Property, Plant And Equipment | 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including coal properties and mine development and construction costs, as of December 31, 201 5 and 201 4 are summarized by major classification as follows: December 31, Useful Lives 2015 2014 (in thousands) Land and land improvements $ 24,157 $ 18,845 Mining and other equipment and related facilities 2 - 20 Years 306,609 336,951 Mine development costs 1 - 15 Years 67,277 79,536 Coal properties 1 - 15 Years 203,791 215,325 Oil and natural gas properties - 8,093 Construction work in process 2,680 4,912 Total 604,514 663,662 Less accumulated depreciation, depletion and amortization (271,007) (280,225) Net $ 333,507 $ 383,437 Depreciation expense for mining and other equipment and related facilities, depletion expense for coal and oil and natural gas properties, amortization expense for mine development costs, amortization expense for intangible assets and amortization expense for asset retirement costs for the years ended December 31, 2015 and 2014 was as follows: Year Ended December 31, 2015 2014 (in thousands) Depreciation expense-mining and other equipment and related facilities $ 28,740 $ 30,529 Depletion expense for coal properties 2,871 4,633 Depletion expense for oil and natural gas properties 9 60 Amortization expense for mine development costs 1,935 1,737 Amortization expense for intangible assets 76 80 Amortization expense for asset retirement costs (450) 194 Total $ 33,181 $ 37,233 Taylorville Land Sale On December 30, 2015, the Partnership completed the sale of its land surface rights for the Taylorville property in central Illinois for approximately $7.2 million in net proceeds. The sale agreement allows the Partnership to retain the mining permit and control of the proven and probable coal reserves at the Taylorville property as the Partnership has the option to repurchase the rights to the land within seven years from the date of the sale agreement. In accordance with ASC 360-20-40-38 , Real Estate Sales - Derecognition , since the Partnership has the option to repurchase the rights to the land , the transaction has been accounted for as a financing arrangement rather than a sale. The Taylorville property is recorded in the consolidated statement s of financial position within the net property , plant and equipment caption and the related liability is recorded in the consolidated statement s of financial position within the other noncurrent liability caption . Asset Impairments-2015 As the prolonged weakness in the United States coal markets continued during 2015, the Partnership performed a comprehensive review of its current coal mining operations as well as potential future development projects to ascertain any potential impairment losses. The Partnership identified various properties, projects and operations that were potentially impaired based upon changes in its strategic plans, market conditions or other factors, specifically in Northern Appalachia where market conditions related to the Partnership’s operations deteriorated in the fourth quarter of 2015. The Partnership believes that an oversupply of coal being produced in Northern Appalachia has contributed to depressed coal prices from this region. The Partnership believes the oversupply of coal has been created due to historically low natural gas prices in this region, which competes with coal as a source of electricity generation. Utilities have chosen cheap natural gas for electricity generation over coal and, additionally, the Partnership believes the amount that the utilities’ power plants have been dispatched for electricity generation has fallen due to low electricity demand. The production of natural gas from the Utica Shale and Marcellus Shale regions that are located within the Northern Appalachian region have kept natural gas prices low and larger coal producers have low-cost long-wall mines in Northern Appalachia that can compete to sell lower priced coal to utilities that still require coal supplies in this region. The Partnership believes this combination of factors have decreased coal prices in Northern Appalachia to levels where certain current operations as well as future plans for the development of the Leesville Field will be unprofitable in the near term. In addition to impairment charges related to certain Northern Appalachia operations, the Partnership also recorded asset impairment and related charges for the sale of the Deane mining complex and the Cana Woodford oil and natural gas investment that are discussed further below. The Partnership recorded approximately $31.1 million of total asset impairment and related charges related to property, plant and equipment for the year ended December 31, 2015, which is recorded on the Asset impairment and related charges line of the consolidated statements of operations and comprehensive income. Hopedale Mining Complex The Partnership owns the Hopedale mining complex located in Northern Appalachia that includes an underground mine, preparation plant and full-service rail loadout