On The Brink: What Could Come Of A Westmoreland Bankruptcy

May 4, 2018

One of the largest producers of coal in the country may soon face Chapter 11 bankruptcy. Westmoreland Coal Company's stock has been in free fall over the last year and several of its primary customers are moving away from coal.

Market Summary of Nasdaq
Credit Nasdaq stock exchange

Over the last year, the value of a single share in the company went down 97 percent. On April 25, Nasdaq, the second largest stock exchange, delisted Westmoreland for its inability keep shares above $1 for 30 consecutive business days. While the company has 180 days to regain compliance, it's a pretty big hit to Westmoreland’s reputation. But the delisting is just the beginning of the story.

Westmoreland Coal Company operates mines in five states, including Wyoming, and in Canada. Over the past five years, Westmoreland’s debt has increased 225 percent. The company has produced 7 percent less coal, saw a CEO step down, and recently hired restructuring, or ‘bankruptcy,’ advisors.

Five-year financial look back within Westmoreland’s 10K SEC Filing
Credit Westmoreland Coal Company

Andy Blumenfeld, an analyst with Doyle Trading Consultants who studies energy markets, said “It’s kind of a sad situation."

To him, it’s clear all signs point to bankruptcy.

"It seems like a very high probability,” Blumenfeld said.

Westmoreland is struggling financially for many reasons: bad luck with big investments, competition from natural gas, and a market strategy with almost no flexibility. That strategy, called mine-mouth, is when a mine directly feeds a power plant. It also means reliance on a few, or one, big customers with long-term contracts.

"The idea is to remove some of the market volatility and have a secure customer. What has turned out to be a good and sound strategy has turned into somewhat of a problem for them,” Blumenfeld said.

It’s a problem now because more and more utilities are moving away from coal to cheaper alternatives like natural gas. And if your one big customer suddenly doesn’t need your product, that hurts. In 2016, Westmoreland bought a mine in New Mexico for $121 million tied to the San Juan Generating Station, the mine’s primary customer. Half of the coal-fired generating units retired soon after the purchase, with the remaining units expected to be shut down by the end of 2022.

In Wyoming, the Westmoreland Kemmerer Mine’s main customer will transition its largest generator either to natural gas or completely offline within the year. The same thing is happening in Montana and Canada.

“We're seeing a large stroke of bad luck in terms of the customers that they decided to hitch their wagon to, as it were,” Blumenfeld said.

Ian Lange, Assistant Professor and Director of the Mineral and Energy Economics Graduate Program at the Colorado School of Mines said mine-mouth operations also aren’t the easiest to sell.

“Mine-mouth plants, in general, don’t have rail access. They’re there for the plants, and so if the plant’s not there, then there’s no point in the mine being there. You either have to build the rail line out there, try to chuck the coal somewhere, or find some other way to get the coal out,” he said.

Understandably, all of this is having an impact: much less cash on hand and over a billion dollars in of debt. Bankruptcy could arrive as soon as a big enough debt payment comes the company just can’t afford.

"If they don’t have the cash on hand to make the payment, they would default,” said Andy Blumenfeld with Doyle Trading Consultants.

One big debt payment is coming on May 15 with several more due at the beginning of next year. The company expresses doubt in an SEC filing if it will be able to meet those obligations when they’re due.

If bankruptcy does occur, its impacts could be far reaching — both for the company and the communities it serves. Connie Wilbert, director of the Wyoming Sierra Club Chapter, said the state could be affected by reclamation costs. She said the company does has surety bonds, over 80 million, but she wonders if it’s enough.

Reclamation Data for the Kemmerer Mine
Credit Climate Home News

“Because if their surety bonds are inadequate, taxpayers will be stuck with whatever’s left,” Wilbert said.

Westmoreland has around 3000 employees in the U.S. and Canada. Lincoln County in southwest Wyoming relies heavily on the Kemmerer Mine — it’s the largest generator of tax revenue in the area by far. Around 280 people also rely on the mine for a job.

Mike Dalpiaz, International Vice President of District 22 for the United Mine Workers of America, represents mine workers in the west including at the Kemmerer Mine.

“These people are worried clear sick about it,” Dalpiaz said.

He said workers aren't just nervous about losing their jobs, but pensions and healthcare.

“The risk depends on the type of filing,” he said.

Dalpiaz said layoffs are a real possibility for another reason — the transitioning of Pacificorp’s Naughton Power Plant biggest generating unit to either natural gas or offline by the end of January 2019. Dalpiaz and others have said that will significantly reduce demand and production at the mine.

Tom Crank, state representative for Lincoln, Sweetwater, and Uinta counties, said if workers do lose their jobs, the local community would struggle to help out, because everyone is reliant on the mineral industry.

“It’s got everyone here fairly nervous when you have a small community that are dependent on that stuff when the big industries that provides most of the income to the community are facing issues. Nobody starts investing in the town, and so you have a hard time just keeping the other things going,” Crank said.

Lincoln County commissioners are currently in talks with Westmoreland about moving forward.

The Kemmerer Mine is also facing a potential expansion with support from the Wyoming legislature. During this year’s budget session, legislators appropriated $30 million for a project in HB0194 (pg. 47) that would move a highway to accommodate a promised mine expansion. Construction could start by 2022. Dan Dockstader, a state representative for Lincoln, Sublette, and Teton counties, pushed for the capital construction funds. He said the project will help retain 300 jobs over 19.5 years with the over 60 million additional tons of coal. Sierra Club’s Connie Wilbert called the expansion ludicrous and "a waste of taxpayer money” given Westmoreland could soon file for Chapter 11 bankruptcy.

Wyoming Public Radio reached out to the company multiple times to no response. As of April 2, the search for a new CEO was suspended as the company considers filing for bankruptcy.