Distributable income is the total amount of net royalty and overriding royalty
payments received from the various mines increased by the amount of interest
earned and any other amounts received by the Trust and decreased by the amount
of trust expenses. During 2019, royalty income decreased by $281,039 to
$1,183,904 in 2019 from $1,464,943 in 2018, and distributable income also
decreased by a comparable amount of 20% to $1,002,915 in 2019 from $1,262,716 in
2018. These decreases were largely attributable to the lack of production at the
Spring Creek Mine and decreased coal production at certain Decker Mines.
The following schedule reflects the royalty and overriding royalty payments
received by the Trust in respect of leases at the following mines:
2019 2018
Decker Mine $ 1,173,904 $ 1,302,986
Spring Creek Mine 10,000 161,957
Total $ 1,183,904 $ 1,464,943
Decker Mine. The amount of royalties and overriding royalties received by the
Trust with respect to the Decker Mine decreased to $1,173,904 in 2019 from
$1,302,986 in 2018, a decrease of $129,082, or approximately 10%. This change
resulted from fewer tons of coal produced as well as fluctuations in coal price.
From May to September 2018, additional mining took place in lease C-1087-95
which contributed to the increase in 2018. In 2019 and going forward, mining in
this lease is expected to be less than prior years and was nominal for 2019.
There is only one lease at the Decker Mine that is actively producing at this
time.
Spring Creek Mine. The amount of royalties and overriding royalties received by
the Trust with respect to the Spring Creek Mine decreased to $10,000 in 2019
from $161,957 in 2018, a substantial decrease due to numerous factors. This Mine
had no production for 2019, and the $10,000 payment is a prepayment required
under the applicable agreement. Historically, the prepayment amount was $50,000
each year; however, due to the financial struggles of the coal operator and the
lack of mining activities, the parties reduced the prepayment amount in 2019.
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In addition, for the past several years, a general decrease in the amount of
coal produced at the Spring Creek Mine has impacted the amount of royalties paid
to the Trust. The Trust anticipates that the amount of coal will continue to
decrease as the mine operator notified the Trust that this mine is being
depleted, and that the operator is moving into other areas of the mine, which
are not subject to the terms of the Trust's lease. Further, Cloud Peak recently
finalized the sale of its assets to Navajo Transitional Energy Company ("NTEC")
who successfully bid to assume ownership of the mines through the bankruptcy
proceedings. NTEC is wholly owned by the Navajo Nation. The Mine shut down
briefly in October after the Nation declined to waive sovereign immunity for the
benefit of Montana's Department of Environmental Quality ("MDEQ"). The MDEQ and
NTEC continue to address these issues, and the long-term status of the
operations is unknown. The Trust intends to continue monitoring the new
ownership by NTEC.
Interest Income. The Trust earns interest on the royalty payments prior to the
distribution to the Unit Holders. During the years ended December 31, 2019 and
2018, the Trust earned a nominal amount of interest although the amount of
interest has increased in recent years because of the timing of the distribution
payments and the increase in interest rates.
Trust Expenses. Trust expenses decreased by $21,391 to $188,398 in 2019 from
$209,789 in 2018. Trust expenses included fees of the Trustee, accountants,
attorneys, and other professionals that the Trustee employs in the
administration of the Trust. The Trust pays a Trustee fee of $25,000 per quarter
as long as the Trust has sufficient royalty income to make such payments. In
fiscal years 2019 and 2018, the Trust paid an aggregate of $100,000 in Trustee
fees per year. Pursuant to the terms of the Trust Indenture, the Trustee has the
ability to increase its fees, in its sole discretion, after providing notice to
the Unit Holders.
Liquidity and Capital Resources.The Trust's primary source of capital is the
royalty payments. In accordance with the provisions of the Trust Indenture,
generally all income received by the Trust, net of Trust expenses and any
amounts placed in reserves, are distributed to the Unit Holders on a biannual
basis.
Trust Reserves. The Trust pays biannual distributions within ten days after June
30 and December 31 of each year to the extent funds are available. The Trust
established reserves in the first and third quarters of 2019 in the amount of
$634,327 and $415,666, respectively, and distributed such amounts within 10 days
of the second and fourth quarters of 2019. The Trust also established reserves
in the first and third quarters of 2018 in the amount of $499,688 and $720,533,
respectively, and distributed such amounts within 10 days of the second and
fourth quarters of 2018.
Off-Balance Sheet Arrangements. As required by the Trust Indenture, the Trust is
intended to be passive in nature and the Trustee does not have any control over
or any responsibility relating to the operation of the mines under which the
Trust has any royalty interests and overriding royalty interests. The Trustee
has powers to collect and distribute proceeds received by the Trust and pay
Trust liabilities and expenses and its actions have been limited to those
activities. As a result, the Trust has not engaged in any off-balance sheet
arrangements.
Critical Accounting Policies and Estimates.The Trust's financial statements are
prepared on a modified cash basis of accounting, which is a comprehensive basis
of accounting other than accounting principles generally accepted in the United
States of America, and as such there are no critical accounting policies or
estimates.
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