As filed with the Securities and Exchange Commission on March 7, 2012.

Registration Statement No. 333-177259

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

 

Amendment No. 4

to

 

 

Form S-1

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

 

ARMSTRONG ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

 

7733 Forsyth Boulevard, Suite 1625

St. Louis, Missouri 63105

(314) 721-8202

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

Martin D. Wilson

Armstrong Energy, Inc.

7733 Forsyth Boulevard, Suite 1625

St. Louis, Missouri 63105

(314) 721-8202

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement is declared effective.

 

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

           Shares

 

ARMSTRONG ENERGY, INC.

 

Common Stock

 

 

 

 

This is the initial public offering of our common stock. We are offering           shares of our common stock, par value $0.01 per share. No public market currently exists for our common stock. We currently expect the initial public offering price to be between $      and $      per share.

 

We expect to apply to list our common stock on the Nasdaq Global Market (“Nasdaq”) under the symbol “ARMS.” There is no assurance that this application will be approved.

 

 

 

 

Investing in our common stock involves risks. You should read the section entitled “Risk Factors” beginning on page 16 for a discussion of certain risk factors that you should consider before investing in our common stock.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this registration statement. Any representation to the contrary is a criminal offense.

 

 

 

 

 

To the extent the underwriters sell more than           shares of common stock, the underwriters have an option exercisable within 30 days from the date of this prospectus to purchase up to           additional shares of common stock from us at the public offering price, less the underwriting discount. The shares of common stock issuable upon exercise of the underwriters’ over-allotment option have been registered under the registration statement of which this prospectus forms a part.

 

The underwriters expect to deliver the shares against payment in New York, New York on or about          , 2012.

 

 

 

 

 

Prospectus, dated          , 2012

 

TABLE OF CONTENTS

 

 

No dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by us or the underwriters. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or that information contained herein is correct as of any time subsequent to the date hereof.

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are only offering to sell, and only seeking offers to buy, the common stock in jurisdictions where offers and sales are permitted.

 

The information contained in this prospectus is accurate and complete only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock by us or the underwriters. Our business, financial condition, results of operations and prospectus may have changed since that date.

 

Market data used in this prospectus has been obtained from independent industry sources and publications, as well as from research reports prepared for other purposes. The information in these reports represents the most recently available data from the relevant sources and publications and we believe remains reliable. We engaged Weir International, Inc., an independent mining and geological consultant, to prepare a report regarding estimates of our proven and probable coal reserves at December 31, 2011. In addition, we pay a subscription fee to Wood Mackenzie to obtain access to pre-prepared reports. Except with respect to payment for Weir International, Inc.’s services in this regard and the subscription fee paid to Wood Mackenzie, we did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

 

Unless the context otherwise requires, the information in the prospectus (other than in the historical financial statements) assumes that the underwriters will not exercise their over-allotment option.

 

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.

 

PROSPECTUS SUMMARY

																										Quality Specifications
						Clean Recoverable Tons												Production								(As Received)(2)
						(Proven and Probable												Year				Year								SO2
						Reserves)(1)												Ended				Ended				Heat				Content
Mines		Mining				Proven				Probable								December 31,				December 31,				Value				(Lbs/				Ash
(Commenced Operations)		Method(3)				Reserves				Reserves				Total				2010				2011				(Btu/Lb)				MMBtu)				(%)
						(In thousands)												(Tons in thousands)
Active mines
Midway (July 2008)			S				19,377				1,427				20,805	(4)			1,614.8				1,589.2				11,315				4.8				10.0
Parkway (April 2009)			U				7,535				5,434				12,969	(4)			1,485.9				1,491.9				11,931				4.4				7.1
East Fork (June 2009)(5)			S				2,287				550				2,837	(4)			1,641.1				745.9				11,136				7.6				11.2
Equality Boot (September 2010)			S				21,841				1,151				22,992	(6)			330.8				1,916.8				11,587				5.7				8.8
Lewis Creek (June 2011)			S				6,160				101				6,261	(4)			—				474.9				11,420				4.0				9.5
Kronos (September 2011)(7)			U				18,810				2,995				21,805				—				—	(8)			11,792				4.5				7.6
Maddox (November 2011)			S				512				—				512	(4)			—				24.9				11,315				4.8				10.0
Total active mines							76,522				11,658				88,181				5,072.6				6,243.6
Additional reserves
Lewis Creek(7)			U				18,810				2,995				21,805												11,792				4.5				7.6
Ken			S				17,166				3,854				21,020	(4)											11,809				5.0				7.5
Union/Webster			U				44,009				76,799				120,809												12,145				4.4				8.2
Other			S/U				58,955				15,011				73,964	(9)			572.1	(10)			398.8	(10)			11,300				4.5				8.0
Total additional reserves							138,940				98,659				237,598
Total							215,462				110,317				325,779				5,644.7				6,642.4

