Coal company that left workers unpaid failed to pay state’s wage bond, had rocky past

The coal company that laid off dozens of Perry County employees last month without payment for past work had failed to post a performance bond with the state to cover those wages as of November of last year, possibly in violation of state law, according to records obtained by the Lexington Herald-Leader.

In addition, a review of the company’s financial reports shows that American Resources Corporation saw a dramatic financial downturn in the months leading up to its acquisition of Perry County Coal in September. ARC purchased the mines during the bankruptcy of Cambrian Coal, which sold nearly all of its Eastern Kentucky assets.

The issue of the performance bond made headlines last year when Blackjewel LLC failed to post the bond and subsequently laid of hundreds of employees without pay for weeks of work they had already completed. Records obtained in August by the Herald-Leader showed that not a single coal company in Kentucky had paid the bond over the past five years.

Blackjewel’s failure to pay the bond led to promises from then-Attorney General Andy Beshear that his administration, as governor, would enforce the law going forward. The Kentucky Labor Cabinet, under former Gov. Matt Bevin, sent out dozens of notices of violation following Blackjewel’s failure to pay its employees, prompting at least five companies to pay up, including Black Diamond, LLC., and KLA Mining, Inc.

The amount that Black Diamond and KLA paid for the bonds was redacted from the records released to the Herald-Leader through the state’s Open Records Act.

According to those records, neither American Resources Corporation nor any its subsidiaries, including Quest Energy, had posted the bond as of November. The Labor Cabinet either could not or would not say Tuesday if ARC or its subsidiaries had since posted the bond. A Beshear spokesperson also provided no details about what efforts the cabinet has made to enforce the law since Beshear took office Dec. 10.

In a statement to the Herald-Leader, Beshear said he is “committed to ensuring that these miners are fairly paid for their work.”

“I have asked the Labor Cabinet to contact miners impacted and investigate the matter to not only determine the back wages due to employees, but also whether the employer is in compliance with Kentucky’s performance bond law,” Beshear said. “We will work as swiftly as possible to review and analyze the information we gather to assist the employees in securing their back wages.”

On Monday, several employees of ARC in Perry County confirmed they were laid off last month and never received their last paycheck, or payment for unused vacation days. In addition, the general manager of ARC’s Perry County operations, David Mullins, said many employees were never given health insurance after ARC took over from Cambrian.

The company’s current skeleton crew — about two dozen maintenance workers and security guards — also have not been paid, Mullins said Monday.

Mullins said the company struggled to maintain its workforce and mining operations from the day it purchased the mines in Perry County, which employed nearly 300 people at that time.

A review of ARC’s financial records show he had reason to worry.

During the financial quarter ending September 30, the company’s rate of coal production dropped by about 80 percent from the previous quarter. At the same time, the company promised investors it would make costly improvements to the Perry County mining complex.

“There was no due diligence done,” Mullins said. “I knew we was doomed from the start.”

An attorney for American Resources Corporation did not respond to a request for comment for this story.

According to its website, American Resources Corporation’s roots date back to 2006, when its founding partners restructured a Floyd County mining complex and wash plant. In 2015, the company formed its subsidiary, Quest Energy, which bought up and now oversees several mining companies, including Knott County Coal, McCoy Elkhorn Coal, Deane Mining and Perry County Resources.

Following ARC’s purchase of the Perry County mines, the company published a report indicating it planned to invest hundreds of thousands of dollars in the mining complex, including $700,000 of upgrades and repairs to a coal preparation plant and $1.5 million to a mine consolidation project.

A little more than a month later, the company released financial documents that showed a dramatic decline in production at its other mines leading up to its acquisition of Perry County Coal.

In the three months that ended June 30, the company had produced 127,000 tons of coal, but that dropped to less than 26,000 during the three months that ended September 30. Coal sales fell to just $1.85 million, down from $8.89 million during the same period last year.

Mark Jensen, chairman and CEO of American Resources Corporation, said in a statement contained within the report that the third quarter of 2019 “proved to be a challenging quarter for our industry,” highlighted by several bankruptcies, including Cambrian and Blackjewel.

Still, Jensen assured investors the company was “extremely excited about how our platform is set up to perform in 2020 and beyond,” and pointed to its acquisition of Perry County Coal as a primary driver of that planned success.

“The addition of Perry County to our portfolio of assets is already proving to be a valuable (asset),” he said.

Court records filed in the bankruptcy case of Cambrian Coal revealed last month that ARC is barred from acquiring new permits by federal regulators. The company has dozens of outstanding violations in Kentucky that could include reclamation and environmental responsibilities.

The court’s initial sale order required all companies that purchased Cambrian’s mining complexes to not be “permit blocked” by the federal Surface Mining Control and Reclamation Act, but Cambrian and ARC entered into a separate sale agreement and failed to provide it to the court, according to court records.

During a hearing last month, Judge Gregory Schaaf of the U.S. Bankruptcy Court for the Eastern District of Kentucky, said he was not aware that ARC was permit blocked before he approved the sale of the Perry County mines.

An attorney for ARC, Billy Shelton, told Schaaf that the company was working with the state to correct any permitting concerns. It remains unclear how the permit block will affect Cambrian’s sale agreements. A hearing is scheduled for Jan. 16.

ARC has also reportedly failed to make good on certain payment obligations that it agreed to in the sale order, including some employee obligations to Cambrian Coal. The failure to pay has put ARC in direct violation a judge’s order, Schaaf said.

Shelton said the company was working to make good on all its payments.

During a hearing Dec. 19, Schaaf said the company has failed to pay despite several promises to the court, forcing him “into a corner where I have to do something.”

“I assume you don’t think your clients should spend Christmas in jail?” Judge Schaaf said to Shelton.

“I assume not,” Shelton said.

This story was originally published January 7, 2020 at 5:25 PM.