facility. Hopedale had long-term coal sales contracts with two utility customers that officially expired at the end of 2015, but had carry-over provisions for contracted coal shipments that were not delivered in 2015 that are to be shipped in 2016. These carry-over tons under these sales contracts have prices well above current market levels for coal being sold in this region, but do not constitute annual coal sales volumes that Hopedale has historically been able to sell. The Partnership has been unsuccessful in securing any contracted sales business at profitable prices for Hopedale coal to replace these expiring sales contracts due to the depressed Northern Appalachia coal market conditions discussed above. Based upon these factors, the Partnership performed a detailed analysis of potential impairment for the Hopedale mining complex as of December 31, 2015. The Partnership’s projection of future undiscounted net cash flows to be generated from the Hopedale mining complex indicated that a potential impairment existed since the carrying amount of the long-lived asset group at the Hopedale mining complex exceeded the sum of the projected undiscounted net cash flows. Thus, the Partnership performed a further analysis to determine what, if any, impairment existed for the Hopedale mining complex asset group. The Partnership utilized a discounted cash flow method (i.e. income approach) to estimate the fair value of the Hopedale mining complex. Based on this analysis, the Partnership recorded total asset impairment and related charges of $19.0 million for the Hopedale mining complex for the year ended December 31, 2015. Sands Hill Mining Complex The Partnership owns the Sands Hill mining complex in Northern Appalachia that includes two surface coal mines located near Hamden, Ohio. The infrastructure at Sands Hill includes a coal preparation plant along with a river front barge and dock facility on the Ohio River. Coal produced at Sands Hill is primarily trucked to local industrial customers in the southeastern region of Ohio. In addition to coal production, limestone aggregate is also produced at Sands Hill as the process of removing overburden to access the coal seams includes the removal of high quality limestone. The Sands Hill complex includes limestone processing facilities that crush and size the limestone for sale to local customers. Sands Hill has contracted coal sales through the end of 2016 from its surface coal mine operations, but no contracted coal sales beyond this date. Limestone is sold on a non-contracted basis from Sands Hill’s operation. During 2015, the Partnership contracted with a third party engineering firm to perform an audit of the Partnership’s coal mineral. As part of the third party expert’s audit, they performed an independent pro forma economic analysis using industry-accepted guidelines and these were used, in part, to classify coal mineral as either proven and probable coal reserves or non-reserve coal deposits, based on current market conditions. In the depressed Northern Appalachia coal market environment described above, a majority of the Sands Hill coal mineral that had previously been classified as proven and probable coal reserves was re-classified as non-reserve coal deposits as of December 31, 2015 due to unfavorable projected economic performance. The Partnership’s long-term plan had previously included the eventual development of underground coal reserves at Sands Hill, which were reclassified to non-reserve coal deposits as of December 31, 2015 per the discussion above. However, due to the lack of contracted sales beyond year-end 2016 and the depressed Northern Appalachia coal market discussed above, the Partnership decided as of December 31, 2015 to no longer pursue the development of the underground coal deposits at Sands Hill. Thus, the Partnership will cease surface coal mining at the end of 2016 when its Sands Hill contracted coal sales are fulfilled. The Partnership currently plans to continue limestone sales into 2017 since adequate limestone inventory will remain once coal mining has ceased. Based upon the factors that led to the Partnership’s decision to discontinue coal mining at Sands Hill as of year-end 2016, the Partnership performed a detailed analysis of potential impairment for the Sands Hill mining complex. The Partnership’s projection of future undiscounted net cash flows to be generated from the San d s Hill mining complex indicated that a potential impairment existed since the carrying amount of the long-lived asset group at the Sands Hill mining complex exceeded the sum of the projected undiscounted net cash flows. Thus, the Partnership performed a further analysis to determine what, if any, impairment existed for the Sands Hill mining complex asset group. The Partnership utilized a discounted cash flow method (i.e. income approach) to estimate the fair value of the Sands Hill mining complex. Based on this analysis, the Partnership recorded total asset impairment and related charges of $5.7 million for the Sands Hill mining complex