Tax Loss from Reduced Coal Production in Wyoming

by Wyoming Liberty Group Staff

The bankruptcy of Blackjewel LLC on July 1st, 2019, led to the closure of their operations in Wyoming at the Bella Ayr and Eagle Butte mines. Around 600 miners were put out of work. These mines generate around $30.4 million¹ a year in severance taxes (tax on minerals taken from the ground), and about $15.2 million² a year in ad valorum taxes (tax on the value of the minerals in the mine). Permanent closure of these mines would mean a combined loss of no less than $45.6 million a year for state and local governments in Wyoming. The total tax loss would be more since these mines also pay sales, property, and fuel taxes not accounted for in this estimate. There will also be a loss from the reduction in the taxes that are paid by the workers as they seek employment elsewhere.

The coal industry in Wyoming was responsible for about $1 billion in tax revenue to state and local governments in 2013, according to the Wyoming Mining Association. The potential tax loss of $45.6 million a year is about 4.5% of yearly tax revenue from coal. This is a big deal for Wyoming since about 10% of state and local revenue is attributed to coal.

If these mines remain permanently closed, the total economic loss in Wyoming will be several times their yearly gross production (revenues before taxes and expenses). These mines produced 35.5 million tons of coal in 2018. At the current spot price of $12.25 ³, the gross revenue is about $434.8 million a year from these mines. A permanent closure of these mines would mean the eventual out-migration from the area of mine workers and those employed by the support industries.

In recent years coal has come under increased pressure as natural gas has surpassed it for electrical generation in the United States. Powder River Basin coal has a lower British thermal unit (Btu) content than coal mined on the east coast. The lower Btu content along with the transportation costs mean that Powder River Basin coal sells at a lower price than coal mined in other parts of the U.S. The lower price, along with decreased demand for coal, has made the coal less profitable to mine. The decreased profitability of coal is one of the primary reasons for its decline in Wyoming.

Blackjewel has made some bad business decisions that led to its bankruptcy. Court documents and accounts in multiple news sources show that a lack of cash flow is responsible for the bankruptcy. Money can still be made from these mines. The coal in the ground still has value. Will an investor take the risk to pull this company out of bankruptcy or will Blackjewel be forced to liquidate its assets?

¹ This estimate is based off the 7/05/19 spot price of $12.25 a short ton for Powder River Basin coal, with a severance tax rate of 7% and 35.5 million short tons of coal produced in 2018 from both mines.

² This estimate uses the 2017 taxable value of Contura Coal West, LLC (the previous owner of these mines) as reported by the department of revenue at $254.8 million in Wyoming (this is the most current information avaiable). Ad Valorum tax for minerals is assessed at 100% and then 59.607 mills are levied.

³ 7/05/19 spot price of $12.25 a short ton for Powder River Basin coal.