GILLETTE — Cloud Peak Energy Corp.’s New Year’s resolution list for 2019 is short — survive.
Resolutions can run the gambit of clichés from advancing one’s career to losing weight to finally popping the question to a significant partner. It’s the same in business: expand, open new markets, develop new products and technologies, or all at once.
On the financial bottom line, they all have one common denominator — make more money.
That would be a good start for the Gillette-based thermal coal producer coming off a rocky 2018 that has the company on the brink of bankruptcy or possibly even insolvency.
“It’s been a horrible year operationally and a really hard year for the coal markets in general,” said Robert Godby, director of the Department of Economics and Finance at the University of Wyoming.
In the last 10 weeks, Cloud Peak has announced it’s exploring its financial “strategic alternatives,” including selling the company, to deal with a bottom line that’s bled nearly $215 million since 2015. Add a $400 million anvil of debt dangling overhead that’s coming due in the next few years and the only Powder River Basin-only coal producer was on shaky ground before a disastrous 2018 put Cloud Peak on the canvas for a possible 10-count.
“It’s definitely going to be a pivotal year for Cloud Peak Energy,” Godby said. “Then, if they get through this one, next year is also going to be a pivotal year. It’s going to be chewing the fingernails right up until the debt comes due.”
Many in the industry dubbed President Barack Obama’s administration as an eight-year “war on coal,” but Cloud Peak could consider 2018 as Mother Nature picking up where the Obama administration left off.
The first hit came early in the year when a group of nesting golden eagles delayed a crucial dragline move at the company’s flagship Antelope mine south of Wright. At 28.5 million tons of coal, Antelope alone accounted for nearly half of the 57.8 million tons Cloud Peak produced as a company in 2017.
Instead of taking four weeks, the dragline move took nine weeks, putting the mine behind schedule to meet its production and contract goals.
Then an unusually rainy spring caused spoil failure at the Antelope mine, putting it behind even more.
Between the eagles and mine repair, Antelope produced 23.1 million tons of coal last year, a 19 percent drop from 2017. Add a 23 percent decline in production at Cordero Rojo, its other Wyoming PRB mine, and profit margins that continue to narrow due to market conditions, many analysts are speculating if it’s game over for Cloud Peak.
“They’ve got a little bit of time to maneuver,” Godby said about the company’s outlook. “There’s a possibility they can do something with their creditors to gain some time. The way you might avoid bankruptcy is to try and arrange some kind of debt-equity swap. If that’s the case, then the mines keep running.
“They also basically need the market to turn around. They’re not generating income like they thought they would. The bottom line is they’ve done everything they can to consolidate their earnings.”
Those cost-saving moves have included terminating retirement health benefits and closing the Gillette administrative office and moving those operations to the Cordero Rojo mine site, Also, both Cordero Rojo and Antelope have been consolidated to run as a single operation.
Since spinning off from Rio Tinto Energy America in 2009, Cloud Peak’s financials read like a roller coaster: a steady, pleasant ride up a steep slope, then a scary plunge down.
From 2010, the company’s first full year as Cloud Peak, through 2014, it made a net profit of $611.7 million.
Then came a crash in 2015 that devastated thermal coal and pushed three of the Powder River Basin’s largest producers — Alpha Natural Resources, Arch Coal and Peabody Energy — into bankruptcy.
From 2015 through the first three quarters of 2018, Cloud Peak has lost $213.7 million, including a huge $204.5 million hit in 2015 alone. It’s $24 million in the red through the first nine months of last year.
Along with the company’s financial filings, including one Jan. 14 that moves to guard against any potential hostile takeover bids, there’s a lot to concern a community that relies on coal to drive its economy and Cloud Peak’s 1,224 employees.
By Greg Johnson
Gillette News Record Via Wyoming News Exchange