for the year ended December 31, 2015. Leesville Field The Partnership owns the Leesville field that is located in the Northern Appalachia coal region in eastern Ohio and is approximately 20 miles north of the Partnership’s Hopedale mining complex. The Leesville field is an undeveloped property that contains approximately 27.9 million tons of coal mineral that was classified as non-reserve coal deposits as of December 31, 2015. Prior to 2015, the Leesville field coal mineral had been classified as proven and probable coal reserves. The Leesville field coal mineral that had previously been classified as proven and probable coal reserves was re-classified as non-reserve coal deposits due to unfavorable projected economic performance based upon the third party engineering firm’s audit of the Partnership’s coal mineral that was discussed above. The Partnership’s long-term plan had included the eventual development of Leesville field to supplement the production from the Partnership’s nearby Hopedale mining complex because the coal qualities at Leesville closely matched the coal qualities at Hopedale. However, due to the recent downturn in the coal markets in Northern Appalachia discussed above, the reclassification of the Leesville field coal mineral to non-reserve coal deposits and the difficult economic conditions being experienced at Hopedale discussed above, the Partnership decided to reevaluate its plans for the Leesville field and examine this undeveloped property for potential impairment. The Partnership believes that the Leesville field mineral would be uneconomic to produce in current market conditions, which are not expected to improve in the near future, and would not produce positive undiscounted net cash flows. Thus, this fact pattern indicated that a potential impairment existed since the carrying amount of the long-lived asset group at Leesville exc eeded the sum of any projected undiscounted net cash flows. The Partnership analyzed the Leesville asset group and determined the fair value of the Leesville asset group should be based on any compensation that could be received by the Partnership by selling the assets to a third party in the current marketplace since it would be uneconomic to develop this project in the current market environment. Based on the current depressed state of the Northern Appalachia coal markets, the Partnership determined the Leesville field asset group had zero value as of December 31, 2015. The Partnership recorded total asset impairment and related charges of $3.5 million for the Leesville field for the year ended December 31, 2015. Deane Mining Complex On October 30, 2015, the Partnership executed a binding letter of intent with a third party for the purchase of the Partnership’s Deane mining complex. The sale of the Deane mining complex was completed on December 30, 2015. The Deane mining complex is located in eastern Kentucky and includes one underground mine that was idle during 2015. The infrastructure at the Deane mining complex consists of a preparation plant and a unit train loadout facility. The sale of the Deane complex transferred the underground mine, related equipment, the preparation plant and loadout facility in exchange for $2.0 million in the form of a promissory note receivable from the third party, while the Partnership also retained the mineral rights for the proven and probable steam coal reserves at this complex. The Deane mining complex sale also included a royalty agreement with the third party pursuant to which the Partnership will collect future royalties for coal mined and sold from the Deane complex. The sale of the Deane mining complex also relieved the Partnership of significant reclamation liabilities and bonding requirements. For third quarter 2015 financial reporting purposes, the Partnership evaluated the appropriate held for sale accounting criteria to determine if the Deane mining complex should be classified as held for sale as of September 30, 2015. Based on this evaluation, the Partnership determined the Deane mining complex met the held for sale criteria at September 30, 2015 and, accordingly, the Deane mining complex asset group was written down to its estimated fair value of $2.0 million. Due to the determination that the Deane mining complex met the held for sale criteria, the Partnership recorded an impairment charge of approximately $2.3 million for the third quarter ended September 30, 2015 and the Partnership ceased depreciation of this asset group at this time. Upon the completion of the sales agreement for the Deane mining complex, the Partnership removed the assets and liabilities related to this mining complex, which resulted in a gain of $0.4 million that was record in the A sset impairment and related charges line of the consolidated statements of operations and comprehensive income . The net $1.9 million asset impairment charge/loss for the Deane mining complex is recorded on the Asset impairment and related charges line of the consolidated statements of operations and comprehensive income. Cana Woodford