- Associated Press - Sunday, April 19, 2015

CASPER, Wyo. (AP) - Wyoming has long offered its coal companies a deal: prove financial health and avoid posting a bond intended to cover the cost of cleaning up old mines. But some are worried a gloomy market could scupper the bargain.

Alpha Natural Resources, one of the largest companies mining in Wyoming, has been buffeted by weak coal prices in recent months, prompting speculation over the company’s ability to stay in business.

The problem for Wyoming: Alpha has agreed to one day pay $411 million in cleaning up its two mines in the Powder River Basin.

This arrangement is known as “self-bonding,” a legal agreement where a company can avoid paying money for an actual bond by showing strong financial health. The company commits to pay the reclamation costs associated with its operation at a later date.

Concerns over Alpha’s ability to meet Wyoming’s financial requirements increased last week after West Virginia regulators said the firm may no longer qualify for $262 million in self-bonding obligations in that state.

The news had a ripple effect in Wyoming, where some were left wondering who will be left to pay for mine cleanup if struggling firms go out of business.

“We know that when bonds are inadequate the state is left holding the bag,” said Shannon Anderson, a lawyer at the Powder River Basin Resource Council.

Alpha says it will not have any difficulty meeting Wyoming’s standards. State regulators say they are reviewing the company’s financials. But the situation underscores the difficulty facing the coal sector today.

Alpha is one of the biggest coal companies in the Powder River Basin. The firm’s Belle Ayr and Eagle Butte mines produced a combined 36 million tons of coal last year. The two mines employed 585 people at the end of 2014, according to federal statistics.

Coal companies often are required to post bonds that cover the cost of reclaiming their mines. The policy is much like insurance. If a company goes bankrupt, the bond is used to pay for the cost of cleaning up a mine.

Alpha, because of its longstanding financial health, has qualified to cover its reclamation costs by self-bonding.

A recent drop in coal prices has complicated the picture, however. Alpha reported a loss of $875 million in 2014. Earlier this month Moody’s Investors Service downgraded the firm’s credit rating.

The rating service said the decision “reflects the continued pressure on the company’s credit profile, and a capital structure that is untenable in current commodity price environment.”

A failure to meet Wyoming’s self-bonding requirements could compound Alpha’s woes. The company described the risk of failing to meet self-bonding standards in a regulatory filing, saying it could lead to a “significant decline in our financial position” and hurt the firm’s creditworthiness.

But the company said it was confident it would meet the standard.

“After a full review of the regulations and requirements, we believe Alpha’s self-bonding status in Wyoming is fully in compliance and we have received no contact from the state to the contrary,” Alpha said in a statement emailed to the Casper Star-Tribune (https://bit.ly/1bcyVTO).

Others were less sure. The Powder River Basin Resource Council sent a letter to state regulators in March, arguing Alpha may no longer meet Wyoming’s self-bonding requirements.

The Sheridan-based landowners group estimated the company’s ratio of total liabilities to net worth was 2.59, slightly above the state’s required ratio of 2.5.

Regulators responded by saying the company met its standard for self-bonding when Alpha was granted its annual renewal in November. The renewal was based on financial figures through September, said Kimber Wichmann, an official at the Wyoming Department of Environmental Quality.

Regulators have since received Alpha’s full-year financial results for 2014 and are reviewing those to ensure the company still meets the standard, she said.

“We’re definitely looking at this,” Wichmann said. “We take this very seriously when we see any company nearing the ratios.”

Companies generally submit financial filings on an annual basis. If a firm nears the required ratios for self-bonding, the state asks for quarterly filings, she said.

Of Alpha, Wichmann said, “This was not the first quarterly report we had.”

The state received Alpha’s full 2014 results on March 9 and started a review that could take up to 60 days. If Alpha were to fail to meet the self-bonding requirement, Wyoming would ask the company to post collateral or some other form of financial assurance.

It is not historically uncommon for the state to ask self-bonded companies to provide an alternative financial guarantee for their reclamation requirements, Wichmann said.

She said the state’s calculations of Alpha’s ratios were different than ones stated by the Powder River Resource Council, but she declined to comment further.

Still, some questioned whether self-bonding is an adequate way to ensure companies cover their reclamation obligations.

Robert Duke, a lawyer at the Surety and Fidelity Association of America, a trade group, called the concept of self-bonding a misnomer.

A bond or letter of credit typically acts as a third party that can step in to cover cleanup costs if a company runs into financial difficulty, Duke said. With self-bonding, it is the opposite.

“You most need the financial assurance right when the operator fails,” Duke said.

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Information from: Casper (Wyo.) Star-Tribune, https://www.trib.com

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