(1)		For surface mines, clean recoverable tons are based on a 90% mining recovery, preparation plant yield at 1.55 specific gravity and a 95% preparation plant efficiency. For underground mines other than Union/Webster Counties, clean recoverable tons are based on a 50% mining recovery, preparation plant yield at 1.55 specific gravity and a 95% preparation plant efficiency. For Union/Webster Counties, clean recoverable tons are based on a 50% mining recovery, preparation plant yield at 1.60 specific gravity and a 95% preparation plant efficiency. “Proven and probable reserves” refers to coal that can be economically extracted or produced at the time of the reserve determination.
(2)		Quality specifications displayed on an “as received” basis, assuming 11% moisture. If derived from multiple seams, data represents an average.
(3)		U = Underground; S = Surface

(4)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners.

(5)		Warden and Kronos pits.

(6)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners. Includes approximately 0.3 million tons related to reserves for which we own or lease a 50% or more partial joint interest and royalties on extractions may be payable to other owners.

(7)		Based on internal estimates, recoverable reserves are split evenly among the three mines that will produce coal from the underground properties and coal reserves located in Ohio County, Kentucky that are owned by Armstrong Resource Partners and leased to Armstrong Energy (the “Elk Creek Reserves”).

(8)		The Kronos mine produced approximately 0.2 million tons of coal in 2011, but the production was capitalized and not included in our results of operations because the mine was still in the developmental phase.

(9)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners. Includes approximately 1.9 million tons related to reserves for which we own or lease a 50% or more partial joint interest and royalties on extractions may be payable to other owners.

(10)		Includes production from our Big Run mine, which ceased production in October 2011.

		Clean Recoverable Tons (Proven and Probable
Mines		Reserves)(1)
(Commenced Operations)		Owned				Leased				Total
		(In thousands)
Active mines
Midway (July 2008)			20,805				—				20,805	(2)
Parkway (April 2009)			2,326				10,643				12,969	(2)
East Fork (June 2009)(3)			2,193				645				2,837	(2)
Equality Boot (September 2010)			22,992				—				22,992	(4)
Lewis Creek (surface) (June 2011)			6,261				—				6,261	(2)
Kronos (September 2011)(5)			20,630				1,175				21,805
Maddox (November 2011)			512				—				512	(2)
Total active mines			75,719				12,463				88,181
Additional reserves
Lewis Creek(5)			20,630				1,175				21,805
Ken			21,020				—				21,020	(2)
Union/Webster Counties			3,077				117,732				120,809
Other			56,057				17,907				73,964	(6)
Total additional reserves			100,784				136,814				237,598
Total			176,503				149,277				325,779

(1)		For surface mines, clean recoverable tons are based on a 90% mining recovery, preparation plant yield at 1.55 specific gravity and a 95% preparation plant efficiency. For underground mines other than Union/Webster Counties, clean recoverable tons are based on a 50% mining recovery, preparation plant yield at 1.55 specific gravity and a 95% preparation plant efficiency. For Union/Webster Counties, clean recoverable tons are based on a 50% mining recovery, preparation plant yield at 1.60 specific gravity and a 95% preparation plant efficiency. “Proven and probable reserves” refers to coal that can be economically extracted or produced at the time of the reserve determination.

(2)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners.

(3)		Warden and Kronos pits.

(4)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners. Includes approximately 0.3 million tons related to reserves for which we own or lease a 50% or more partial joint interest and royalties on extractions may be payable to other owners.

(5)		Based on internal estimates, recoverable reserves are split evenly among the three mines that comprise the Elk Creek Reserves.

(6)		Of these reserves, 39.45% of the interests controlled by Armstrong Energy are leased from Armstrong Resource Partners. Includes approximately 1.9 million tons related to reserves for which we own or lease a 50% or more partial joint interest and royalties on extractions may be payable to other owners.

