Citing "ongoing weakness" in Appalachian thermal coal markets, Rhino Resource Partners agreed Tuesday to sell its underperforming Elk Horn coal-leasing company in eastern Kentucky for $12.5 million cash to an unidentified third party.
Rhino bought Elk Horn Coal Leasing in June 2011 for about $120 million cash. Rhino said at the time the newly acquired asset would broaden its revenue sources by providing a steady stream of royalty income without additional operating risk. Elk Horn included an estimated 100.1 million st of proven and probable reserves as of December 31, 2015, according to the Lexington, Kentucky-based company.
Rhino CEO Joe Funk said in a statement his company will use cash proceeds from the sale to pay down debt and "provide us additional financial flexibility for our future coal operations." Rhino had $6.7 million in available liquidity as of June 30, according to a recent regulatory filing.
Rhino recorded an asset-impairment loss of about $118.7 million on Elk Horn for the second quarter and first six months of 2015, the company said in its Q2 earnings report released earlier this month.
As coal's downturn deepened in Central Appalachia, coal royalty revenue that Elk Horn generated declined "as the operators produce less coal and the prices for steam coal are depressed," Rhino said in early August.
During Q2, Rhino said it received an inquiry about Elk Horn's sale availability from an unidentified third party. After performing an asset-impairment review "based on the price offered by the third party and the continued deterioration of Central Appalachian thermal coal markets," Rhino concluded that divesting Elk Horn made good economic sense.
Also Tuesday, Rhino has tapped Rick Boone as the company's president, succeeding Funk in that role. Funk will remain CEO. Boone had served as Rhino's executive vice president and CFO since 2014. Prior to that, Boone served as senior vice president and CFO from 2005 to 2014.
Rhino produced and sold about 850,000 st and 798,000 st, respectively, in Q2. The company operates underground and surface mines in Kentucky, Ohio, West Virginia and Utah.
