Blackjewel permit to remain in limbo as mines’ outlook worsens

A sign greets a skeleton crew of Blackjewel employees who have returned to work at the Belle Ayr mine. (Andrew Graham/WyoFile)

July 16, 2019 by Andrew Graham, WyoFile

The Environmental Quality Council last week voted to delay a decision on who holds mining permits for the Eagle Butte and Belle Ayr mines pending further clarity regarding Blackjewel’s chaotic bankruptcy.

At a brief meeting on July 10, the Department of Environmental Quality’s citizen oversight board voted unanimously to adopt a wait-and-see approach until the bankruptcy proceeding advanced further or until a bankruptcy judge says they could proceed. Council members were concerned the bankruptcy could interfere with their authority to make a final decision on the mine permit.

Article continues below...

“Things are so up in the air that let’s see what happens,” council member Dr. David Bagley said. “Let’s come back to this when we have some more clarity.” 

The permits are currently held by Contura Energy. The DEQ initially approved transfer of the permits to Blackjewel but the citizen council delayed that decision in May following objections by a landowner group. 

With Blackjewel’s sudden bankruptcy and the possibility of the mines closing permanently, the decision by a little-watched public body took on sudden importance for the state. Typically whoever holds the mine permits is on the hook for reclaiming the disturbed landscape. If the two large strip mines stay closed Wyoming may be better off pursuing those reclamation obligations from a solvent company — Contura — than the insolvent Blackjewel.  

As state Sen. Micheal Von Flatern (R-Gillette) put it, “Thank God they didn’t [approve the permit] and kept Contura on the hook,”

But on Monday, DEQ officials told WyoFile the EQC’s delay could create an opportunity for Contura and Blackjewel to contest who is responsible for reclamation if the mines closed for good. “I’m sure Contura would go to Blackjewel and say you have to pay,” said Kyle Wendtland, administrator of the DEQ’s land quality division. 

The question was still “speculative,” Wendtland said, as there is still opportunity for the mines to reopen under Blackjewel or be handed over to another party through the bankruptcy proceeding.  

Wendltand oversaw DEQ’s initial approval of Blackjewel’s mine permit application. He argued the EQC’s intervention has made the state’s path to securing reclamation of the mines in case of closure more complex.

“The delay of transferring these permits has made for an additional hurdle now,” Wendtland said. “We’d probably have to make claims to both companies and it would have to be sorted out as a legal matter.”

There’s no doubt about who is responsible for reclamation said Shannon Anderson, an attorney for the Powder River Basin Resource Council. “Until that permit transfer goes through the permit holder is still responsible for reclamation,” Anderson said. “There’s no question it’s Contura.”

Among its many unpaid debts, Blackjewel owes Contura $6 million. Contura could choose to take legal action against Blackjewel over its reclamation obligations if the bankrupt company violated the terms of the mine sale, Anderson said. But, “that’s not DEQ’s problem.” 

A DEQ spokesperson assured the public that taxpayers won’t get left holding the bag. “At the end of the day the state is covered or protected here,” agency spokesman Keith Guille said. 

On Monday, the outlook for the mines decayed. Lawyers for Blackjewel reported to the bankruptcy court that the company was still working to secure new financing but is running out of time. It only has $2 million left of a $5 million loan secured to pay for maintaining safety and security at the company’s mines around the country. 

Regulators backed Blackjewel

None of the parties involved — Contura, Blackjewel, the Wyoming Department of Environmental Quality and landowner group Powder River Basin Resource Council — objected to the EQC’s July 10 decision to await further clarity from bankruptcy proceedings. 

The previous battle over the mine permit transfer was far more contentious and stacked two coal companies and the state’s environmental regulators against the PRBRC. Contura and Blackjewel both wanted to transfer the mine permit to complete a deal in which Contura sold the mines to Blackjewel at a loss to escape financial obligations associated with the mines — including reclamation. 

The PRBRC argued that DEQ did not thoroughly examine Blackjewel’s environmental and regulatory compliance record in other states before agreeing to give the company Contura’s mine permits. 

