino had determined the Deane mining complex met the held for sale criteria at Sept. 30, 2015 and, accordingly, the Deane mining complex asset group was written down to its estimated fair value of $2.0 million. Due to the determination that the Deane mining complex met the held for sale criteria, the Partnership recorded an impairment charge of approximately $2.3 million for the three and nine months ended Sept. 30, 2015. As of Sept. 30, 2015, Rhino classified approximately $8.8 million of assets and approximately $6.8 million of liabilities related to the Deane complex as held for sale on its unaudited condensed consolidated statements of financial position.
Rhino also had a steam coal surface mine operation in eastern Kentucky (referred to as “Bevins Branch”) in its Central Appalachia segment that was idled during mid-2014 when that location’s contract with its single customer expired. In May of this year, Rhino finalized a contractual agreement with an unnamed third party to assume the Bevins Branch operation. The contractual agreement had the third party assume the Bevins Branch operation where the only financial compensation Rhino received is a future override royalty and the assumption of the reclamation obligations by the buyer. The closing of the deal allowed Rhino to avoid the ongoing maintenance costs of this operation.
Rhino reviewed the Bevins Branch operation as of Dec. 31, 2014, in accordance with the accounting guidance for long-lived asset impairment and recorded total asset impairment and related charges of $8.3 million for the Bevins Branch operation for the year ended Dec. 31, 2014. As of Sept. 30, 2015, Rhino removed the approximately $2.3 million of remaining assets and any related liabilities that had been previously classified as held for sale on its unaudited condensed consolidated statements of financial position.
Rhino has a geographically diverse asset base with coal reserves located in Central Appalachia, Northern Appalachia, the Illinois Basin and the Western Bituminous region. As of Dec. 31, 2014, it controlled an estimated 480.0 million tons of proven and probable coal reserves, consisting of an estimated 425.1 million tons of steam coal and an estimated 54.9 million tons of metallurgical coal. In addition, as of Dec. 31, 2014, it controlled an estimated 290.0 million tons of non-reserve coal deposits.
Rhino Eastern LLC, a joint venture in which Rhino had a 51% membership interest and for which it served as manager, was dissolved in January 2015. As part of this dissolution, Rhino received approximately 34 million tons of premium metallurgical coal reserves, which it has included in its proven and probable reserves since the joint venture and its operations were effectively dissolved as of Dec. 31, 2014. The joint venture was with bankrupt Patriot Coal in southern West Virginia.
During the nine months ended Sept. 30, 2015, Rhino operated nine mines, including four underground and five surface mines, located in Kentucky, Ohio, West Virginia and Utah. In the third quarter of 2015, it temporarily idled a majority of its Central Appalachia operations due to ongoing weak coal market conditions for met and steam coal produced from this region. Future market conditions will determine the duration that the Central Appalachia operations remain idle.
For the three and nine months ended Sept. 30, 2015, Rhino generated revenues of approximately $54.1 million and $167.1 million, respectively, and it generated net losses of approximately $9.3 million and $21.3 million, respectively. For the three months ended Sept. 30, 2015, it produced approximately 0.8 million tons of coal and sold approximately 0.9 million tons of coal, of which approximately 78% of tons sold were sold pursuant to supply contracts. For the nine months ended Sept. 30, 2015, it produced and sold approximately 2.8 million tons of coal, of which approximately 82% of tons sold were sold pursuant to supply contracts.