NORTON — Despite its characterization of its Chapter 11 filing for bankruptcy as a surprise, major U.S. coal producer Blackjewel, LLC, showed signs of being in trouble for months prior, some Virginia miners and observers said.
According to a July 5 update from the company to its employees, “unexpected disputes” between Blackjewel and investment firm Riverstone Credit Partners caused the latter on June 26 to retract an earlier offer to extend the deadline for a $28 million loan it had previously made to Blackjewel.
“This unexpected lack of funds and the inability to ensure payment to employees are also the reasons behind the unexpected suspension of operations on Monday afternoon,” the memo read.
But court filings documenting an ongoing liquidity crisis and anticipated falling demand for coal, coupled with the quiet transfer of mining permits from affiliate Revelation Energy to Blackjewel in fall 2018 and what some Virginia miners say was a pattern of increasingly constricted resources show that the business was on shaky ground long before the bankruptcy filing.
“I could see it coming,” said Rufus “Jolo” Jewell, a miner at Blackjewel’s D-17 mine in Jewell Ridge, Va. “Even Ray Charles could see something was going to have to give.”
On the ground, miners at the D-17 site, which turns out the high-quality metallurgical coal responsible for Virginia’s small surge in coal production since 2017, said that for at least the past year, Blackjewel had been skimping on its equipment repairs, either allowing equipment to stand idle, borrowing parts from other companies or relying on short-term fixes.
Several weeks before the bankruptcy, those miners said, rumors began circulating at D-17 that the company was going to file for bankruptcy. But shortly after they began, a foreman convened the day shift and denied the reports.
Erin Savage, the Central Appalachian program manager for environmental advocacy group Appalachian Voices, which maintains a Wise County office, said she saw trouble coming beginning in fall 2018. That October, Revelation Energy, an affiliate of Blackjewel that also filed for Chapter 11 bankruptcy July 1, began quietly transferring a number of its Virginia mining permits to Blackjewel, in a sign that it may have been thinking of dividing up its assets between the two.
“When we see companies transferring permits within their own network of subsidiaries, that’s usually a good indicator,” said Savage.
The transfers occurred more than a year after a July 2017 “strategic restructuring” of Revelation/Blackjewel, in which Blackjewel purchased most of Revelation’s equipment and rights to mine properties in exchange for taking on the obligations of reclaiming the sites after mining was complete. (Both Revelation and Blackjewel were headed by Jeffrey Hoops, who was forced to step down as a condition of Blackjewel, one of the nation’s largest coal producers, receiving a $5 million loan to remain afloat during the bankruptcy proceedings.)
Hoops’ own declaration to the bankruptcy court chronicles regular problems keeping Blackjewel’s 32 mining properties in Virginia, Kentucky, West Virginia and Wyoming profitable. Besides citing “intense pressure” resulting from a declining coal market and an industry-wide “period of financial distress and reorganization,” the former CEO’s statement highlights persistent struggles to maintain liquidity, the ability of a company to cover its immediate and short-term obligations.
Those challenges, said Hoops, date “back as far as 2014.” As part of a solution to this “liquidity crisis,” he told the court that he personally extended an “unsecured and undocumented revolving line of credit” to Blackjewel that at the time of bankruptcy had an outstanding balance of $11 million. This occurred, the environmental nonprofit Sightline Institute noted, despite the fact that the loans “violated the company’s credit agreements” with Riverstone.
Still, while miners and others may have sensed rough water ahead, few expected the present dilemma. As long as there have been coal producers, they have been filing for bankruptcy.
What’s different in the Blackjewel case is the nature of that bankruptcy. In recent years, all of the nation’s highest-profile bankruptcies — including those of Alpha Natural Resources and Arch Coal — have been Chapter 11 filings, which allow the company to reorganize and keep operating rather than liquidate its assets.
But if Blackjewel can’t obtain additional outside financing, liquidation will be the only option remaining. If that is the ultimate outcome, it may prove a watershed moment in the steady decline of coal as an energy source, both nationwide and in the region of Virginia that grew out of its abundance but has also suffered the commensurate decline in the industry.
Nearly 500 Virginia mine employees are stuck in limbo, not working but also not laid off. Since they technically are still employed, they can’t file for unemployment.