	•	Stable long-term outlook for U.S. thermal coal market.  According to the EIA, coal-fired electricity generation accounted for approximately 44% of all electricity generation in the United States in 2011. Coal continues to be the lowest cost fossil fuel source of energy for electric power generation. Despite recent increases in generation from natural gas, as well as federal and state subsidies for the

		construction and operation of renewable energy, the EIA projects that coal-fired generation will continue to remain the largest single source of electricity generation in 2035.

	•	Increasing demand for coal produced in the Illinois Basin.  According to Wood Mackenzie, a leading commodities consultancy, demand for coal produced from the Illinois Basin is expected to grow by 48% from 2010 through 2015 and by 108% from 2010 through 2030. We believe this is due to a combination of factors including:

	è	Significant expansion of scrubbed coal-fired electricity generating capacity.  The EIA forecasts a 32% increase in flue gas desulfurization (“FGD”) installed on the coal-fired generation fleet from 168 gigawatts in 2009 to 222 gigawatts, or 70% of all U.S. coal-fired capacity in the electric sector, by 2035 as electricity generation operators invest in retrofit emissions reduction technology to comply with new U.S. Environmental Protection Agency (“EPA”) regulations under the Cross-State Air Pollution Rule and the proposed Utility Boiler Maximum Achievable Control Technology (“MACT”) regulations. Illinois Basin coal generally has a higher sulfur content per ton than coal produced in other regions. However, we believe that FGD utilization will enable operators to use the most competitively priced coal (on a delivered cents per million Btu basis) irrespective of sulfur content, and thus lead to a strong increase in demand for Illinois Basin coal.
	è	Declines in Central Appalachian thermal coal production.  Wood Mackenzie forecasts that production of Central Appalachian thermal coal will continue to decline, falling from 128 million tons in 2010 to 64 million tons in 2015, due to reserve depletion, regulatory-driven decreases in Central Appalachian surface thermal coal production and more difficult geological conditions. These factors are expected to result in significantly higher mining costs and prices for Central Appalachian thermal coal. We believe this will lead to an increase in demand for thermal coal from the Illinois Basin due to its comparatively lower delivered cost to the major Eastern U.S. utilities who are currently the principal users of thermal coal from Central Appalachia.
	è	Growing demand for seaborne thermal coal.  Global trade in thermal coal accounted for nearly 70% of all global coal exports in 2010 and is projected to rise from 850 million tons in 2010 to 1.1 billion tons by 2016. We believe that limitations on existing global export coal supply, infrastructure constraints, relative exchange rates, coal quality and cost structure could create significant thermal coal export opportunities for U.S. coal producers, including Illinois Basin coal producers, particularly those similar to us with transportation access to both the Mississippi River and to rail connecting to Louisiana export terminals. In addition, we believe that certain domestic users of U.S. thermal coal will need to seek alternative sources of domestic supply as an increasing amount of domestic coal is sold in global export markets.

	•	Maintain safe mining operations and comply with environmental standards.  We consider safety to be our greatest operational priority. For the period January 1, 2011 through December 31, 2011, our underground and surface mines had non-fatal days lost incidence rates that were 50% and 100%, respectively, below the national averages for the same period. Non-fatal days lost incidence rate is an industry standard used to describe occupational injuries that result in the loss of one or more days from an employee’s scheduled work. We intend to maintain programs and policies designed to enable us to remain among the safest coal operations in the industry. We also intend to continue to implement responsible, effective environmental practices throughout our operations and reclamation activities.

	•	Continue to grow our production.  We intend to continue to increase our coal production in the coming years to satisfy what we believe will be an increasing demand for Illinois Basin coal. We will seek to support production growth by executing mining plans for our existing undeveloped reserves and by opportunistically acquiring additional coal reserves that are located near our current mining operations

		or otherwise offer the potential for efficient and economical development of low-cost production to serve our primary market area. We commenced production at Lewis Creek in June 2011, at our Kronos underground mining operation in September 2011 and at our Maddox mine in November 2011, and currently expect that our 2012 production will be approximately 9.2 million tons, compared with 6.6 million tons in 2011.

