An environmentalist is scooping up mines from bankrupt Patriot Coal Corp., betting he can turn the scorned fuel green and help revive the struggling Appalachian region.
In a sign of how low coal’s fortunes have plunged, the purchase price is as shocking as the buyer: $0.
Tom Clarke -- a Virginia hospital executive and climate activist -- is crafting a first-of-its-kind deal in which investors concerned about climate change take over mines along with hundreds of millions of dollars in liabilities. He plans to sell the coal bundled with carbon credits accrued from planting trees -- something he thinks will appeal to utilities trying to meet new power-plant regulations.
“This is not your typical M&A deal,” Clarke said in an interview. “We want to be part of the solution.”
The dominant energy source since the Industrial Revolution, coal has been reeling in the U.S. under the three-headed assault of cheap natural gas, federal regulation and a tanking export market. Particularly in Appalachia, where costs are higher, coal producers are struggling to keep mines operating and stave off bankruptcy. A growing number have already failed.
Patriot sought bankruptcy protection in May for the second time in less than three years, listing assets and debt of more than $1 billion each. At a hearing Tuesday in Richmond, Virginia, U.S. Bankruptcy Judge Keith L. Phillips approved sending Patriot’s restructuring plan -- including Clarke’s offer -- out for a vote of creditors.
Burning coal to produce electricity is the top source of carbon emissions in the U.S., and so buying a coal mine in a bid to fight global warming is akin to fitness guru Richard Simmons investing in a doughnut chain. And, in fact, the proposed deal left environmental groups and unions initially unsure of its implications.
“It is interesting” because “we have a huge liability problem across Appalachia,” said Bruce Nilles, the head of the Sierra Club’s Beyond Coal campaign, an effort funded by Bloomberg Philanthropies. “We are still reviewing the details of this proposal, and so are not ready to conclude good or bad.”
Coal miners are equally hesitant.
“The good news is that the potential exists for jobs to remain here,” said Phil Smith, a spokesman for the United Mine Workers of America. “But we don’t know enough yet about the organization itself.”
Clarke said the deal can make perfect sense, both as a way to curb greenhouse gases and as a way to make money.
Clarke’s group, the Virginia Conservation Legacy Fund, plans to acquire 153 mining permits and equipment from Patriot. Instead of paying Patriot for the assets, it’s pledging to operate one mine, assume $176 million in liabilities to clean-up the company’s old mining operations and commit $109 million for pension and Black Lung obligations. Patriot has reached a separate deal to sell most if its other assets to Blackhawk Mining LLC.
Under the proposed deal announced Monday, the ownership of the new entity will be divvied up among the nonprofit conservation fund, miners, retirees, management and unsecured creditors.
The new company plans to sell 4 million tons of coal a year from the Federal Mine in West Virginia. In addition, workers from two other Patriot mines would be put to work on reclamation projects.
The fund’s offer is subject to a competitive bidding process authorized by the court.
The legacy fund, affiliated with Kissito Healthcare Inc., a nonprofit in Roanoke, was formed as part of an effort to buy the Natural Bridge south of Lexington, Virginia, and keep it open to the public. The fund says it controls 30,000 acres of conservation land, and it also works with the coal industry to promote best practices for land reclamation and reforestation.
Kissito describes itself as a working to combat climate change.
Clarke is viewed with skepticism by some environmental activists in western Virginia because of his relationship with Jim Justice, the chief executive officer of privately held Southern Coal Corp.
Clarke initially ran advertisements critical of Justice and the environmental track record of his company, but then shifted and became an adviser in charge its environmental compliance, the Roanoke Times reported in March. Justice, who is running for governor of West Virginia, has had a number of safety and environmental violations at his company
The new twist is that the deal is predicated on the idea that coal states will turn to this combination of coal with massive tree planting as a way to offset emissions and comply with new rules from the Environmental Protection Agency. The conservation fund joined with GreenTrees, which replants trees to generate carbon credits. The new company plans to join the coal from the mine with reforestation credits, and so effectively sell a lower-carbon alternative to coal.
“Whether environmental groups realize it or not, this is a major way to help solve this issue,” said Chandler Van Voorhis, managing partner of The Plains, Virginia-based GreenTrees. “It’s a powerful way to deal with carbon emissions.”
However, it’s not clear that kind of program would qualify under the EPA rules, a risk Clarke acknowledged. Clarke said he’s talking with coal-dependent states about including this option in their plans to the federal agency, and one is committed to doing so.
And it might face a backlash from environmental groups who see defeating coal as a top priority.
“The Sierra Club doesn’t like it because they want power companies to invest in solar and wind,” Clarke said. “We believe coal is still going to play a role.”
The case is In re Patriot Coal Corp., 15-bk-32450, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).