Westmoreland warns it fails to reach coal sales agreement from Texas mine

 

Jun 22 - McClatchy-Tribune Regional News - Wayne Heilman The Gazette, Colorado Springs, Colo.

Westmoreland Coal Co. has failed to reach a coal sales agreement with the only customer of its second-largest mine, which could force it to close.

Colorado Springs-based Westmoreland told stockholders Thursday that it will decline to deliver coal next year from its Jewett Mine in Texas to an adjacent plant owned by NRG Energy Inc., according to a filing by Westmoreland with the Securities and Exchange Commission.

The filing comes as Westmoreland is trying to raise $85 million in a stock offering to existing shareholders before it runs out of cash late this year. Stockholders are scheduled to vote July 19 on approval of the offering during the company's annual meeting.

Westmoreland's stock closed unchanged Thursday at $26.76 in light trading on the American Stock Exchange.

Coal sales from the plant make up 29 percent of Westmoreland's coal sales and more than one-fourth of its overall revenue, the company said in the filing. Westmoreland also said closing the mine also would hurt its profitability and cash flow.

Westmoreland and NRG have been trying to negotiate a price for the coal from Jewett since late last year. The dispute eventually went to arbitration, but Westmoreland rejected the price determined by the arbitrator, which allowed NRG to seek competitive bids.

A long-term contract between Westmoreland and NRG allows Westmoreland to match the winning bid, but Westmoreland said in the filing that it found the bid price "unacceptable" and instead told NRG it would not deliver coal next year to the plant.

NRG, which now no longer has to buy coal from Westmoreland, has been blending coal from Westmoreland's mine with coal from Wyoming because coal from Jewett does not meet Texas environmental rules, according to Westmoreland's annual report to shareholders.

If the plant closes, both Westmoreland and NRG will have to pay to reclaim the mine site, which Westmoreland estimated would cost $63.7 million as of March 31. While Westmoreland estimates NRG will have to pay $31 million of that costs, it said NRG disputes that amount.

Westmoreland Chief Executive Keith Alessi declined to comment on the filing, but said in a statement that the company continues "to believe there are advantages for both the company and (NRG) in reaching a long-term agreement and we believe there is a price at which both parties can meet their business objectives."

NRG continues to "work with Westmoreland and we hope to come up with a mutually agreeable solution," said Dave Knox, a NRG spokesman in Texas.

Bentley Offutt, a Baltimore stock analyst who follows Westmoreland and owns stock in it, said Jewett is Westmoreland's "least profitable mine. It has been unprofitable or marginally profitable" since the contract was restructured in 2002.

"It doesn't make a great deal of sense for Westmoreland to operate the mine if it not profitable for them," Offutt said. "If you're not making much money and have other more profitable areas in which to invest your money, it makes sense to invest elsewhere."

The Jewett Mine opened in 1985 and was acquired by Westmoreland with several other mines in Montana from Montana Power Co. in 2001 for $138 million. The mine is among four finalists for a $1 billion near-zero-emissions coal power plant called FutureGen.