16 ★ FINANCIAL TIMES Friday2 August 2019COMPANIES
SUJEET INDAP— NEW YORKLeon Black,Apollo Global Manage-
ment’s billionaire co-founder, has
sought to reassure investors over his ties
to Jeffrey Epstein, saying that the regis-
tered sex offender had never invested in
any of the firm’s private equity funds.
The firm “does not have and never hashad, any relationship with Mr Epstein”,
Mr Black said in a letter sent to Apollo’s
investors late on Wednesday and seen
by the Financial Times.
However, Apollo’s chairman and chief
executive acknowledged his “limited
relationship” with Mr Epstein, who
pleaded guilty to state prostitution
offences in 2008, and was accused last
month by federal prosecutors of sexu-
ally abusing dozens of underage girls at
his homes between 2002 and 2005. He
has denied the charges.
In the letter, the Wall Street financiertold investors that Mr Epstein had
“from time to time” provided tax, estate
planning and philanthropic advice to
his family investment partnerships. The
two men had donated money to chari-
ties each were involved with and that Mr
Epstein was an original trustee of the
Black Family Foundation from 1997. Mr
Epstein left the board of the foundation
in 2007, Mr Black wrote.
He was “completely unaware” and
“deeply troubled” by the conduct
described in the charges Mr Epstein
now faces.Since his arrest last month, Mr
Epstein’s links to prominent business
figures, politicians and academics have
come under scrutiny. Mr Epstein was a
teacher at an elite school in Manhattan
before beginning his association with
Wall Street with a job at Bear Stearns.
Mr Black’s letter to investors in Apollo
funds, known as limited partners, fol-
lows the release of Apollo’s second-
quarter results on Wednesday. On an
accompanying earnings call, a JPMor-
gan analyst alluded to a Bloomberg
News report thatCalpers, the Californiastate pension fund, a large Apollo share-
holder as well as an investor in its funds,
had expressed concern about Mr Black’s
links to Mr Epstein.
On the call, Mr Black responded by
saying that “our view right now is that it
is not affecting our relationship with
investors”.
In the letter to Apollo investors, Mr
Black concluded by writing: “I want to
reiterate our deep commitment to oper-
ating with integrity and consistent with
the highest ethical standards... and
I’m sorry if this recent media attentionhas been a distraction or has caused you
any concern.”
The financier also denied reports that
he had promoted Mr Epstein’s services
to other Apollo executives. No other
Apollo employee did business with Mr
Epstein, he wrote.
Mr Black and several other former
employees ofDrexel Burnham Lam-
bert, the investment bank, formed
Apollo in 1990. Apollo now manages
more than $300bn and its backers
include many of the world’s largest pen-
sion and sovereign wealth funds.Financials
Apollo chief distances buyout funds from Epstein
Black tells investors firm
had no links to tycoon
accused of abusing girlsGREGORY MEYER— NEW YORKThe Powder River Basin of Wyoming
and Montana wasmeant to weatherthe
shift towards cleaner energy.
If some in the energy business were
sceptical aboutDonald Trump’s prom-
ises of a renaissance for coal, many at
least expected that thebasin would
keep finding buyers for its brand of low-
sulphur coal, which can be extracted
cheaply from open-pit mines.
But even the largest coal mining
region in the US is in relentless decline,
with bankruptcies sweeping across the
area aselectricity power plants burn far
less than previously anticipated.
Coal has lost market share in the elec-
tricity sector to natural gas and renewa-
ble fuels such as wind and solar. It
accounts for less than a quarter ofUS
generation, compared with almost 40
per cent five yearsago.
“It’s hard to talk about the PRB with-
out at least acknowledging that there’s a
pretty tough story out there,” Paul Lang,
chief operating officer atArch Coal, one
of the area’s biggest producers, recently
told analysts.
The pace of decline has surprised ana-
lysts andshaken up the business land-
scape. Arch and fellow coal producer
Peabody Energyare seeking approval
for a joint venture that would save them
$120m a year by combining operations
including North Antelope Rochelle and
Black Thunder, the two biggest mines in
the basin.
Assets of rival minersBlackjeweland
Cloud Peak Energywere scheduled to be
auctionedthis week after each filed for
bankruptcy protection this year.
Separately,American Electric Power
this month said it would retire a1,300-
megawatt unit at its power plant in
Rockport, Indiana, to settle a lawsuit
over air pollution.
US power companies have announced
the retirement of more than 546 coal-
fired power units amounting to about
102,000MW of capacity this decade,
according to the Energy Information
Administration.
