James River Coal Co., which operates in the U.S. Midwest and Appalachia, filed for bankruptcy for a second time, listing $818.7 million in debt, after declining prices caused it to idle a dozen mines.
Booming natural-gas output from shale rock in recent years has spurred some electric utilities to switch to gas. And rising Australian output of metallurgical coal used in steelmaking has helped create a global surplus and depressed prices.
“Domestic demand for coal has decreased dramatically” in the past three years, Chief Executive Officer Peter Socha said yesterday in court papers accompanying the filing in U.S. Bankruptcy Court in Richmond, Virginia. He cited environmental regulations and improved methods of producing gas.
James River, which produced 9.5 million tons of coal in 2012, said it plans to keep operating as it reorganizes in bankruptcy. One or more parts of the Richmond-based company might be sold, Socha said.
A $110 million bankruptcy loan is planned to fund business as James River keeps operating under court protection, and the company intends to keep paying suppliers as usual, Socha said in a statement. The shares plunged 50 percent to 36 cents after the close of trading yesterday in New York.
James River plans to sell substantially all of its property at a proposed July 8 auction. The company is requesting a July 11 sale hearing to approve the sale to the successful bidder or bidders.
The company has yet to line up a “stalking horse” bidder that will place a value on its assets through an initial bid to kick off the auction. Of more than 40 parties that Deutsche Bank contacted on behalf of the company in February and March, “about half” entered into confidentiality agreements to learn more about James River’s assets, and some have met with the company’s management, according to court papers.
James River has said that a breakup fee of as much as 3 percent of the purchase price will be paid to the stalking horse if the assets are sold to a higher bidder.
The company idled four Kentucky mines in November, putting about 200 workers on furlough. The mines produced 1 million tons of coal in the first nine months of 2013, while companywide output was 6.12 million tons, the company said. James River had already idled eight mines as third-quarter production fell 15 percent from a year earlier.
Central Appalachian thermal coal on the New York Mercantile Exchange fell 4.6 percent to average $58.89 in 2013 from $61.74 in 2012. So far this year it is $59.96. The benchmark metallurgical coal contract for the second quarter fell to $120 a metric ton, the lowest price in six years.
“The writing has been on the wall that if prices don’t pick up this could happen,” Jim Rollyson, a Houston-based analyst for Raymond James Financial Inc., said yesterday by phone. “Metallurgical coal prices have continued to slide, although you’ve had some recovery going on the thermal side.”
Thermal coal is burned at power plants to produce electricity, while the metallurgical variety is sold for premium prices to steelmakers who use coke, made from coal, to process iron ore.
About 44 percent of James River’s $1.1 billion revenue in 2012 came from coal sales to electricity producers, with the balance from sales to industrial and other companies.
The company listed $1.07 billion in assets in a Chapter 11 petition filed yesterday in U.S. Bankruptcy Court in Richmond. The petition listed more than 30 units that are also bound for bankruptcy. James River emerged from a previous bankruptcy in May 2004.
James River follows in the footsteps of St. Louis-based Patriot Coal Corp., which filed for bankruptcy in July 2012 after milder winters and the shift to natural gas sent coal demand to a 24-year low. Patriot emerged from Chapter 11 in December.
James River was built through acquisitions. Formed in 1988, it bought General Energy Corp. and operated through the McCoy Elkhorn and Bell County complexes in eastern Kentucky. It acquired Johns Creek Coal Co. in 1992, Kinney Branch Mining in 1994, Leeco Inc. and Bledsoe Coal Corp. in 1995 and Blue Diamond Coal Co. in 1998. In 1999, it bought Shamrock Coal Co., which added more mines to the Bledsoe complex.
The company bought Triad Mining in southern Indiana in 2005. In 2011, it expanded into West Virginia with the acquisition of International Resource Partners, which brought metallurgical coal to its business.
The case is In re James River Coal Co., 14-31848, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).