By Greg Johnson
Gillette News Record
Via Wyoming News Exchange
GILLETTE — Troubles for Gillette-based Cloud Peak Energy Corp. continue with the elimination of 15 salaried jobs, including lobbyists and public affairs positions.
The company, one of the largest coal producers in the Powder River Basin, announced the layoffs in a note to employees last week.
“This reduction is part of our ongoing efforts to adjust our company to challenging industry conditions and the smaller size of our business,” the note said. “We believe these steps — although difficult — are necessary to help position our company for the future.”
Cloud Peak spokesman Rick Curtsinger confirmed the layoffs and the note, but declined to comment further.
The layoffs represent the latest sign of financial trouble for Cloud Peak. In November, it cut retirement benefits for retired employees and announced a strategic review of its financial options, including a potential sale of the company. In December, Cloud Peak was put on notice by the New York Stock Exchange that if its stock continues to trade at less than $1 a share it will be delisted from the exchange.
Last month, Cloud Peak’s board of directors approved paying top executives larger retention bonuses and to make those payments up front in a lump sum instead of over five quarters as previously announced.
Paying those bonuses up front may be an indicator that bankruptcy is inevitable for the Powder River Basin coal mining company, said Robert Godby, director of the Department of Economics and Finance at the University of Wyoming and one of the state’s leading energy industry economists.
“My initial reaction is this suggests the probability of a bankruptcy has gone up to the point they have to increase those payments … because if they waited, (over) the five-quarter period those executives would never get paid,” he said.
While Godby said that Cloud Peak is preparing for bankruptcy is “pure speculation,” it’s an opinion shared by other energy analysts as well. He also said that’s how many investors will take it.
“My thinking is there might be a bankruptcy in the works,” he said, adding that the layoffs help perpetuate that perception.
“It’s like if you were in a balloon and losing altitude, basically what you do is you throw out everything you can out of the basket to lighten things up to save altitude,” he said. “That’s exactly what these moves do.”
Overall, 2018 was a rough ride for Cloud Peak Energy.
The first hit came early in the year when a group of nesting golden eagles delayed a crucial dragline move at the Antelope mine. Instead of taking four weeks, the move took nine weeks, putting the mine behind schedule to meet its contract goals.
Then an unusually rainy spring caused spoil failure at the Antelope mine, putting it behind even more.
The layoffs affect about 1.2 percent of Cloud Peak’s overall employment of 1,244, as reported by the federal Mine Health and Safety Administration. Those numbers include 581 at the company’s flagship Antelope mine south of Wright and the Cordero Rojo mine’s 378 workers. Cloud Peak also owns the Spring Creek mine in Montana, which employs 285 people.
Although the company avoided bankruptcy when the coal market crashed in 2015, it’s been bleeding cash since. From 2015 through the first three quarters of 2018, Cloud Peak has lost $213.7 million, including a $204.5 million hit in 2015 alone. It’s $24 million in the red through the first nine months of last year.
About $300 million of its $400 million outstanding debt is coming due in the next two years, which means that Cloud Peak isn’t generating enough cash to keep up with its debt payments. Coupled with a weak market for thermal coal that has seen a record number of coal-fired power plants shut down over the past few years, the prospects for recouping those losses and making those debt payments is questionable, Godby said.
As the only pure Powder River Basin company mining thermal coal, Cloud Peak produced 49.5 million tons of coal in 2018 from its three mines. While Spring Creek saw an increase in production of 1.1 million tons — mostly from higher exports to Asia — the Campbell County mines were down 9.1 million tons, a 20 percent drop from 2017’s production.
Along with eliminating most of the company’s governmental affairs activities, the layoffs also “substantially reduced” the public affairs department, the letter said.
“As a result of the reduction, functions previously performed by the eliminated roles will either be handled by other employees or, in many cases, eliminated and no longer performed,” the letter said.
For now, Cloud Peak is doing what it needs to do, Godby said.
He said this latest move with the 15 layoffs may not mean much compared to the overall operation, “but every little bit counts, right?”
A good metaphor for the layoffs is that Cloud Peak is checking the cushions of its couch for any loose change.
“That’s what they need to do,” he said. “They have to be showing they’re maximizing their cash flow for those debt payments that are coming in two years. It’s absolutely necessary.”