Arch Coal Agrees to Fund Mine Cleanups to Exit Bankruptcy

U.S. coal miner Arch Coal has agreed to set aside collateral to cover future mine cleanup costs as part of its bankruptcy reorganization plan, according to a court filing, ending its controversial use of “self-bonds.”

For decades the largest U.S. coal companies have used a federal subsidy known as “self-bonding,” which exempts companies from posting bonds or other securities to cover the cost of returning mined land to its natural state, as required by law.

Arch had $485.5 million in self-bonds in Wyoming when it filed for bankruptcy protection in January, saddled with $6 billion of debt and a deep slump in the coal sector.

Under a reorganization plan set for a confirmation trial in U.S. Bankruptcy Court in St. Louis this month, Arch must replace all of its self-bonds within 15 days of its bankruptcy exit plan becoming effective, a court filing by the company showed on Sunday.

Environmental groups that have waged legal battles to hold coal companies accountable for their cleanup obligations welcomed the news.

“Better financial assurance will protect taxpayers and will ensure that the mining company remains responsible for any clean-up costs for its large Wyoming coal mines,” said Shannon Anderson, a lawyer for Powder River Basin Resource Council, a Wyoming conservation group.

Arch operates one of the largest U.S. mines, Black Thunder, in the coal-rich Powder River Basin in Montana and Wyoming.

Arch had initially resisted replacing its self-bonds, arguing in court filings that providing other forms of guarantees would eat into its delicate liquidity. Coal businesses have suffered from falling demand in China and competition from lower natural gas prices.

“Arch has demonstrated it is possible to phase out self-bonding while keeping mines going, and we hope other companies, including Peabody, follow their example,” Anderson said.

U.S. coal watchdog Office of Surface Mining and Reclamation Enforcement has asked state regulators to crack down on self-bonding following Chapter 11 filings by some of the largest U.S. coal companies.

Peabody Energy Corp., Alpha Natural Resources and Arch had a combined $2.2 billion in self-bonding liabilities when they filed for bankruptcy over the past 13 months.

Peabody, which filed for bankruptcy in April with $10 billion of debt, has $1.14 billion of self-bonds in four states.

In July, Alpha agreed to replace its self-bonds in Wyoming with other guarantees as part of a complex deal to exit bankruptcy but will continue to cover reclamation at former mine sites in West Virginia with self-bonds.