Mining company, BNSF put Tongue River Railroad on hold

A few weeks after Arch Coal indicated that it might declare bankruptcy, a subsidiary transportation company has asked that the permitting of the Tongue River Railroad be suspended.

On Tuesday, the Tongue River Railroad Company asked the U.S. Surface Transportation Board to suspend the permitting process for a rail spur that would allow Arch Coal to ship coal from the proposed Otter Mine to Colstrip and points west, according to a company release.

Arch Coal shares ownership of the Tongue River Railroad Company with BNSF Railway and TRRC Financing, a limited liability company.

At the end of September, the Surface Transportation Board's Office of Environmental Analysis closed public comment on the railroad's draft environmental impact statement after twice extending the comment period.

BNSF Railway spokesman Matt Jones told the Associated Press the railroad company plans to renew the permit application once the Montana Department of Environmental Quality issues a mine permit for Otter Creek. DEQ has yet to issue a permit because Arch Coal’s application contained insufficient information.

Arch Coal plans to reapply for the mine in early December, company spokeswoman Logan Bonacorsi said in a statement.

If the mine is allowed to go ahead, Arch Coal would strip-mine 1.3 billion tons of coal from the Otter Creek valley.

In 2010, the Montana Land Board sold the Otter Creek mineral leases in southeastern Montana to Arch Coal for $86 million.

Environmental groups responded by suing the state for not considering the environmental, economic, and public health threats posed by such a large coal strip mine. In addition to destruction of the land, burning that much coal would produce 2.4 billion tons of climate-disrupting pollution, which would exacerbate climate change, the groups argued.

Two years later, Arch Coal submitted an application to open the Otter Creek mine, and the Tongue River Railroad Company applied to build the Tongue River Railroad in the same year.

Since then, landowners and groups of the Northern Cheyenne have fought both the mine and the railroad.

Jeanie Alderson, vice chair of Northern Plains Resource Council and a fourth-generation Tongue River rancher, said the permit suspension gave the landowners some breathing room.

“The TRR’s announcement reflects the instability of this project and the coal mine it aims to service. The coal markets are weak and the biggest companies in those markets are getting weaker every year,” Alderson said. “With Arch Coal – a principal owner of the TRR – expected to declare bankruptcy in the coming weeks, it’s no shock that the railroad’s other owners would want to push the ‘Pause’ button on this project. I think it’s smart that TRR is finally paying attention to the lack of viability of the Otter Creek coal mine.”

It would cost $400 million to build the 42-mile-long track. But Arch Coal might not have deep enough pockets.

In its third-quarter earnings report released Nov. 9, Arch Coal said it might file for bankruptcy protection in the near-term after losing close to $2 billion in the third quarter.

Of even greater concern is the company’s $5.1 billion in long-term debts because its expenses and liabilities are outpacing its revenue.

"As a result, Arch will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long term. We are currently in active dialogue with various creditors with respect to a restructuring of our balance sheet," said Arch Chief Financial Officer John T. Drexler in a statement.

Arch Coal’s failings have little to do with the Environmental Protection Agency’s new Clean Power Plan, which was released in August so has yet to have any effect.

The downward trend in coal sales over the past few years is due to the increase in cheaper energy alternatives.

U.S. coal consumption is expected to fall by 100 million tons in 2015, or roughly 11 percent, due partly to utilities' preference for cheap natural gas. Hans Daniels, an analyst at Doyle Trading Consultants, told the Caspar Star-Tribune that U.S. consumption would probably drop another 40 million tons in 2016.

To reduce the overwhelming smog of recent years, China has been putting vast resources into developing solar energy. It appears China’s coal consumption will decline 2 to 4 percent this year, according to a report released a week ago by the Institute for Energy Economics and Financial Analysis.

Arch Coal was already feeling the pinch in January when it pulled out of a 957-million ton lease near Black Thunder Mine in Wyoming.

Gillette-based Cloud Peak Energy, which mines coal near Decker, Mont., among other places, is the only company still actively pursuing coal-mining leases in other parts of the West.