As producers scale back, strategic buyers are few and far between—and the coal-industry outlook appears bleak
Tom Clarke received a cold reception when he first approached Patriot Coal Corp. earlier this year.
The company and its advisers were trying to sell some of its Appalachian mines after filing for bankruptcy protection. At first they doubted Mr. Clarke’s conservation group, whose mission is “to conserve Virginia’s natural resources to address climate change,” would have the money and know-how the deal required, according to people familiar with the matter.
But Mr. Clarke managed to get an audience with the embattled miner. In a conference room at a private airport in Charleston, W.Va., he made his pitch: His Virginia Conservation Legacy Fund Inc. would take control of mining operations and cleanup projects, aiming to sell coal bundled with carbon credits linking it to forestry projects. Patriot, in exchange, would be freed from about $400 million in liabilities tied to the mines but wouldn’t receive a significant cash payment.
Patriot accepted the offer.
Mr. Clarke’s deal with Patriot illustrates the depth of the coal industry’s slump. Major U.S. producers are scaling back, trying to shed mines and laying off employees. But the financial investors and large industry buyers that figured prominently in the last coal shakeout as acquirers are largely sitting out this round.
“There’s just a vacuum of strategic buyers, especially at a larger scale,” said Fred Vescio, a managing director at investment bank Houlihan Lokey.
Three major U.S. coal companies—Patriot Coal, Alpha Natural Resources Inc. and Walter Energy Inc.—filed for bankruptcy protection this year. Patriot is selling most of its assets to Blackhawk Mining LLC, a Kentucky-based regional miner founded five years ago by coal entrepreneur Mitch Potter. Alpha Natural has said it won’t immediately sell mines as part of its restructuring. Walter Energy is evaluating options after last month’s breakdown of its initial restructuring plan, which would have given creditors ownership of a slimmed-down version of the company.
“I don’t think we could have even begun to think about doing this [deal] five years ago,” Mr. Clarke, a father of eight who also runs a Virginia-based health system, said in an interview. Black Diamond Capital Management LLC has agreed to commit $25 million in debt financing for a 30% stake in a mine the conservation fund is acquiring, among other compensation, according to people familiar with the matter.
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