Illinois Basin high sulfur coal producer Armstrong Energy could be forced to file for Chapter 11 bankruptcy protection or liquidate if it cannot restructure about $207 million in long-term debts with its bondholders, the company said in a quarterly and year-end earnings release Friday.
An auditor placed "substantial doubt" on the St. Louis-based producer's "ability to continue as a going concern" without restructuring of its debts, the company said in its 10-K filing.
"Our failure to reach an agreement on the terms of a restructuring with our creditors would have a material adverse effect on our liquidity, financial condition and results of operations," the company said.
Armstrong, which operates several surface and underground thermal coal mines in western Kentucky, was the sixth largest IB producer with about 5.9 million st produced in 2016, according to US Mine Safety & Health Administration data.
The company reported revenues dropped 17.6% in Q4 from the year-ago quarter and revenues fell 29.6% in 2016 from 2015 as sales plummeted due to falling utility demand.
Q4 revenues totaled $67.8 million on 1.6 million st sold, down from $82.2 million on 1.9 million st sold. For the year, revenues totaled $253.9 million on 6 million st sold, down from $360.9 million in revenues on 7.8 million st sold.
Average sales prices dropped during the quarter to $42.43/st, down from $44.28/st during the year-ago quarter. For the year, sales prices averaged $42.62/st, down from $46.32/st in 2015.
Armstrong reduced its cost of coal sales during the quarter, which averaged $32.54/st, down from $34.51/st the year-ago quarter. For the year, Armstrong's cost of coal sales averaged $34.85/st, down from $36.31/st the prior year.
Armstrong also said it has about 5.3 million st of coal committed and priced for 2017. Capital expenditures for 2017 are expected to be in the range of $9 million-$13 million, the company said.
"With respect to any significant development projects, we plan to defer them to time periods beyond 2017 and will continue to evaluate the timing associated with those projects based on changes in overall coal supply and demand," the company said.
The producer, which had roughly $57 million in liquidity at the end of the year, recognized a non-cash charge of $10.5 million in the fourth quarter from a settlement with Thoroughbred Resources, which arose over disputed valuations of production royalties on jointly owned lands in western Kentucky.
Thoroughbred manages and leases Armstrong's coal properties and collects royalties from Armstrong's mines in that region and is owed $147.5 million in long-term debts, according to the 10-K filing.
Armstrong's $207.3 million in long-term debt includes $191.2 million in borrowings under 11.75% Senior Notes due 2019 and $16.1 million in other long-term debt.
