The coal mined at the Emery mine is so bad it doesn’t qualify as coal, the operator says

Utah’s rich deposits of bituminous coal were formed over 100 million years ago when the Book Cliffs and Wasatch Plateau were part of a vast swamp area teeming with plants. As vegetation died, the material settled into thick layers that geological forces and time turned into hydrocarbon veins. Much of this coal was high in energy and low in sulfur, making it ideal for burning to generate electricity.

But where rivers mixed sediment into the organic matter, the resulting coal deposits were not as large. It’s Bronco Utah Operations’ misfortune to mine such deposits now, while the renegade, hedge-fund-owned startup seeks to restore Utah’s oldest coal mine to its former glory.

According to the company’s court documents, some of the coal coming out of the Emery Deep Mine is so full of ash — the contaminants that arise from the sediments mixed with the hydrocarbons — that it can’t be considered coal at all. Back in 2017, when the mine resumed production for the first time in 7 years, Bronco’s CEO, the late Dan Baker, sang a very different tune and publicly proclaimed his coal as the highest quality in Utah.

Bronco is now in a legal battle with Consol Energy, the major coal company that sold the mine in 2015, over Bronco’s refusal to pay a $1 per ton royalty as stipulated in the purchase agreement. The case is pending before 7th Circuit Judge Jeremiah Humes, who will argue in his Castle Dale courtroom on January 13.

Among the issues the judge will decide is the definition of coal, on which Consol and Bronco have differing opinions. Consol claims coal is the black, carbon-rich rock that comes out of the mine, while Bronco says only what can be sold at market prices counts as “coal.” What the mine produces, it supposedly doesn’t cut.

Based on its narrow definition, Bronco stopped paying royalty payments to Consol after its first full year of production in 2019, when it sold about 500,000 tons. According to Consol, it owed $1.2 million when this company filed a lawsuit in March 2021. It also failed to pay nearly $1 million in property taxes owed to Emery County in 2016, although county records say they are current in subsequent tax years.

In a countersuit, Bronco claims the charcoal is of such poor quality that potential buyers don’t want it.

“The high ash content of the ore resulted in Bronco losing several contracts, incurring increased mining costs and forcing Bronco to price the high ash ore well below market prices for coal,” it said. “Consol has intentionally charged royalties in excess of what Consol knows it can pay, even to the extent that Bronco’s mining business is jeopardized.”

(Leah Hogsten | The Salt Lake Tribune) The Bronco Utah Operations mine in Emery County, January 4, 2023.

But this isn’t all bad news for the Emery mine. According to the Utah Geological Survey, production in 2021 doubled to 1.2 million tons after Bronco added four continuous mining machines to its operations. That means its royalty debt to Consol has increased dramatically since the lawsuit was filed, even though the sale agreement caps total royalty obligations at $5 million.

In response, Consol accused Bronco of abusing the justice system to evade his obligations.

“There was no mistake. Bronco knew it was a coal mine purchase and that the coal had different qualities. Some of the coal had higher ash content and some had lower ash. And even if Bronco [was] False, it expressly agreed to assume all risks related to the quality, quantity and marketability of the coal,” Consol’s attorneys wrote. “This dispute is not about the ash content. Rather, the point here is that Bronco is attempting to avoid paying the promised royalties in hopes of forcing Consol to accept less than the full amount owed.”

The story begins in 2015 when a New York hedge fund called Sandton Capital Partners acquired the Emery mine for $7 million from Consol, which closed the mine in 2010 amid dwindling domestic demand for the fossil fuel that powers much of it , shut down was to blame for climate change. The sale included 30 million tonnes of reserves on federal leases associated with the mine.

In addition to its obligations to Consol and Emery County, Bronco is required to pay an 8% royalty to the federal government, which would equate to $3.20 per tonne at the current Utah coal reference price.

Sandton formed a layer of corporate entities called the Bronco to operate the mine. To run the new coal company, Sandton hired Dan Baker, a Utah coal entrepreneur whose final assignment was to run Horizon Mine, which was heading for bankruptcy.