The EIA expects US power stations to
consume 537.7m short tons of coal this
year, 74m less than it forecast 12 months
ago. The 2.2 per cent fall in US carbon
dioxide emissions theagency expects
from energy use this year is almost
entirely due to lower coal consumption.Mr Trump has embraced “clean,
beautiful coal”. At a rallyin Montana
last November, he said coal miners were
“all back to work”. The number of US
coal mining jobs has risen by about
2,000 to 53,000 since his inauguration,
but remains well below levels earlier in
the decade. Wyoming mine employ-
ment has been contracting.
His administration last month intro-
duced rulesto help the industry by
allowing coal-fired power plants to run
more frequently. However, “it seems
unlikely that it will save many coal
plants from ultimately shutting down”in the face of falling costs for renewable
energy and battery storage, said Charlie
Palmer, managing director at Oppor-
tune, a consultancy.
The Powder River Basin, first mined
in the 1970s, rose to bethe most prolific
coal region in the US. Output peaked in
2008 at 496m short tons.
After miners such as Peabody and
Arch emerged from an earlier wave of
bankruptcies, optimism returned in
2017 as they took advantage of a fleeting
rise in natural gas prices to increase pro-
duction in the hope of regaining share.
Volumes have again turned lower.John Hanou, a consultant, estimates
that the basin will produce 301m short
tons of coal this year, the lowest since- His base case calls for 232m short
tons of demand for PRB coal by 2030.
Another reason the basin’s coal is suf-
fering is that it creates less heat than
other grades. Prices for its coal have
stagnated at about $12 per short ton.
Prices for hotter-burning varieties from
mines in Appalachia had increased to
$50 or more as newer power plants use
scrubbers to remove their higher
amounts of sulphur, a pollutant, said
Ben Nelson atMoody’s.
Arch Coal sold 34.3m short tons of
Powder River Basin coal in the
first half of 2019, down 4.2m short tons
from a year earlier, while its cash profit
margin dropped40 cents to below $
per ton sold.
It hascurtailed operations at its Coal
Creek mine in Wyoming “rather than
pursue uneconomic business”, it said in
a securities filing.
This weekPeabody reported sales of
50.3m short tons in the basin in the first
half, down 8.3m short tons from a year
earlier, and a drop in profitability.
Its chief executive,Glenn Kellow,
acknowledged “challenges” for the
region.
“We understand how tough it is in
that county,” he said.
The woes underlinethe reasoning
behind Peabody’sventure with Arch,
which would bring together mines that
produce more than half the basin’s coal.“For us, this is about day-in, day-out
competition versus natural gas and
renewables,” Mr Kellow said.
Extreme weather hasadded to diffi-
culties. Abnormal spring floodshalted
coal trains in the US midwest, an impor-
tant destination for PRB coal. Cloud
Peak Energy faced a cash crunch after
rainfall that was 50 per cent above aver-
age caused waste rock to slide into its
coal pit last year, forcing it to divert min-
ing machinery to the clean-up, accord-
ing to a bankruptcy court filing.
Blackjewel’s two Wyoming mines
shutimmediately when emergency
financing collapsed on the eve of its July
1 bankruptcy petition. Hundreds of
workers were locked out of the mines
and their pay cheques delayed.
Blackjewel acquired the two mines
fromContura Energyin 2017. In this
week’s auction, Contura — formed from
the formerly bankruptAlpha Natural
Resources—has stepped up as a stalk-
ing-horse bidder for the mines it once
owned, but it is not clear what price the
assets will fetch.
“As we look out, we think this is going
to be a very difficult environment for
PRB coal,” said Mr Nelson from
Moody’s. “Of the 15 or 16 mines that are
there today, as we move through the
next decade a number of them are going
to shut down.”Mining.Energy transition
US coal region’s decline proves relentless in blow to Trump
Bankruptcies sweep the
Powder River Basin as share
is lost to gas and renewables
Rules have
been brought
in to help the
industry by
allowing
coal-fired power
plants to run
more frequently
Jim Urquhart/ReutersWyoming payroll jobs in coal mining industry Sources: Lazard; US Bureau of Labor Statistics; MSHA; Hanou Energy ConsultingPowder River Basin coal production (million short tons) US coal’s struggle for survival
Cost range, unsubsidised ( megawatt hour) Onshore windSolarCoalNuclearMoney pit
NEIL HUME— LONDONRio Tintodeclared a surprise $1bn
special dividend after reporting its best
half-year profits since 2014 on the back
ofsoaring prices for its key commodity
— iron ore.However, the company was forced to
take a large writedown on the value of
its massive underground copper projectin Mongolia’s Gobi desert because of
delays and a cost blowout.
