Westmoreland Coal (NasdaqGM: WLB) announced Feb. 1 the completion of its acquisition of the San Juan Mine in Farmington, New Mexico, by its subsidiary Westmoreland San Juan LLC (WSJ” for a purchase price of about $127 million, subject to post-closing adjustments.
Westmoreland San Juan assumed operations at the mine on Feb. 1. The longtime owner of this mining operation had been international miner BHP Billiton.
The acquisition of the mine, which is adjacent to the San Juan power plant operated by Public Service Co. of New Mexico, augments Westmoreland’s suite of minemouth operations and provides additional coal resources of 148 million tons. Concurrent with the mine acquisition, Westmoreland entered into a long-term coal supply agreement with the owners of the San Juan Generating Station (SJGS), requiring SJGS to purchase 100% of its coal from the San Juan Mine, with tonnage and pricing adjusting quarterly through 2022.
“The addition of the San Juan Mine further enhances our mine mouth business model, which has been fundamental in providing strong cash generation,” said Kevin Paprzycki, Westmoreland’s Chief Executive Officer. “We look forward to building upon the solid partnership with the SJGS team in the years to come.”
To finance a portion of the transaction, WSJ entered into a $125 million structured loan with a subsidiary of PNM Resources, which is the parent of Public Service Co. of New Mexico. The loan is a $125 million Senior Secured Non-Revolving Term Loan maturing Feb. 1, 2021 and bears initial interest at a 7.25% rate plus LIBOR, which escalates over time. There are no prepayment penalties and the loan is structured such that greater than half the balance is due to be repaid in the first two years.
“We believe the San Juan transaction is an overwhelming success for Westmoreland, PNM Resources, and PNM’s customers,” said Paprzycki.
BMO Capital served as Westmoreland’s capital markets advisor for the transaction.
PNM Resources (NYSE: PNM) said Feb. 1 that the closing of this deal means customer savings have been secured through the finalization of the new coal supply and participant restructuring agreements for the San Juan station. Combined savings from the agreements are expected to reduce customer costs by more than $300 million over six years.
Said Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO: “Collectively, the elements of the plan for SJGS will provide significant environmental benefits while minimizing the impact to PNM customer bills, as well as the impact to jobs and the New Mexico economy as a whole. Now that the new coal supply and participant restructuring agreements are finalized, we can begin to deliver those benefits to our customers.”
The sale of the San Juan Coal Co., the owner of the San Juan Mine, from BHP Billiton to Westmoreland San Juan resulted in the finalization of the new coal supply and participant restructuring agreements. To facilitate the closing and secure PNM customer savings, PNM Resources established a new subsidiary, NM Capital Utility Corp., which assisted Westmoreland with the financing.
PNM Resources is an energy holding company based in Albuquerque, N.M., with 2014 consolidated operating revenues of $1.4 billion. Through its regulated utilities, Public Service Co. of New Mexico and Texas-New Mexico Power, PNM Resources has approximately 2,787 MW of generation capacity and provides electricity to more than 753,000 homes and businesses in New Mexico and Texas.
Westmoreland Coal is the oldest independent coal company in the United States. Westmoreland’s coal operations include sub-bituminous and lignite surface coal mining in the western U.S. and Canada, an underground bituminous coal mine in Ohio, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners LP, formerly Oxford Resource Partners LP, a publicly-traded coal master limited partnership. Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina.