Quintette looking to reorganize

To gain time to reorganize, Quintette Coal has obtained a court restraining order keeping third parties from taking action against the company for a period of six months. President Paul Kostuik noted that the order was necessary after Quintette’s Japanese customers began withholding payments for coal shipments.

Kostuik said the customers have informed Quintette that payments would be withheld over the next 30 days until they received the full amount of $46 million as awarded in the arbitration ruling.

Quintette has asked the courts to set aside a portion of the award, claiming that it exceeded the mandate and jurisdiction of the arbitration panel. The case will be heard in Vancouver on June 19.

Noteworthy is Kostuik’s statement that the coal price of $84.40 per tonne as of July 1, set by the arbitration panel, is less than the cost incurred to produce and deliver the coal.

As a result, Quintette would be unable to meet its ongoing financial obligations, according to the company.

In its order, the British Columbia Supreme Court ruled that Quintette’s major financial obligations be frozen and that the Japanese steel industry, the company’s only customers, be restrained from withholding payment during the 6- month reorganization period.

This should please Quintette’s bankers, which are owed about $649 million. The steel mills’ move to collect the $46 million by withholding payments was no doubt seen by the banks as the equivalent to line jumping.

Quintette noted that it will pay all wages to its employees and pay for all material and services provided by its suppliers during the reorganization period but that payments to trade creditors owed more than $200,000 as of June 13 will be frozen.

Whether Quintette is forced into bankruptcy will depend on a vote by its creditors following the 6- month grace period.

Quintette Coal is 50% owned by Denison Mines (TSE), which is not liable for the coal company’s debt. However, in the event of a bankruptcy, Denison stands to lose the yearly management fee for running the mine.