Twentymile Mine to be part of new joint venture between nation’s largest coal companies
In an effort to make coal more competitive against natural gas and renewable energy sources, two of the nation’s largest coal companies, Peabody Energy and Arch Coal, have announced that they plan to combine assets in Colorado and Wyoming. Routt County’s Twentymile Mine would be managed under the new joint venture.
In a news release Wednesday, Peabody announced the companies had entered into a joint-venture agreement to combine their properties in Colorado and the Powder River Basin in northeast Wyoming.
“For Peabody, the creation of the joint venture is a clear demonstration of the company’s U.S. thermal strategy to optimize our lowest-cost, highest-margin operations in a low-capital fashion to maximize cash generation,” Peabody President and CEO Glenn Kellow said in the release. “The transaction fully aligns with our stated investment filters, further enhances our financial strength and enables continued commitment to our shareholder return program, in which we are committed to returning an amount greater than our free cash flows to shareholders in 2019.”
In the news release, the companies said the joint venture aims to strengthen “the competitiveness of coal against natural gas and renewables while creating substantial value for customers and shareholders.”
Colorado mines that plan to operate under the new structure include Twentymile, owned by Peabody, and the West Elk Mine in Gunnison County, owned by Arch.
“Arch is contributing its low-cost, higher-margin West Elk Mine that enhances Peabody’s Twentymile Mine in Colorado,” the release said.
Twentymile Coal powers Routt County, both in charging up the electric grid and in its tax revenues paid to the county, but it’s been impacted by economic hardships the coal industry has faced nationwide.
Twentymile supplies coal to Xcel Energy’s Hayden Station. The Yampa Valley Electric Association purchases 95% of its power from Xcel. But with Xcel’s announcement that it plans to produce “carbon-free” power to customers, the future of Hayden Station is unclear.
Production at Twentymile has seen a steady decrease over the past five years, both in how many tons of coal it produces and the number of employees working at the mine. Once the county’s biggest taxpayer, Peabody Energy was the county’s fourth-largest taxpayer last year, behind Xcel, Union Pacific and Steamboat Ski and Resort Corp.
The mine produced 3,049,509 tons of coal in 2018, according to the Colorado Division of Reclamation, Mining and Safety.
In Wyoming, the plan would combine the nation’s two largest coal mines, in terms of tons of coal produced, into one operation. The companies said Peabody’s North Antelope Rochelle Mine and Arch’s neighboring Black Thunder Mine would be operated as a single, lower-cost complex.
Other mines included in the joint venture include Peabody’s Caballo and Rawhide mines and Arch’s Coal Creek Mine, all in Wyoming.
Peabody spokesperson Charlene Murdock told the Casper Star-Tribune the anticipated cost savings will come from reduced overhead, not reduced staff.
“All things being equal, we expect the hourly workforce to remain constant and only possibly minor changes in the salaried staffing levels,” Murdock said to the Star-Tribune. “Potential opportunities outside of the joint venture may also open up for employees once the agreement is finalized. The fact is, both companies have talented workforces, and we will work to preserve that pool.”
The news of joint venture comes on the heels of the announcement that the Trump administration will replace the Obama-era Clean Power Plan with regulations that will allow states to decide whether to require efficiency upgrades at existing coal plants.
Structure of the joint venture
Peabody will own 65% of the new joint venture, and Arch will own 33.5%. The companies will share profits, capital requirements and cash distributions in proportion to ownership. A five-member board made up of three Peabody appointees and two Arch appointees will govern the new joint venture.
Peabody will operate the venture and manage all activities, including marketing the coal, according to the release.
The companies expect the joint venture to save them $120 million annually for the next 10 years.
According to the news release, in addition to cost savings, the companies expect the the joint venture to allow for:
- “Optimization of mine planning, sequencing and accessing otherwise isolated reserves;
- Improved efficiencies in deployment of the combined equipment fleet;
- More efficient procurement and warehousing;
- Enhanced blending capabilities to more closely meet customer requirements;
- Improved utilization of the combined rail loadout system and other rail efficiencies;
- Reductions in long-term capital requirements; and
- Leveraging Peabody’s shared services.”
In a conference call Wednesday, CEOs of both companies said that it is unclear when the agreement will be finalized, reports the Star-Tribune. Kellow said in the call that the transaction still faces regulatory approval and expects a “multi-month process” before it closes. Regulators will review the transaction under U.S. antitrust laws.
“The transaction will require clearance under the U.S. Antitrust Laws and certain jurisdictions outside of the United States,” Kellow said on the call, the Star-Tribune reports. “However, we believe the case for customers is compelling. The landscape of U.S. energy production has changed while the nature of coal production has not. Coal is not just competing against coal — it’s competing against natural gas and renewables. The announcement of the joint venture occurs as thermal coal industry conditions has been challenged by increased competition in the face of inexpensive natural gas from shale production, growing build-out of subsidized renewable energy capacity, coal plant retirements, strict regulations and limited power demand growth.”