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Photographer: Ty Wright/Bloomberg

A Coal Producer Just Bought Back His Family's Business for 99% Less Than He Sold It For

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A Coal Producer Just Bought Back His Family's Business for 99% Less Than He Sold It For

Fifteen barges together holding 30,000 tons of coal before making their way down the Ohio River in West Virginia, on Oct. 23, 2012.
Photographer: Ty Wright/Bloomberg

A West Virginia businessman bought back a coal producer once owned by his family for less than 1 percent of what he sold it for in 2009, a startling indication of how radically the market for the commodity has worsened in that time.

The family of Jim Justice paid $5 million for several mining sites and processing plants in southern West Virginia previously owned by Russia’s OAO Mechel. The family sold Bluestone Coal Corp. in 2009 for a combination of cash and Mechel stock in a deal valued at $568 million, according to data compiled by Bloomberg.

Justice is renaming the unit Bluestone Resources Inc., which will create 150 coal-mining jobs in the next three months, he said in a statement on Tuesday. As part of the sale, which closed Feb. 12, Bluestone also will pay the Russian company royalty payments of $3 on each metric ton of coal mined and sold.

“We are now prepared to build toward the future and increase jobs in Southern West Virginia,” Justice said.

Coal prices were much higher when Mechel bought Bluestone, with much stronger demand in China, the biggest market for the commodity. Prices have fallen since, particularly for metallurgical coal, the variety that’s used to make steel and the kind that Bluestone produced. Mechel idled Bluestone in April, citing low prices.

Big Discounts

Mechel isn’t the first overseas company to sell off North American coal assets at a steep discount in the past year. In July, Russian steelmaker OAO Severstal sold Pennsylvania-based PBS Coals to Corsa Coal Corp. for $60 million, less than a tenth of what the company paid for PBS six years earlier.

In October, Japanese trader Marubeni Corp. said it would dispose of its stake in Canada’s Grande Cache Coal Corp. for a nominal $1 to a Hong Kong mining investor. Marubeni and a partner had paid about $1 billion for the Calgary-based miner three years before.

Justice, who didn’t immediately return a call seeking additional comment, has other coal operations in West Virginia, Virginia and North and South Carolina. In 2009, following the sale of Bluestone to Mechel, he bought the Greenbrier, a luxury golf resort in West Virginia.

Bluestone had lost on average $60 million a year since 2012, Mechel said in a statement Wednesday.

Royalty Payments

Mechel is in line for 12.5 percent of any future sale of Bluestone or its assets within five years, and 10 percent from a sale in the following five years. Mechel also said it had agreed with Justice to terminate all claims between both parties, including a dispute over payment obligations arising from the 2009 sale of Bluestone.

The Russian company, the country’s largest producer of metallurgical coal, is in talks with its lenders, mostly state banks, to restructure its borrowings. While several debt-restructuring proposals have been discussed, including the sale of convertible bonds to state-backed lenders, Mechel is still trying to find a way to meet its obligations and avoid bankruptcy.

(Updates with other coal asset sales in sixth paragraph.)