Rhino Resource Partners LP (OTCQB: RHNO) announced Dec. 30 that it has entered into an option agreement with Royal Energy Resources Inc. (OTCQB: ROYE), Rhino Resource Partners Holdings LLC, an entity wholly-owned by certain investment partnerships managed by Yorktown Partners LLC, and Rhino GP LLC, the general partner of Rhino, whereby Rhino has received an option from Rhino Holdings to acquire substantially all of the outstanding common stock of western Kentucky coal producer Armstrong Energy Inc.
This common stock is currently owned by investment partnerships managed by Yorktown. The option deal stipulates that Rhino can exercise the call option no earlier than Jan. 1, 2018 and no later than Dec. 31, 2019. In exchange for Rhino Holdings granting Rhino the call option to purchase Armstrong, the partnership issued 5.0 million new common units to Rhino Holdings upon the execution of the option agreement.
The option agreement stipulates that Rhino can purchase the common stock of Armstrong Energy, a coal producing company with mines located in the Illinois Basin in western Kentucky, in exchange for a number of newly issued Rhino common units to be issued to Rhino Holdings, which when added with the call option premium units discussed above, will result in Rhino Holdings owning 51% of the fully diluted common units of Rhino. The purchase of the Armstrong Energy common stock through the exercise of the call option would also require Royal to issue 51% ownership interest of Rhino GP, currently owned and controlled by Royal, to Rhino Holdings.
The exercise of the call option is dependent upon a successful negotiation with the current bondholders of Armstrong Energy to restructure their bonds as well as the refinancing of the partnership’s current revolving credit facility.
The option agreement also contains a put option granted from Rhino to Rhino Holdings whereby Rhino Holdings has the right, but not the obligation, to cause the partnership to purchase substantially all of the outstanding common stock of Armstrong Energy from Rhino Holdings under the same terms and conditions as the call option. The exercise of the put option is dependent upon a successful negotiation with the current bondholders of Armstrong Energy to restructure their bonds as well as the termination and repayment of any outstanding balances under the partnership’s current revolving credit facility.
Rhino and Armstrong Energy will continue to operate and be governed as independent entities until the call option or put option is exercised if either such options were to occur.
Rhino also announced that it has entered into a new preferred financing agreement with a group of investors led by Weston Energy LLC, a Yorktown portfolio company. The investors will invest $15 million of cash in exchange for Series A Preferred units of Rhino. Rhino will use the proceeds to reduce its current outstanding debt under its credit facility as well as potentially expand the partnership’s metallurgical coal production in Central Appalachia to take advantage of the recent upturn in the worldwide metallurgical coal markets.
Rhino Resource Partners is a diversified energy limited partnership that is focused on coal and energy related assets and activities, including energy infrastructure investments. Rhino produces metallurgical and steam coal in a variety of basins throughout the United States.
Royal Energy Resources is a diversified energy company, with investments and holdings in coal, gas and renewable energy assets in North America. Royal is the majority equity owner of Rhino Resource Partners LP, and its general partner, Rhino GP LLC.
Armstrong Energy, through its 100% wholly owned subsidiaries, is a leading producer of steam coal in the Illinois Basin. Armstrong controls over 550 million tons of proven and probable coal reserves and operates six mines in western Kentucky. Armstrong ships coal to utilities via rail, truck and barge and has the capability to provide low cost custom blend coal to fuel virtually any electric power plant in the Midwest and Southeast regions of the nation.
Yorktown Partners is a private investment manager founded in 1991 that invests exclusively in the energy industry. Yorktown has raised 11 private equity funds totaling over $8 billion. The investors in Yorktown’s funds include university endowments, foundations, families, insurance companies and other institutional investors.