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Coal extracted at Emery mine is so poor it doesn’t qualify as coal, operator says

Consol Energy is suing Bronco for failing to pay a royalty on coal from the old Emery Deep mine, which returned to service in 2017.

Utah’s rich deposits of bituminous coal formed 100 million or more years ago when the Book Cliffs and Wasatch Plateau were part of a vast swampy area, teeming with plant life. As the vegetation died, the material settled into thick beds that geological forces and time turned into veins of hydrocarbons. Much of this coal was dense with energy and low in sulfur, making it ideal for burning to produce electricity.

But where rivers mixed sediments into the organic material, the resulting coal deposits weren’t so great. It is the misfortune of Bronco Utah Operations to now be mining such deposits as the renegade hedge-fund-owned startup tries to restore Utah’s oldest coal mine to past glory.

According to the company’s court filings, some of the coal coming out of the Emery Deep Mine is so full of ash — the impurities arising from the sediments mixed with the hydrocarbons — it cannot be considered coal at all. Back in 2017, as the mine was resuming production for the first time in 7 years, Bronco’s CEO, the late Dan Baker, sang a much different tune, publicly proclaiming his coal as the highest quality in Utah.

Bronco is now locked 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-a-ton royalty as specified in the sales agreement. The case is pending before 7th District Judge Jeremiah Humes, who is to field arguments on Jan. 13 in his Castle Dale courtroom.

Among the questions the judge will decide is the definition of coal, for which Consol and Bronco give diverging opinions. Consol contends coal is the black carbon-dense rock that comes out of the mine, while Bronco says only that which can be sold at market prices counts as “coal.” What the mine produces allegedly does not cut it.

Based on its narrow definition, Bronco stopped paying Consol the royalty after its first full year of production in 2019, when it sold about 500,000 tons. It owed $1.2 million according to Consol when that 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 it is current in subsequent tax years, according to county records.

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

“The high ash content in the ore caused Bronco to lose several contracts, experience increased extraction costs, and forced Bronco to price the high-ash ore at significantly less than market prices for coal,” it alleged. “Consol has deliberately proceeded with Royalty demands in excess of what Consol is aware Bronco can pay, even to the extent of endangering Bronco’s mining business.”

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

But it’s not all bad news for the Emery mine. According to the Utah Geological Survey, production doubled in 2021 to 1.2 million tons after Bronco added four continuous miner machines to its operations. That means its royalty debt to Consol has dramatically increased since the suit was filed, although the sales agreement caps total royalty obligations at $5 million.

In its response, Consol accused Bronco of abusing the judicial system to dodge its commitments.

“There was no mistake. Bronco knew it was purchasing a coal mine and that the coal had different qualities. Some of the coal had higher ash and some had lower ash. And, even if Bronco [was] mistaken, it specifically agreed to accept all risks associated with the quality, quantity, and marketability of the coal,” Consol’s lawyers wrote. “This dispute is not about ash content. Rather, this is about Bronco trying to avoid paying the royalty it agreed to pay, in hopes of forcing Consol to accept less than the full amount it is 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 had idled the mine back in 2010 in the face of dwindling domestic demand for the fossil fuel that gets much of the blame for climate change. The sale included 30 million tons of reserves on federal leases that came with the mine.

On top of its obligations to Consol and Emery County, Bronco is to pay an 8% royalty to the federal government, which would amount to $3.20 a ton at the current benchmark price for Utah coal.

Sandton created a layer of corporate entities called Bronco to operate the mine. To lead the new coal company, Sandton hired Dan Baker, a Utah coal entrepreneur whose most recent job was running the Horizon Mine as it headed toward insolvency.

Baker left that mine shortly before regulators cracked down on numerous environmental violations at the mine site west of Helper. The mine’s bankrupt owner walked away, leaving its reclamation in the hands of the Division of Oil, Gas and Mining (DOGM), which completed the job with a bond posted by the operator.

When Bronco applied to the division to reopen the Emery Deep mine, DOGM faulted its application for failing to disclose Baker’s involvement with the failed Horizon Mine.

Sandton later fired Baker over what it claimed was his mismanagement of the project. Baker’s replacement as CEO didn’t last long either, and the company is now led by an outsider named Brian Frederickson, brought in from Alabama.

Contrary to Baker’s public boasts about the quality of the mine’s coal, the elevated ash of its 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 it leased from Utah. The Bureau of Land Management signed off on the plan but then caught Bronco extracting coal outside its permit area, triggering an investigation by the Interior Department. The matter was resolved with Bronco paying an 8% royalty on the illegally extracted coal, which critics blasted as a meaningless penalty.

Now the company is seeking to acquire the federal 2,956-acre Walker Flat tract, holding 8.2 million tons, near its current lease. But Bronco intends to wait until the state acquires it as part of a massive land swap authorized 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 a Sept. 22, 2022 inspection, shows a pile of high-ash content coal the operator stores on site because buyers won’t accept it. The situation has led to a legal battle between Bronco and Consol Energy, the mine’s former operator which is demanding Bronco pay a royalty on the substandard coal.

Meanwhile, the company, which employs 90, has collected 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. The utility, however, requires its coal to pack 11,000 to 12,000 British Thermal Units, or BTUs, per pound and contain ash content no higher than 12%. Some of the Emery mine’s production cannot meet those specifications, so it is either sold cheap or it cannot be sold at all, according to testimony provided by Jordan Levy, a managing partner at Sandton who signed the purchase documents.

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

To make this poor coal suitable for use in power generation, it gets blended with higher-quality coal from other Utah mines, Levy said. Some of it is just piling up at the mine with nowhere to go. Some of the ore “consistently” exceeds 16% ash and is sometimes as high as 21%, Bronco claimed in court.

“Anything higher than 13% is considered high ash content in the coal industry, and therefore is not commonly accepted as ‘coal’ in the industry,” it said in its filings. Levy said the coal is sold at discounts exceeding 30%, but declined to give an exact number.

On cross-examination, however, Levy could not say how much of the mine’s output could not be sold at market prices, or even how Bronco determines whether the mined coal is subject to the royalty.

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

That was pretty much what Levy said, but he complained the mine has piled up a 100,000 tons of so-called coal that is “completely unsellable.”

The lawyer asked how much of the material mined by Bronco does not meet its definition of coal.

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

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