Oil and Natural Gas Investment In August 2015, the Partnership completed the sale of its oil and natural gas investment of approximately 1,900 net mineral acres in the Cana Woodford region of western Oklahoma. The Partnership received a total of approximately $5.7 million in proceeds from the sale of the Cana Woodford oil and natural gas mineral rights. In the second quarter of 2015, the Partnership evaluated the appropriate held for sale accounting criteria to determine if the Cana Woodford mineral rights should be classified as held for sale. Based on this evaluation, the Partnership determined these mineral rights met the held for sale criteria at June 30, 2015 and, accordingly, these mineral rights were written down to their estimated fair value of $5.8 million. Due to the determination that the mineral rights met the held for sale criteria, the Partnership recorded an impairment charge of approximately $2.2 million for the Cana Woodford mineral rights during the second quarter of 2015. The impairment charge for the Cana Woodford mineral rights is recorded on the Asset impairment and related charges line of the consolidated statements of operations and comprehensive income. Bevins Branch Operation As discussed further below, the Partnership had a steam coal surface mine operation in eastern Kentucky (referred to as “Bevins Branch”) in its Central Appalachia segment that was idled during mid-2014 as that location’s contract with its single customer expired at that time. In May 2015, the Partnership finalized a contractual agreement with a third party to assume the Bevins Branch operation. As of December 31, 2015, the Partnership removed the assets and liabilities related to this mining complex, which resulted in a gain of $1.2 million that was record in the asset impair ment and related charges line of the consolidated statements of operations and comprehensive income . In addition, as of December 31, 2015, the Partnership removed the approximately $2.3 million of remaining assets and any related liabilities that had been previously classified as held for sale on its consolidated statements of financial position. Asset Impairments -2014 Due to the prolonged weakness in the U.S. coal markets and the dim prospects for an upturn in the coal markets in the near term, in the fourth quarter of 2014, the Partnership performed a comprehensive review of its current coal mining operations as well as potential future development projects to ascertain any potential impairment losses. The Partnership’s appointment of new executive management in the fourth quarter of 2014 and the Partnership’s annual budgeting process in the fourth quarter of 2014 led to some changes in the Partnership’s strategic views. The Partnership identified various properties, projects and operations that were potentially impaired based upon changes in its strategic plans, market conditions or other factors. The Partnership recorded approximately $ 45.3 million of asset impairment and related charges for the year ended December 31, 2014, which is recorded on the Asset impairme nt and related charges line of the consolidated statements of operations and comprehensive income. A s discussed in Note 3 , the Partnership also recorded an impairment charge of $5.9 mil lion related to the Rhino Eastern joint venture that is recorded on the Equity in net (loss)/income of unconsolidated affiliates line of the consolidated statements of operations and comprehensive income. The major components that comprise this total asset impairment and related charges are described below. Red Cliff Project The Partnership control s certain mineral rights and related surface land located eleven miles north of Loma , Colorado (referred to as the “Red Cliff” property). The Partnership had been working with the U.S. Bureau of Land Management (“BLM”) agency since 2005 on an environmental impact statement report (“EIS report”) that was required to be completed before the Partnership could move forward with the development and permitting of a mining project on the Red Cliff property. The Partnership capitalized the cost associated with the ongoing EIS report process as mine development costs, which had accumulated to approximately $11.2 million at December 31, 2014. In addition, the Partnership invested approximately $11.0 million to acquire land for the purpose of building a rail spur to the property and also purchased certain land tracts at a cost of approximately $5.0 million for the purpose of constructing a rail load-out facility. At December 31, 2014, the Partnership had a carrying amount of approximately $16.2 million for the purchased land and approximately $2.0 million for mineral rights associated with a lease of coal reserves with the BLM. These amounts are in addition to the $11.2 million of mine development cost discussed above. Additionally, the Partnership had $0.3 million of accrued liabilities in BLM refunds related to the Red Cliff EIS report. In summary, the Partnership had total carrying costs of approximately $29.1 million for the Red Cliff