Cloud Peak to Sell Decker Mine Stake to Ambre Energy - Analyst Blog

Coal producer Cloud Peak Energy (CLD) announced that on Aug 29, 2014, it signed a deal to let go its 50% interest in the Decker mine to Australian and U.S. thermal coal company, Ambre Energy Limited. The Decker coal mine located northwest of the Powder River Basin is a joint venture between Ambre Energy and Cloud Peak Energy, with Ambre Energy responsible for mine operations and marketing.

Ambre Energy will become the sole owner of the Decker mine after the completion of the deal. Per the agreement, Ambre Energy will assume all outstanding reclamation and other liabilities of Cloud Peak Energy in the Decker mine, which comes to nearly $66.7 million. The agreement is expected to be executed by 2014 subject to fulfillment of certain terms and conditions.

After the completion of the deal, Ambre Energy will give an option to Cloud Peak Energy for up to 7 million metric tonnes per year of its throughput capacity at the proposed Millennium Bulk Terminals coal export facility.

Millennium Bulk Terminals, which is owned 62% by Ambre Energy and 38% by Arch Coal, is currently at the permitting stage.  If the necessary permission is granted, this terminal will increase the coal export capabilities of Cloud Peak Energy.

The slackness in thermal coal demand in the U.S. has seen miners cutting production or idling mines, delaying mine development process or looking for buyers to sell their high cost mines. Export to other developing countries hungry for power is also a viable option for these hard-pressed coal miners. Hence, an interest in a terminal facility will not only allow Cloud Peak to export its coal but also provide service to other producers.

In June this year, Cloud Peak announced that it will drill exploratory wells in Northern Powder River Basin at the Crow Indian Reservation in southeast Montana. The objective was to collect samples to determine the quality and quantity of the coal reserves (read:Cloud Peak to Drill Exploratory Holes in PRB).

We believe the above prospect will give another option to the company in the coal rich Powder River Basin and possibly compensate for the loss of the Decker mine stake.

Cloud Peak Energy currently has a Zacks Rank #3 (Hold). Apart from Cloud Peak, other coal producers like Peabody Energy Corporation (BTU), Arch Coal Inc. (ACI) and Alpha Natural Resources Inc. (ANR) also have stakes in Powder River Basin.