	•	Increase and diversify coal sales to utilities with base load scrubbed power plants in our primary market area and pursue export opportunities.  We expect that the demand for Illinois Basin coal will rise as a result of an increase in power plants being retrofitted with scrubbers and the construction of new power plants throughout the Illinois Basin market area. We intend to continue to focus our marketing efforts principally on power plants in the Mid-Atlantic, Southeastern and Midwestern states that we expect will become consumers of Illinois Basin coal and to seek to diversify our customer base through a combination of multi-year coal supply agreements and sales in the spot market. As of December 31, 2011, we are contractually committed to sell 8.1 million tons of coal in 2012, and 8.2 million tons of coal in 2013, which represents 88% and 77% of our expected total coal sales in 2012 and 2013, respectively. In addition, we believe that the relative heat, ash, sulfur content and cost of our coal, combined with the accessibility of our coal mines and coal processing facilities to the Mississippi River and to rail connecting to Louisiana export terminals will provide the opportunity to export our coal to overseas customers.

	•	Maximize profitability by maintaining low-cost mining operations.  We operate our mines in a manner aimed at keeping our product quality high while maintaining low production costs. We seek to maximize our coal production and control our costs by continuing to improve our operating efficiency. Our efficiency is, in part, a function of the overburden ratios (the amount of surface material needed to be removed to extract coal) that exist at our surface coal mines. Our efficiency is also enhanced by our fleet of mobile mining equipment, substantially all of which is new, our use of the only draglines in Kentucky, our utilization of river coal movement, our information technology systems and our coordinated equipment utilization and maintenance management functions. We also believe that our highly experienced operating management and well-trained workforce will continue to help in identifying and implementing cost containment initiatives.

	•	We have a demonstrated track record for successfully completing reserve acquisitions, securing required permits, developing new mines and producing coal.  Since our formation in 2006, we have successfully acquired coal reserves and opened eight separate mines, obtained the necessary regulatory permits for the commencement of mining operations at those mines, and developed significant multi-year contractual relationships with large customers in our market area. We believe this resulted from our deep management experience and disciplined approach to the development of our operations and our focus on providing competitively priced Illinois Basin coal. We believe this will enable us to continue to grow our customer base, production, revenues and profitability.

	•	Our proven and probable reserves have a long reserve life and attractive characteristics.  As of December 31, 2011, we had approximately 326 million tons of clean recoverable (proven and probable) coal reserves. Our reserves include both surface and underground mineable coal residing in multiple seams which, in combination with our coal processing facilities, enhances our ability to meet customer requirements for blends of coal with different characteristics. Further, the comparatively low chlorine content of our coal relative to other Illinois Basin coal provides us with an additional competitive advantage in meeting the desired coal fuel profile of our customers.

	•	Our mines are conveniently located in close proximity to our existing and potential customers and have access to multiple transportation options for delivery.  Our mines are located adjacent to the Green and Ohio Rivers and near our preparation, loading and transportation facilities, providing our customers

		with rail, barge and truck transportation options. We believe this will also enable us to sell our coal in both the domestic and export markets. Recently, we purchased an equity interest in, and upon development will have access to, a Mississippi River coal export terminal project in Plaquemines Parish, Louisiana, approximately 10 miles downstream of New Orleans. We intend to oversee the design, build-out and operation of this export coal terminal to facilitate the anticipated sale of our coal to international customers.

	•	We are a reliable supplier of cost competitive coal.  Our highly skilled, non-union workforce uses efficient mining practices that take advantage of economies of scale and reduce operating costs per ton in both surface and underground mining. We are among a small number of operators of large scale dragline surface production in the eastern United States, and our continuous miner underground mining operations are designed to provide operating flexibility to meet production requirements and to fulfill our coal contract specifications.
	•	We have a highly experienced management team with a long history of acquiring, building and operating coal businesses.  The members of our senior management team have a demonstrated track record of acquiring, building and operating coal businesses profitably and safely. In addition, members of our senior management team have significant experience managing the financial and organizational growth of businesses, including public companies.

(1)		Reserves owned solely by Armstrong Resource Partners. These include the Kronos, Lewis Creek and Ceralvo underground mines.
(2)		Reserves controlled jointly by Armstrong Resource Partners (with a 39.45% undivided interest) and Armstrong Energy (with a 60.55% undivided interest). If the Concurrent ARP Offering and related transactions are completed, the undivided interest of Armstrong Resource Partners will increase, and the undivided interest of Armstrong Energy will decrease, based on the net proceeds of the Concurrent ARP Offering paid to Armstrong Energy and the value of the affected reserves as agreed by Armstrong Resource Partners and Armstrong Energy. See “Certain Relationships and Related Party Transactions — Concurrent Transactions with Armstrong Resource Partners.”