property at December 31, 2014 that was included in the Partnership’s Rhino Western segment . In early 2010, the Partnership had a detailed mine development study performed for the Red Cliff property by an independent third party, which estimated the total cost to build out the project would be approximately $420 million once the EIS report was finalized. The EIS report outlines the environmental effects a potential project would have on the affected area. An initial EIS report was issued for public comment and review in 2009, which received over 20,000 comments in the 90-day comment period. Based on the volume of comments received on the initial report, the BLM decided that the EIS report pr ocess needed to be restarted. The Partnership agreed to restart the EIS report and the first two chapters of the EIS report were completed and work on chapters three and four was ready to begin in November 2014. Chapters three and four of the EIS report involve the costlier portion of report project since this includes detailed studies of the impacts to air quality, wildlife, etc. Up t o the fourth quarter of 2014, the Partnership had decided to continue with the EIS report despite the prolonged weakness in the coal markets. However, the decision was made by the Partnership’s executive m anagement to limit capital spending on all projects due to the weak coal market conditions that had adversely affected the Partnership’s financial results during 2014. Thus, due to the lack of progress in getting the EIS report finalized, the amount of money spent on the project to date, the impending higher costs to be incurred on the next phase of the EIS report and the desire to limit capital spending on certain projects due to the ongoing weakness in the coal markets, the Partnership decided to suspend the EIS report process in November 2014. Based on the fact pattern described above, the Partnership determined at December 31, 2014 that it would not pursue the development of the Red Cliff property and the related assets would be abandoned or sold for current market value. Since the Partnership reached a decision to abandon the potential development of the Red Cliff asset group at December 31, 2014, the Partnership evaluated the assets for impairment in accordance with appl icable accounting guidelines. The Partnership determined that the mine development costs and mineral rights could not be sold to a third party, so the Partnership recorded an asset impairment loss of $13.2 million for the year ended December 31, 2014 for these assets, which represented the write down of the previous carrying value of these assets to zero . The land related to the Red Cliff project was recorded at fair value (based on a third party appraisal) less costs to sell for a total net fair value of approximately $ 6.9 million since the Partnership had committed to a plan to sell these assets, which resulted in an additional asset impairment charge of $ 9.3 million. In total, after netting the $0.3 million of BLM refunds that will not be repaid due to abandoning the EI S report process, the Partnership recorded asset impairment and related charges of $ 22.2 million related to its Red Cliff assets at December 31, 2014. The $6.9 million of land is recorded on the Non-current assets held for sale line of the Partnership’s consolidated statements of financial position. Rich Mountain Property In June 2011, the Partnership acquired coal mineral rights in Randolph and Upshur Counties, West Virginia for approximately $ 7.5 million (referred to as the “Rich Mountain” property). These development stage properties were unpermitted an d contained no infrastructure. The Partnership conducted a core drilling program on the Rich Mountain property after it was purchased and determined the property contained an estimated 8.2 million tons of proven and probable underground metallurgical coal reserves. The Partnership capitalized the cost associated with its core drilling as mine development costs and the total value in property, plant and equipment for the Rich Mountain property was $ 8.3 million at December 31, 2014. The Partnership included this property in its Other category for segment reporting purposes since it was undeveloped. T he ongoing deterioration in the metallurgical coal markets has resulted in weak demand and historically low prices for this quality of coal. In the fourth quarter of 2014, the Partnership reassessed its strategy for these mineral rights and determined that it was not economical to develop this small coal reserve given the cost of building the req uired infrastructure. Although the Partnership did not have an active marketing strategy for the Rich Mountain property, the Partnership contacted a third party coal company with current operations in the general area of the Rich Mountain property to determine if there would be any interest in acquiring these mineral rights. Repeated attempts to obtain a non-binding price quote for the Rich Mountain mineral rights from this or other third parties resulted in no indicative bids being offered. Based