Under the proposed arrangement made public in an October filing with the U.S. Securities and Exchange Commission, Yorktown would contribute its ownership in St. Louis-based Armstrong Energy, parent company of Armstrong Coal, into Rhino, a Lexington, Kentucky, company owned by Royal Energy Resources of Charleston, South Carolina. Rhino would issue 10 million of its common units to Yorktown, enabling Yorktown to become co-owner of Rhino with Royal.

Scott Morris, vice president and chief financial officer for Rhino, said the transaction, while not technically a merger, would be designed to bolster the mining operations and finances of both Rhino and Armstrong. “It basically gives Yorktown a broader footprint as Rhino has operations out West and in Ohio,” he said.

Armstrong Coal currently mines coal exclusively in western Kentucky.

Rhino has mines in both Central Appalachia and Northern Appalachia as well as its Castle Valley mining complex in Utah’s Emery and Carbon counties. But Rhino’s most important asset probably is the Pennyrile underground mine, also known as Riveredge, in western Kentucky’s McLean County.

Pennyrile has been ramping up production since it opened in early 2014. It produced only 220,910 tons of coal in that first full year of operation, according to the federal Mine Safety and Health Administration, but turned out 952,632 tons in the first three quarters of 2016. Rhino is fully contracted for 2016 and 2017 at Pennyrile with 1.2 million tons of coal to be produced and sold each year to a pair of Kentucky electric utilities — Big Rivers Electric Corp. of Henderson and Louisville Gas & Electric Co.

Pennyrile has the potential to produce about 2 million tons annually if markets warrant. Rhino produces about 4 million tons of coal annually.

Armstrong, meanwhile, has seen its production and sales decline over the past couple of years. In 2014, Armstrong produced and sold about 9.6 million tons of coal. Output and sales dropped to about 7.7 million tons in 2015. In 2016, the company expects to produce and sell about 5.6 million tons.

Morris said the agreement could be good for both Rhino and Armstrong as it would produce synergies that could positively affect both companies’ bottom line. “It would be putting the two operations together,” he said. “It would be more of a combination of resources between Armstrong and Rhino.”

If it becomes final, the agreement most likely would take effect sometime in early 2017.