(1)		Reserves owned solely by Armstrong Resource Partners. These include the Kronos, Lewis Creek and Ceralvo underground mines.
(2)		Reserves controlled jointly by Armstrong Resource Partners (with a     % undivided interest) and Armstrong Energy (with a     % undivided interest), assuming an offering price of $      per unit, the midpoint of the price range set forth on the front cover page of the prospectus for the Concurrent ARP Offering and an estimated purchase price of $      for Armstrong Resource Partners’ additional interest in the partially owned reserves.

Common Stock Offered by Armstrong Energy, Inc.		shares.
Over-Allotment Option		We have granted the underwriters an option to purchase up to an additional           shares of our common stock, equal to 15% of the shares offered in this offering, at the public offering price, less the underwriters’ discount, within 30 days after the date of this prospectus.
Common Stock to be Outstanding Immediately After this Offering		shares (or           shares if the underwriters exercise in full their over-allotment option).
Common Stock Held by Our Existing Stockholders Immediately After this Offering		shares (or           shares if the underwriters exercise in full their over-allotment option).
Use of Proceeds		We expect to receive net proceeds from this offering of approximately $      million (or approximately $      million if the underwriters exercise in full their option to purchase additional shares of our common stock) after deducting estimated underwriting discounts and commissions, and after our offering expenses estimated at $      million, assuming the shares are offered at $      per share, which is the midpoint of the estimated offering price range shown on the front cover page of this prospectus. We intend to use $      million of the net proceeds from this offering to repay a portion of our outstanding borrowings under our Senior Secured Term Loan, and to use the balance to repay a portion of our outstanding borrowings under our Senior Secured Revolving Credit Facility and for general corporate purposes, including to fund capital expenditures relating to our mining operations and working capital.
Voting Rights		Under Delaware law, each share of common stock entitles the holder to one vote.
Dividend Policy		We do not anticipate paying cash dividends on shares of our common stock for the foreseeable future. In addition, our Senior Secured Credit Facility contains restrictions on the payment of dividends to holders of our common stock. See “Dividend Policy.”
Proposed Symbol		‘‘ARMS”
Risk Factors		Investing in our common stock involves a high degree of risk. For a discussion of factors you should consider in making an investment, see “Risk Factors” beginning on page 16.
Conflicts of Interest		Raymond James Bank, FSB, an affiliate of Raymond James & Associates, Inc., one of the underwriters in this offering, is expected to receive more than 5% of the net proceeds of this offering in connection with the repayment of our Senior Secured Term

		Loan and our Senior Secured Revolving Credit Facility. See “Use of Proceeds.” Accordingly, this offering is being made in compliance with the requirements of the Financial Industry Regulatory Authority (“FINRA”) Rule 5121. Rule 5121 requires that a “qualified independent underwriter” meeting certain standards to participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence with respect thereto. FBR Capital Markets & Co. has agreed to act as a “qualified independent underwriter” within the meaning of FINRA Rule 5121 in connection with this offering. For more information, see “Conflicts of Interest.”

	•	Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely affect our profitability and the value of our coal reserves.
	•	Our coal mining operations are subject to operating risks that are beyond our control, which could result in materially increased operating expenses and decreased production levels and could materially and adversely affect our profitability.
	•	Competition within the coal industry could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.
	•	Decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators could adversely affect coal prices and materially and adversely affect our results of operations.
	•	The use of alternative energy sources for power generation could reduce coal consumption by U.S. electric power generators, which could result in lower prices for our coal. Declines in the prices at which we sell our coal could reduce our revenues and materially and adversely affect our business and results of operations.
	•	Our profitability depends in part upon the multi-year coal supply agreements we have with our customers. Changes in purchasing patterns in the coal industry could make it difficult for us to extend our existing multi-year coal supply agreements or to enter into new agreements in the future. In addition, our multi-year coal supply agreements subject us to renewal risks.
	•	The loss of, or significant reduction in purchases by, our largest customers could adversely affect our profitability.
	•	The amount of indebtedness we have incurred could significantly affect our business.
	•	The fiduciary duties of officers and directors of Elk Creek GP, as general partner of Armstrong Resource Partners, L.P., may conflict with those of officers and directors of Armstrong Energy.
	•	Yorktown will continue to have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.
	•	New regulatory requirements limiting greenhouse gas emissions and existing and potential future requirements relating to air emissions could reduce the demand for coal as a fuel source, which could cause the price and quantity of the coal we sell to decline materially.

