Armstrong Energy, still pursuing an initial public offering this year, says its revenue grew from zero to nearly $300 million by the end of 2011, despite “recession-driven declines in U.S. demand for coal and a challenging environment in the credit markets.” The St. Louis-based parent company of Armstrong Coal told the U.S. Securities and Exchange Commission in a March 7 filing it generated operating income of $7.9 million for the 12 months ended December 31, 2011. And, 2012 looks even brighter.
Armstrong, which operates in the high-sulfur Illinois Basin, says it is poised for a “significant increase” in coal production this year compared with 2011, when its seven mines in western Kentucky—Midway, Parkway, East Fork, Equality Boot, Lewis Creek, Kronos and Maddox—produced 6.6 million tons. The company is contractually committed to sell 8.1 million tons in 2012 and 8.2 million tons in 2013, representing 88% and 77% of its expected total coal sales for those two years, respectively.
Based on 2011 output, Armstrong is the sixth-largest in the Illinois Basin and second-largest in western Kentucky. Primarily, its low chlorine, high-sulfur thermal coal is sold to electric utilities. Armstrong is owned by Yorktown Partners L.P., a private equity firm.
As of December 31, 2011, Armstrong controlled about 326 million tons of proven and probable reserves in the western Kentucky counties of Ohio, Muhlenberg, Union and Webster. It also owns and operates three coal processing plants which support its mining operations.
Kronos, an underground mine, and Maddox, a surface operation, are the company’s two newest mines. Development of Kronos was completed in January 2012, Maddox in November 2011. Eventually, Kronos is targeted to produce about 2.1 million tons annually.
In December 2011, Armstrong completed a series of transactions with affiliates of Peabody Energy Corp. under which Armstrong acquired property near its existing and planned mines containing an estimated 7.7 million tons of reserves and entered into leases for an estimated 14 million tons of reserves. In addition, Armstrong entered into a joint venture relating to coal reserves near its Parkway mine, in which Peabody has agreed to commit approximately 25 million tons of reserves in Muhlenberg County. Armstrong has agreed to commit mining assets to the joint venture.
Armstrong and Peabody agreed to contribute 51% and 49%, respectively, of the cash needed to complete development of the mine and sufficient for down payments on mining equipment. Armstrong will manage the mine’s day-to-day operations and development of the mine in exchange for a $0.50/ton sold management fee. Peabody will receive a $0.25/ton commission on all coal sales by the joint venture.
Armstrong and Peabody also entered into an asset purchase agreement under which Armstrong acquired from Peabody its rights and interests in certain owned and leased coal reserves in Muhlenberg County in return for Armstrong’s cash payment of $8.9 million, “a promissory note in the aggregate principal amount of approximately $4.4 million, and an overriding royalty to Peabody to the extent we mine in excess of certain from the property as set forth in the asset purchase agreement.”