Companies affiliated with Blackjewel owner and CEO Jeffrey Hoops had 42 violations in eastern states, according to evidence presented at the May EQC hearing. Blackjewel used a loophole of sorts to get through the permitting process without first settling the problems with eastern state regulators. 

At the time that DEQ processed the transfer permit application, it was public knowledge that the company was millions of dollars behind on taxes owed in Wyoming to Campbell County. An Ohio bank was also suing Blackjewel over unpaid loans, and argued the company’s purchase of the Belle Ayr and Eagle Butte mine violated a deal with the bank, according to a June, 2018 report in the Casper Star-Tribune. 

But attorneys for the coal companies and the environmental regulators argued the DEQ had done its job vetting the company, and that PRBRC’s concerns about Blackjewel were overblown.

“Imagine a ‘what if scenario,’ where all of the most horrible things in the world came crashing down at the same time,” said Isaac Sutphin, a lawyer for Contura from the firm Holland and Hart, in his closing remarks to the counsel in May. “If you can imagine that than you probably better deny these permits,” Sutphin said. 

An attorney for the DEQ made similar arguments.

“Nothing you have heard in this hearing could lead you to the conclusion that Blackjewel is an irresponsible operator that shouldn’t be allowed to run these mines because it’s going to make a mess and leave it for the rest of us to clean up,” Wyoming Deputy Attorney General James Kaste said. 

Since those hearings, Blackjewel crashed into bankruptcy in a fashion unprecedented for Wyoming’s coal industry. The company closed two mines without alerting the state, and DEQ had to rush to secure two of the most productive strip mines in the nation — with regulators worried about combustible coal, neglected mine explosives, collapsing mine walls, flooding and other concerns. Blackjewel laid off 580 workers, though some have since returned to work maintaining safety and security at the mines while they remain shut during bankruptcy proceedings. 

There is increasing evidence of financial mismanagement by Hoops, who was forced out of the company in the bankruptcy court. Along with taxes, he was slow to pay even smaller bills his mines racked up around Gillette, according to WyoFile reporting.   

Put on hold

When a company enters bankruptcy court, many other legal proceedings involving the company are put on hold until the bankruptcy judge decides whether they can proceed. 

There was no indication of a change in strategy by either coal company last week. Though lawyers for Contura argued the EQC could legally proceed with a decision on the mine permits despite Blackjewel’s bankruptcy, they also wrote that Contura “understands” if the EQC wanted to wait. 

The company’s lawyers also argued the bankruptcy should not be considered new evidence in the evaluation of Blackjewel’s suitability as a permitee. In fact, Contura’s lawyers wrote, federal bankruptcy law prohibits the EQC from taking the bankruptcy into account as it reaches its decision. 

In a legal memo to the council filed on July 1 — the day Blackjewel declared bankruptcy, the DEQ’s lawyer said the bankruptcy was irrelevant to the EQC’s decision on the mine permits. The bankruptcy filing had no “bearing on the Council’s determination,” Deputy A.G. Kaste wrote. But on July 5, Kaste recommended the EQC hold back on the decision.

“The automatic [bankruptcy] stay likely applies to these proceedings,” Kaste wrote. “Out of an abundance of caution, DEQ recommends that the Council stay these proceedings” until Blackjewel gets an order from the court saying the EQC can proceed, he wrote. 

The PRBRC argued a bankruptcy stay did apply. Contura argued it did not, but accepted EQC’s decision to delay. Though Blackjewel’s attorney was on the phone during the July 10 hearing and did not object to further delay when asked, the company’s lawyers had not submitted any comments to the EQC before a July 5 deadline. 

Any party involved in the EQC hearing could ask the judge to rule whether the bankruptcy stay applies to the EQC’s decision, EQC director Jim Ruby told WyoFile Monday. The council’s next meeting is set for Aug. 14, at which time the council hopes to receive an update from DEQ on the bankruptcy. 

This article was originally published by WyoFile and is republished here with permission. WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.