														Pro Forma
		Predecessor												Armstrong Energy, Inc.
														Year Ended
		Year Ended December 31,												December 31,
		2009				2010				2011				2011
														Unaudited
		(In thousands, except per share data)
Results of Operations Data
Total revenues		$	167,904			$	220,625			$	299,270			$
Costs and expenses			166,686				201,473				291,335
Operating income (loss)			1,218				19,152				7,935
Interest expense			(12,651	)			(11,070	)			(10,839	)
Other income (expense), net			988				87				278
Gain on extinguishment of debt			—				—				6,954
Income (loss) before income taxes			(10,445	)			8,169				4,328
Income tax provision			—				—				(856	)
Net income (loss)			(10,445	)			8,169				3,472
Less: net income (loss) attributable to non-controlling interest			(1,730	)			3,351				7,448
Net income (loss) attributable to common stockholders		$	(8,715	)		$	4,818			$	(3,976	)		$
Earnings (loss) per share, basic and diluted		$	(0.50	)		$	0.25			$	(0.21	)		$
Balance Sheet Data (at period end)
Total assets		$	450,618			$	478,038			$	507,908
Working capital			(17,749	)			2,905				(30,629	)
Total debt (including capital leases)			159,730				139,871				244,810				(2	)
Total stockholders’ equity			255,333				296,681				168,138
Other Data
Tons sold (unaudited)			4,674				5,387				7,030
Net cash provided by (used in):
Operating activities		$	3,054			$	37,194			$	48,174
Investing activities			(62,476	)			(41,755	)			(75,827	)
Financing activities			64,854				(3,935	)			39,132
Adjusted EBITDA(1) (unaudited)			16,567				41,099				41,023
Adjusted EBITDA is calculated as follows (unaudited):
Net income (loss)		$	(10,445	)		$	8,169			$	3,472			$
Income tax provision			—				—				856
Depreciation, depletion and amortization			14,464				21,979				31,666
Interest expense, net			12,482				10,872				10,694					(3)
Non-cash stock compensation expense			66				79				1,383
Non-cash charge related to non-recourse notes			—				—				217
Gain on deconsolidation			—				—				(311	)
Gain on extinguishment of debt			—				—				(6,954	)
		$	16,567			$	41,099			$	41,023			$

(1)		Adjusted EBITDA is a non-GAAP financial measure, and when analyzing our operating performance, investors should use Adjusted EBITDA in addition to, and not as an alternative for, operating income and net income (loss) (each as determined in accordance with GAAP). We use Adjusted EBITDA as a supplemental financial measure. Adjusted EBITDA is defined as net income (loss) before net interest expense, income taxes, depreciation, depletion and amortization, non-cash stock compensation expense, non-cash charges related to non-recourse notes, gain on deconsolidation, and gain on extinguishment of debt.

		Adjusted EBITDA, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. There are significant limitations to using Adjusted EBITDA as a measure of performance, including the

		inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss, the lack of comparability of results of operations of different companies and the different methods of calculating Adjusted EBITDA reported by different companies, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
		For example, Adjusted EBITDA does not reflect:
		• cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, working capital needs;
		• the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt; and
		• any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.
		Adjusted EBITDA does not represent funds available for discretionary use because those funds are required for debt service, capital expenditures, working capital and other commitments and obligations. However, our management team believes Adjusted EBITDA is useful to an investor in evaluating our company because this measure:
		• is widely used by investors in our industry to measure a company’s operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and
		• helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure, which is useful for trending, analyzing and benchmarking the performance and value of our business.

 

 

 

An investment in our common stock involves significant risks. In addition to matters described elsewhere in this prospectus, you should carefully consider the following risks involved with an investment in our common stock. You are urged to consult your own legal, tax or financial counsel for advice before making an investment decision. The occurrence of any one or more of the following could materially adversely affect an investment in our common stock or our business and operating results. If that occurs, the value of our common stock could decline and you could lose some or all of your investment.

