US Probe into Coal Royalties Of Exporter Find No Violations – CLD, ACI, BTU

Boston, MA 02/10/2013 (wallstreetpr) – In a letter to the Congress issued Friday, the US Interior Secretary Ken Salazar declared a probe is underway by the Office of Inspector General at his agency to investigate any potential violation of royalty regulations by mining companies exporting coal to Asia.

Under the royalty rules, companies engaged in mining operations in the US pay royalty fees based on the price of the mine; federal and state treasuries get 50 percent of the total collection, each.

Few analysts believe that the calculation method is unfair as exporters expanding overseas sales through affiliates can reap highly inflated prices in the Asian markets. Such practice could cost taxpayers millions of dollars.

Salazar’s decision to initiate the probe stemmed from a joint call from the US senators, Lisa Murkowski and Ron Wyden last month. No serious violations have surfaced in the federal review and audits as yet, Murkowski’s spokesperson Robert Dillon said on Friday. He based his statement on the Salazar’s letter to the US Congress received by the latter on Thursday. However the fact that there were no traces of “any knowing or willful violations of the royalty law”, does not mean that the agency might not find any “violations” at all, he added.

Coal miners defend the use of affiliates in export operations  saying the high price of fuel in Asian markets comes along coupled with extra shipping costs. As sales through affiliates is a materially different line of business it should be treated separately from mining activities, they assert.

Amid a declining domestic market, the US coal exports to Asia boosted the industry during 2012. US miners like Peabody Energy Corp. (NYSE:BTU), Cloud Peak Energy Inc. (NYSE:CLD) and Arch Coal Inc. (NYSE:ACI) shipped about 124 million tons of coal to Asia; an all time high. Cloud Peak Energy Inc. (NYSE:CLD)’s regulatory filings reveal that only 5% of coal extracted from it was exported to Asian countries while royalty on account of such exports accounted for 23% of total royalties paid in Q3 of 2012.

Lee Baerlocher who heads the business tax unit at Montana Department of Revenue, terms the practice as an ” audit red flag”. A special task force consisting of auditors from Wyoming and Montana was promulgated in December 2012 to monitor the business, he revealed. Montana tops as a coal exporting state while Colorado, Wyoming and Utah are also among notable coal exporting states.

A letter from the company’s CEO Colin Marshall, addressed to Salazar stated that transportation logistics is “fundamentally different” from the “business of selling coal at the mine” and the company might get the two businesses listed separately in the forthcoming annual report.

The shares of Cloud Peak Energy Inc. (NYSE:CLD) were up by 0.53% to close at$17.06. The shares of Peabody Energy Corp. (NYSE:BTU) were down by 0.13% to close at $23.73. The shares of Arch Coal Inc. (NYSE:ACI) were down by 0.287% to close at $5.75.

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