on the factors discussed above, the Partnership determ ined at December 31, 2014 that it would not pursue the development of the Rich Mountain property and the related assets would be abandoned. In accordance with app licable accounting guidelines, the Partnership r eviewed its Rich Mountain assets as of December 31, 2014 for any impairment indicators that may have been present for this long-lived asset group. Since the Partnership reached a decision to abandon the potential development of this asset group , the Partnership recorded an asset impairment loss of $ 8.3 million for the year ended December 31, 2014, which represented the write down of the previous carrying value of this asset group to zero . The Partnership determined the Rich Mountain assets had zero value since the Partnership could not solicit any financial bid for the Rich Mountain assets and the Partnership does see any alternative uses of the mineral right assets in their current state to generate value. Bevins Branch Operation The Partnership ha d a steam coal surface mine operation in eastern Kentucky , referred to as Bevins Branch , in its Central Appalachia segment that was idled during mid-2014 as that location’s contract with its single customer expired at that time. The Partnership actively attempted to market the coal from this operation to potential new customers and had maintained the mine so that production could resume in a relatively short time period whenever ne w customers could be secured. The Partnership had unsuccessfully been able to market the coal from this operation as the coal markets ha d been especially weak for coal from Central Appalachia and the lower quality of coal from the Bevins Branch operation proved especially difficult to market. As the Partnership found it difficult to market the quality of coal found at this mine in the current market place, the Partnership initiated negotiations in October 2014 with a third party for the potential sale of the Bevins Branch operation. A t December 31, 2014, the Partnership received a letter of intent from the third party interested in the Bevins Branch operation to accept ownership of this operation, including its related reclamation obligations. In May 2015, the Partnership finalize d a contractual agreement with the third party to assume the Bevins Branch operation. The contractual agreement had the third party assume the Bevins Branch operation where the only financial compensation the Partnership received is a future override royalty and the assumption of the reclamation obligations by the buyer. The closing of the transaction also allowed the Partnership to avoid the ongoing maintenance costs of this operation. The Partnership reviewed the Bevins Branch operation as of December 31, 2014 in accordance with the accounting guidance for long-lived asset impairment. Since t he Partnership received a letter of intent at December 31, 2014 to transfer this operation to a third party, t he Partnership determined this asset group should be written down to an estimated fair value of approximately $ 2.4 million, which equates to the estimated fair value of the future royalty of approximately $ 0.2 million and the benefit to be recognized of transferring the reclamation obligations of approximately $ 2.2 million. Based on this analysis, t he Partnership recorded total asset impairment and related charges of $8.3 million for the Bevins Branch operation for the year ended December 31, 2014. The total asset impairment and related charges include approximately $ 1.7 million for the write-off of advanced royalty balances related to the Bevins Branch operation that t he Partnership do es not expect to recover in the future. The Partnership also recorded an $ 6.6 million write-down of mineral value and mine development costs to the estimated fair value of $ 2.4 million of the royalty asset and benefit from transferring the reclamation obligations. Other Asset Impairments As of December 31, 2014, the Partnership also performed a comprehensive review of its other mining operations, primarily in Central Appalachia since this region ha d experienced the most extensive downturn in the coal markets, to determine if any other assets might be potentially imp aired. The Partnership’s review resulted in an additional $ 6.5 million of asset impairment and related charges, with $ 3.2 million related to mineral rights, $ 1.8 million of mine development costs and $ 1.5 mill ion of advanced royalties that the Partnership d id not expect to recover. The majority of these additional charges, approximately $4.9 million, related to low quality steam coal operati ons in Central Appalachia that the Partnership determined were uneconomical to mine due to the ongoing downturn in the markets for this quality of coal. The remaining $ 1. 5 million primarily related to advanced royalties that the Partnership d id not expect to recover at its Central Appalachia operations, which were determined as part of the Partnership’s strategic reviews that were conducted in the fourth quarter of 2014 . |