NRP, a Houston-based company that receives coal royalties from reserves it leases to producers such as Foresight, filed the suit against Foresight on November 24, 2015, in the Fourth Judicial Circuit in Montgomery County, NRP disclosed in a March 11 filing with the federal Securities and Exchange Commission (SEC).
According to NRP, the complaint alleged, among other things, breach of contract by Foresight resulting from a “wrongful declaration of force majeure at Hillsboro’s Deer Run mine in July 2015. The effect of a valid force majeure would relieve Foresight Energy of its obligation to pay us minimum deficiency payments of $7.5 million per quarter, or $30 million per year. Foresight Energy’s failure to make the deficiency payment with respect to the second, third and fourth quarters of 2015 resulted in a $16.2 million cash impact to us.”
Such an amount “will increase for each quarter during which mining operations continue to be idled,” NRP said, adding it does not currently have an estimate as to when Deer Run will resume production. If the mine remains idled for an extended period or if it permanently closes, “our financial condition could be adversely affected,” NRP warned.
Deer Run produced 1.9 million tons of coal in 2015 after turning out 5.5 million tons in 2014, according to the Mine Safety and Health Administration. In the second and third quarters last year, the mine produced only about 160,000 tons. A Foresight spokesman declined to comment on the suit.
Altogether, NRP reported $668 million in non-cash impairment charges in 2015 that resulted in a net loss of $559.5 million, or $45.75/unit, for the year, largely because of the declining market value of its assets due to “continued deterioration of the coal markets and significant decline in oil prices.” That compared to net income of $106.7 million, or $9.42/unit, in 2014.
NRP’s total revenue and other income actually increased in 2015 to $488.8 million, from $399.7 million in 2014.
NRP owned in excess of 2.3 billion tons of coal reserves as of December 31, 2014, in the Illinois Basin, Powder River Basin and Appalachia, the company said on its website. Of that total, 82% were underground reserves and 25% were metallurgical.