GILLETTE — On the back of a $718 million loss in 2018 and failure to renegotiate with creditors or find a buyer, Cloud Peak Energy Corp. may be 30 days out from filing for bankruptcy.
That’s one of the main takeaways from the company’s much-anticipated 2018 year-end financial report, which details a difficult fourth quarter at its Powder River Basin coal mines to cap a disastrous year.
Plagued by unusually wet weather that caused a spoil failure at the company’s flagship Antelope mine south of Wright, along with a weak market for PRB thermal coal, the company reports its financial options are limited to the point its reclamation bond holders are demanding more collateral and it can’t make the interest payments on more than $350 million of debt.
“The bottom line is, they have a $718 million loss, in 30 days they’ll be in default on the (debt) payment that’s due today and they have another payment due on May 1. Also, they’ve canceled their shareholders meeting,” said Robert Godby, director and associate professor for the Department of Economics and Finance at the University of Wyoming.
By exercising the 30-day option on a $1.8 million interest payment that’s due Friday, Cloud Peak’s year-end financials paint a continued grim picture for one of the nation’s largest thermal coal producers, he said.
“What you can expect here is they’re going to use this 30 days to make last-ditch efforts to find somebody who will bail them out, someone who will give them credit,” Godby said. “If they don’t find either of those things, they will file for bankruptcy.”
Perhaps the largest threat to the company’s ability to continue mining operations at its three PRB mines — Antelope, Coredro Rojo and Spring Creek — is the demand from bond-holders for more collateral to guarantee Cloud Peak’s reclamation obligations, Godby said.
According to Friday’s filing, the company has $407.6 million of reclamation bonds backed by $25.7 million worth of letters of credit. That credit is now significantly compromised, he said.
“From the perspective of operations, that affects the regulatory requirements that can shut them down,” Godby said. “If they’re out of compliance, they could be stopped from operating.”
While that’s a possibility, it’s also unlikely, Godby said.
“That doesn’t make a lot of sense, because if your revenues are zero, you’re definitely not making any money to pay for that,” he said. In its year-end report, Cloud Peak listed a number of factors that have limited its ability to make enough money to cover its debt, including:
Operational issues at the Antelope mine;
Depressed PRB thermal coal industry conditions that include a decline in export pricing;
Reduced cash flow projections for 2019 and beyond;
Noncompliance with the New York Stock Exchange’s continued listing requirements and potential delisting of common stock if shares don’t rise above $1, and the demands for more collateral for surety bonding.
Cloud Peak’s report says the company has come to the conclusion “that there is substantial doubt about our ability to continue as a going concern. As a result, we will continue to pursue options to alleviate this condition.”
Even so, “there can be no guarantees that this will alleviate the substantial doubt that exists” surrounding Cloud Peaks finances, according to the filing.
A historically bad year
Along with a weak market for coal, Cloud Peak Energy took a number of hits that affected its bottom line in 2018. The first 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 and running into this year.
Between the eagles and mine repair, Antelope produced 23.1 million tons of coal last year, a 19 percent drop from 2017. Cordero Rojo was down 23 percent.
Cloud Peak also closed its Gillette office and moved local administration to the Cordero Rojo mine and sold its building on Gillette Avenue to Campbell County for $2.9 million.
In November, Cloud Peak announced it’s exploring financial alternatives, including selling the company.
What it all means
While not surprising, Cloud Peak’s 2018 report confirms what many have been speculating for months, Godby said, that a bad first three quarters of the year was followed by an even worse fourth quarter and that bankruptcy may be its best option at this point.
“Normally, a report like this could mean two things,” he said. “One is they could make a deal with their creditors, which is what they’ve been trying to do. Then there’s going to the courts and basically declaring bankruptcy and doing a deal that restructures the debt.”
By using terms like “substantial doubt” and questioning its “ability to continue as a going concern,” the company is using legalese to say that, “in financial terms, they need to rebalance their sheet, and that’s bankruptcy,” Godby said. “The bottom line is, they’re saying everything sucks.”
By Greg Johnson
Gillette News Record Via Wyoming News Exchange