SunCoke Energy Inc. (NYSE: SXC) said April 6 that it has divested its coal mining business in Central Appalachia to Revelation Energy LLC in a transaction that includes substantially all of SXC’s remaining coal mining assets, mineral leases, real estate and mining reclamation costs.
Under the terms of the deal, which closed April 6, Revelation Energy will receive approximately $10.3 million from SXC to take ownership of the assets and associated costs.
In conjunction with the transaction, Revelation Energy and SunCoke’s Jewell Coke operations in southwest Virginia have entered into a coal supply agreement whereby Revelation will deliver approximately 300,000 tons to Jewell Coke annually for the next five years at a favorable delivered cost as compared to alternative coal sources. This is intended to provide a cost-effective, local supply of high-quality, mid-vol metallurgical coal. SunCoke also expects to incur approximately $2 million of transaction-related costs.
The transaction is expected to be cash flow neutral to SunCoke by the end of 2017 based on avoided potential mine closure and reclamation costs of approximately $12 million. In addition, as compared to potentially closing its mines, SXC expects to realize approximately $2 million to $3 million per year of lower administrative, regulatory, compliance and purchased coal costs through 2020, as well as reduce its mining-related liabilities and collateral requirements.
”Despite our aggressive efforts to reduce costs by rationalizing our mining footprint, the drastic and sustained decline in coal prices will likely prevent us from generating positive cash flow from our mining operations for the foreseeable future,” said Fritz Henderson, Chairman, President and CEO of SunCoke Energy Inc. ”We believe this value-positive sale will improve our long-term cash flow and allow us to focus on our core cokemaking and coal logistics businesses.”
The deal excludes SunCoke’s legacy black lung and workers’ compensation liabilities, and certain properties that are necessary for Jewell Coke’s operation or were unavailable for transfer based on contractual provisions. SunCoke may transfer other properties to Revelation Energy after closing, subject to required consents, for additional payment to Revelation of up to $0.7 million. The mining assets acquired by Revelation are located primarily in Buchanan and Tazewell counties in southwest Virginia.
SunCoke Energy Inc. supplies high-quality coke to the integrated steel industry under long-term, take-or-pay contracts that pass through commodity and certain operating costs to customers. It is the sponsor of SunCoke Energy Partners LP (NYSE: SXCP), a publicly traded master limited partnership, holding a 2 percent general partner interest, 55 percent limited partnership interest and all of the incentive distribution rights. Its cokemaking facilities are located in Illinois, Indiana, Ohio, Virginia, Brazil and India.