TORONTO (miningweekly.com) – Bankrupt US coal producer Patriot Coal has picked Blackhawk Mining to buy a substantial majority of its operating assets.

Patriot, which filed for Chapter 11 bankruptcy protection early last month, on Wednesday filed a letter of intent with the Bankruptcy Court that outlined the proposed deal, as well as a motion outlining bidding procedures.

"We feel strongly that the proposed transaction with Blackhawk is in the best interest of Patriot and its employees and stakeholders," Patriot president and CEO Bob Bennett noted.

The planned transaction would be consummated under a Chapter 11 plan. The company emerged from its previous Chapter 11 bankruptcy in December 2013, after filing in July 2012.

Patriot's eight active mining complexes in West Virginia, where the company employed about 2 900 people, and customer shipments would continue as normal during the sale process.

Under the terms of the letter of intent, Blackhawk would issue Patriot's secured lenders new debt securities of about $643-million and Class B units providing them an ownership stake in Blackhawk. Blackhawk would also assume or replace surety bonds supporting reclamation and related liabilities associated with the bought assets.

Blackhawk employed more than 1 600 workers at five mining complexes in Indiana, Kentucky, and West Virginia. The company was formed in 2010 and, during August last year, a bankruptcy judge approved the sale of three James River Coal mining complexes to a subsidiary of Blackhawk.

Patriot explained that negotiations on the terms of a formal asset purchase agreement continued with Blackhawk.

The company added that certain Patriot assets not included in the proposed transaction with Blackhawk would be subject to a separate sale process, which was outlined in the bidding procedures motion filed on Wednesday.

Appalachian thermal coal markets had been particularly hard hit over recent months by the combined impacts of coal-fired plant closures, which were driven by the US Environmental Protection Agency’s stricter emissions regulations, low-cost natural gas and fewer export opportunities.