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Coal Mogul Dreams Endure for Virginia Nursing Home Executive

Feb. 6, 2019, 12:30 PM

Nursing home executive Tom Clarke, who has emerged as one of the few investors who still has an appetite for coal, is readying a bid that would instantly make him one of the nation’s biggest coal moguls.

The bid comes on the heels of Clarke’s failed $1.75 million effort in late January to take over two groups of Ohio mines owned by Westmoreland Coal Co. Clarke was ultimately outbid by former Westmoreland director Charles Ungurean.

But now he has his sights set on an even bigger prize: all of the mines belonging to Westmoreland, the nation’s ninth-biggest coal producer in 2017, according to the Energy Information Administration.

The bid strikes many analysts as a misbegotten adventure, given coal’s decline in the U.S. But Clarke said he has a plan to make Westmoreland profitable again.

“The most effective, cost-conscious provider is always going to be the winner,” Clarke told Bloomberg Environment. “There will be a competitive landscape” and “we believe we’ll be the last man standing.”

Westmoreland owns 12 surface mines in Montana, New Mexico, North Dakota, Texas, and Wyoming, as well as five mines in Alberta and Saskatchewan. The company filed for bankruptcy in October and is now trying to sell its assets.

Confident About Winning

Of all the mines in the Westmoreland empire, Clarke said he’s most confident about his bid to take over the Kemmerer Mine in Wyoming, which is going through a separate sale process.

He is less certain about his offer to buy Westmoreland’s crown jewels, which include the Rosebud Mine in Montana, the San Juan Mine in New Mexico, the Absaloka Mine in Montana, the Haystack Mine in Wyoming, and the Canadian mines, according to the company’s most recent filing.

Clarke is still in the process of getting financing commitments, but he said his bid will be an all-cash offer that will be “significantly higher” than the only other bid on the table.

The only other party interested in buying Westmoreland is a group of the company’s creditors. Their bid is a credit deal that would forgive the debt Westmoreland owes them in exchange for the company’s core mines, as well as any non-core mines that the company can’t sell.

The formal bidding process has already ended, but Clarke said he will submit an unsolicited bid before the end of February. Westmoreland’s debtors have said they want the bankruptcy proceedings to be wrapped up by that date.

A Plan to Run Mines Smarter

Clarke acknowledged that coal use has been falling in the U.S. and is expected to keep declining. He believes he can nonetheless turn a profit by streamlining the business.

“I think there’s a lot of upside in cost,” Clarke said. “We won’t have multiple offices all over the West. We think there are a lot of efficiencies that can be gained.”

Several of Westmoreland’s big customers have said they’re moving away from coal. For example, the Colstrip Power Plant—a 2,100-megawatt facility in eastern Montana—is scheduled to shut down in stages, culminating in 2027. Westmoreland’s Rosebud Mine in Montana sells almost all its coal to Colstrip.

Moreover, “the overwhelming majority of coal sold by Westmoreland is from mines that don’t have access to the open market,” said Peter Morgan, a senior attorney at the Sierra Club in Denver who works on coal mining issues. Instead, the company’s mines are co-located with power plants.

Westmoreland’s biggest mines also don’t have existing infrastructure that lets the company ship coal to other customers, according to Morgan.

“At Rosebud and San Juan, the only means of moving coal is conveyor belts and trucks that go between the mine and a single existing customer,” Morgan said. “Conceivably, Tom could put tens or hundreds of additional millions of dollars in building rail lines. But then the amount he would have to charge to recoup his costs makes him completely uncompetitive.”

The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg. Bloomberg Environment is operated by entities controlled by Michael Bloomberg.

In response, Clarke said Westmoreland still has “substantial contracts for the coal mines that they have in operation today.” More than half of those contracts are for longer than 10 years, and some extend to 2060, he said.

He also said one possibility is to work with power stations to scale down their generating capacity. “If you have a power station with three generating units, maybe it’s going to cut back to two,” Clarke said.

Clarke Eyeing Foreign Markets

The company’s Canadian mines can also send coal by rail to ports in British Columbia, and then on to South America, Japan, and other Asian markets, Clarke said.

During the bidding process for the Ohio mines, the state Department of Natural Resources objected to Clarke’s offer on the grounds that he had outstanding violations under the Surface Mining Control and Reclamation Act, and should therefore be blocked from seeking a mine permit.

Clarke said those violations were minor paperwork infractions involving small amounts of money, including one from a company he had sold in 2017 that had failed to pay a $118 fine. The violations will be taken care of shortly, Clarke said.

Concerns About Land Cleanup

Meanwhile, environmentalists question Clarke’s ability to pay for the reclamation of the mines.

Any buyer would be required to post a bond for cleanup before taking control, but questions have been raised in the past about whether regulators have asked Westmoreland to bond enough money for reclamation.

“My main concern is that these mines are reclaimed in a way that meets environmental and public health standards, and that states and the residents living in those states aren’t left dealing with a very drawn-out problem,” said Erin Savage, campaign coordinator at Appalachian Voices.

“The problem is the risk isn’t being taken with Tom Clarke’s money,” said Clark Williams-Derry, director of energy finance at the Sightline Institute. The group is a policy research and communications center seeking to make the Northwest “a global model of sustainability.”

“It’s also the taxpayers’ money that he’s playing with, because if he’s wrong, demand shrinks, and he can’t make a go of operating these mines, who’s left holding the bag for cleanup?” Williams-Derry said. “It’s not going to be him or his investors. It’s going to be the rest of us.”

Clarke also said he has a plan to address the legacy benefits of retired Westmoreland workers. The United Mine Workers of America has been fighting for its members’ pensions and health benefits in the bankruptcy proceedings.

In his business career, “whenever that’s happened, we’ve always replaced it with something reasonable—401(k) plans, voluntary employee benefit associations,” Clarke said. “We certainly don’t want to cause harm for retirees, but what we can’t do is have a few mines paying for the retirement benefits of an entire industry going back in time.”

To contact the reporter on this story: Stephen Lee in Washington at stephenlee@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Renee Schoof at rschoof@bloombergenvironment.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com