The price of the steelmaking ingredi-
ent has jumped by more than 60 per
cent this year, to above $120 a tonne
before retreating, due to a series of
supply disruptions in Australia and
Brazil and recordChinese steel demand.
Rio has cut its iron production twice
this year, most recentlydue to “opera-tional challenges”at one of its main
mines in Western Australia. “Rio’s solid
first-half results can be attributed
almost entirely to the supply shock-
driven strength in iron ore prices,” said
Christopher LaFemina, analyst at Jeffer-
ies. “Its average realised price of $85.
a tonne increased by 35 per cent”.
In the six months to June, earnings
before interest, tax, depreciation and
amortisation — the measure most
closely followed by analysts — rose 11
per cent to $10.3bn in line with market
forecasts on revenue of $20.7bn. Profit
before tax was $5.2bn, down from
$6.7bn in the same period a year ago.
The miner declared a half-year divi-
dend of 151 cents per share, plus a spe-
cial dividend of 61 cents per share,
equivalent to $3.5bn and a record half-
year payout. Rio’s dividendsare usually
weighted to the second half of the year,
making the $1bn top up a surprise.
“All in all, we see the outlook for iron
ore remaining positive,” said chief exec-
utiveJean-Sébastien Jacques.
However, many analysts see iron ore,
trading at $114 a tonne yesterday, falling
back to $80 or $90 a tonne. Shares in Rio
rose 27 per cent this year, but fell 2.8 per
cent to £45.68 yesterday.Mining
Rio Tinto announces $1bn special dividend
IAN MOUNT— MADRID
DAVID SHEPPARD— LONDONA consortium of private equity and
pension fund investors have warned
Spain’s competition commission that
its plans to cut the returns made by gas
and electricity network companies will
damage the country’s economy and
deter future investment.In July, Spain’s National Commission for
Markets and Competition (CNMC)
announced draft plans to cut fixed
returns for gas distribution, transport
and regasification during the 2021-
regulation period by some 20 per cent
annually. This prompted the five lead-
ing Spanish electricity and gas compa-
nies to shed more than €6bn in market
capitalisation over the following days.
“If implemented, these changes will
have unforeseeable and negative long-
term consequences for the sustainabil-
ity of the Spanish gas sector, would dam-
age the wider Spanish economy [and]
harm the reputation of Spain as an
investment destination,” the group said
in a letterto the CNMC and economy
and energy transition ministers.
The consortium is formed by inves-
tors in affected companies such asEnagásandNaturgy, including private
equity fundsCVC Capital Partnersand
Global Infrastructure Partners.
The cuts would be phased in over the
six-year regulatory period, with those in
the final year of 2026 accounting for
€325m — or 31 per cent — of the industry
revenue for gas transport and regasifica-
tion and €453m — or 32 per cent — for
gas distribution, according to Moody’s.In a note calling thecut “credit nega-
tive” for the sector, the rating agency
added: “Despite its potential negative
effect on utility companies, CNMC’s pro-
posal suggests a more transparent and
predictable regulatory framework.”
The proposed cuts in gas distribution
would mainly come in the form of a
phase-out of compensation on older
assets, notes Moody’s, while in gas trans-
portation the decline in revenues would
come from a gradual elimination of an
old revenue compensation mechanism.
The cuts follow repeated complaints
from industrial gas customers in Spain.
The GasIndustrial lobby group esti-
matesindustrial customers in Spain pay
20-25 per cent more for gas thanEuro-
pean competitors,of that, the regulated
costs in Spain are 45 per cent higher.
According to a CNMC analysis, gas
prices paid by residential customers
rose 31.5 per cent between the 2007-
and 2012-18 periods, and in the latter
period they paid 24.3 per cent more
than the European average.
The investor group,meanwhile, says
Spain’s revenue per connection point,
€175, isbelowEurope’s average of €220,
and withcuts would fall to €119, 45 per
cent below the European average.Energy
Investors attack Spain’s plan to cut gas returns
‘It’s hard to talk about
the PRB without at least
acknowledging that there’sa tough story out there’
‘If implemented, these
changes will have
unforeseeable and negativelong-term consequences’
546
US coal-fired power
units retired this
decade, amounting
to 102,000MW
of capacity300 m
Estimated 2019 coal
output in short tons
from Powder River
Basin, down from
496m at its peak
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