Baker left this mine just before regulators began taking action against numerous environmental violations at the mine site west of Helper. The bankrupt mine owner walked away, leaving reclamation to the Division of Oil, Gas and Mining (DOGM), who completed the work with a deposit posted by the operator.

When Bronco applied to the division to reopen the Emery Deep mine, DOGM criticized its application for not disclosing Baker’s involvement in the failed Horizon mine.

Sandton later fired Baker for alleged mismanagement of the project. Baker’s replacement as CEO didn’t last long either, and the company is now run by an outsider named Brian Frederickson, brought in from Alabama.

Contrary to Baker’s public boast about the quality of the mine’s coal, the increased ashing of the federal coal reserves was apparent from the start, so the operator hatched a plan to tunnel through an unleased coal deposit to reach higher-quality coal that he had leased from Utah. The Bureau of Land Management approved the plan, but then caught Bronco mining coal outside of its permit area, sparking an investigation by the Interior Department. The matter was resolved by Bronco paying an 8% royalty on the illegally mined coal, which critics branded a meaningless penalty.

Now the Company is targeting acquisition of the 2,956-acre, 8.2 million tonne Walker Flat federal tract near its current lease. However, Bronco intends to wait until the state acquires it in a massive land swap approved under the Dingell Act, a 2019 bill that designated wilderness and conservation areas in Emery County.

(Utah Division of Oil, Gas and Mining) This photo of Bronco’s Emery Deep mine from an inspection September 22, 2022 shows a pile of high-ash coal that the operator is storing on site because buyers are not accepting it. The situation has led to a lawsuit between Bronco and Consol Energy, the mine’s former operator, asking Bronco to pay a royalty on the low-grade coal.

Meanwhile, the company, which employs 90 people, has raised more than $4 million in two Paycheck Protection Program loans, according to ProPublica’s PPP database.

The logical destination for Bronco’s coal is just 30 miles up State Road 10 at Rocky Mountain Power’s Hunter and Huntington plants. However, the utility requires its coal to contain 11,000 to 12,000 British Thermal Units, or BTUs, per pound and have an ash content of no more than 12%. Some of the Emery Mine’s production fails to meet these specifications, leaving it either to sell cheaply or not at all, according to Jordan Levy, a Sandton managing partner who signed the purchase documents.

“There was a situation with [the Intermountain Power Plant in Delta] where they refused to accept it and demanded a massive price markdown,” he said in a Feb. 7 statement.

To make this bad coal suitable for power generation, it’s blended with higher grade coal from other mines in Utah, Levy said. Some of it just accumulates in the mine and has nowhere to go. Some of the ore “continuously” exceeds 16% ash and is sometimes as high as 21%, Bronco claimed in court.

“Anything above 13% is considered high ash in the coal industry and is therefore not widely accepted as ‘coal’ in the industry,” his filing states. Levy said the coal is being sold at discounts of over 30% but declined to give an exact number.

However, upon cross-examination, Levy was unable to say how much of the mine’s production could not be sold at market prices, or how Bronco determines whether mined coal is subject to royalty.

“I want to make sure I understand what you just said,” Consol’s attorney said. “It’s material that you sold a customer as charcoal, he bought it and used it as charcoal, but according to Bronco it’s not charcoal.”

That’s pretty much what Levy said, but he complained that the mine had amassed 100,000 tons of so-called coal that was “entirely unsaleable.”

The attorney asked how much of the material Bronco mined did not meet his definition of coal.

“I don’t have a number right now,” Levy replied. “Once you’re north of 13%, [ash content]it is very difficult, if not impossible, to market the coal.”

Editor’s Note • This story is available only to Salt Lake Tribune subscribers. Thank you for supporting local journalism.

https://www.sltrib.com/news/environment/2023/01/12/coal-extracted-emery-mine-is-so/ The coal mined at the Emery mine is so bad it doesn’t qualify as coal, the operator says

Justin Scacco

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