 

Risks Related to Our Business

 

Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely affect our profitability and the value of our coal reserves.

 

Our profitability and the value of our coal reserves depend upon the prices we receive for our coal. The contract prices we may receive in the future for coal depend upon factors beyond our control, including the following:

 

 

A substantial or extended decline in the prices we receive for our future coal sales contracts or on the spot market could materially and adversely affect us by decreasing our profitability and the value of operating our coal reserves.

 

Our coal mining operations are subject to operating risks that are beyond our control, which could result in materially increased operating expenses and decreased production levels and could materially and adversely affect our profitability.

 

We mine coal both at underground and at surface mining operations. Certain factors beyond our control, including those listed below, could disrupt our coal mining operations, adversely affect production and shipments and increase our operating costs:

 

 

 

If any of these conditions or events occurs, we could experience a delay or halt of production or shipments or our operating costs could increase significantly.

 

Competition within the coal industry could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.

 

We compete with numerous other coal producers in the Illinois Basin and in other coal producing regions of the United States, primarily Central Appalachia and the Powder River Basin. The most important factors on which we compete are:

 

 

Our competitors may have, among other things, greater liquidity, greater access to credit and other financial resources, newer or more efficient equipment, lower cost structures, partnerships with transportation companies or more effective risk management policies and procedures. Our failure to compete successfully could have a material adverse effect on our business, financial condition or results of operations.

 

International demand for U.S. coal also affects competition within our industry. The demand for U.S. coal exports depends upon a number of factors outside our control, including the overall demand for electricity in foreign markets, currency exchange rates, ocean freight rates, port and shipping capacity, the demand for foreign-priced steel, both in foreign markets and in the U.S. market, general economic conditions in foreign countries, technological developments and environmental and other governmental regulations in both U.S. and foreign markets. Foreign demand for U.S. coal has increased in recent periods. If foreign demand for U.S. coal were to decline, this decline could cause competition among coal producers for the sale of coal in the United States to intensify, potentially resulting in significant downward pressure on domestic coal prices.

 

Decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators could adversely affect coal prices and materially and adversely affect our results of operations.

 

Our coal is used primarily as fuel for electricity generation. Overall economic activity and the associated demand for power by industrial users can have significant effects on overall electricity demand. An economic slowdown can significantly slow the growth of electrical demand and could result in contraction of demand for coal. Declines in international prices for coal generally will impact U.S. prices for coal. During the past several years, international demand for coal has been driven, in significant part, by increases in demand due to economic growth in emerging markets, including China and India. Significant declines in the rates of economic growth in these regions could materially affect international demand for U.S. coal, which may have an adverse effect on U.S. coal prices.

 

Our business is closely linked to domestic demand for electricity and any changes in coal consumption by U.S. electric power generators would likely impact our business over the long term. In 2011, we sold a

substantial majority of our coal to domestic electric power generators, and we have multi-year coal supply agreements in place with electric power generators for a significant portion of our future production. The amount of coal consumed by electric power generation is affected by, among other things:

 

 

According to the EIA, total electricity consumption in the United States decreased by 0.6% during 2011 compared with 2010, and U.S. electric generation from coal decreased by 5.5% in 2011 compared with 2010. Decreases in the demand for electricity could take place in the future, such as decreases that could be caused by a worsening of current economic conditions, a prolonged economic recession or other similar events, could have a material adverse effect on the demand for coal and on our business over the long term.

 

Changes in the coal industry that affect our customers, such as those caused by decreased electricity demand and increased competition, could also adversely affect our business. Indirect competition from gas-fired plants that are cheaper to construct and easier to permit has the most potential to displace a significant amount of coal-fired generation in the near term, particularly older, less efficient coal-powered generators. In addition, uncertainty caused by federal and state regulations could cause coal customers to be uncertain of their coal requirements in future years, which could adversely affect our ability to sell coal to our customers under multi-year coal supply agreements.

 

Weather patterns can also greatly affect electricity demand. Extreme temperatures, both hot and cold, cause increased power usage and, therefore, increased generating requirements from all sources. Mild temperatures, on the other hand, result in lower electrical demand. Any downward pressure on coal prices, due to decreases in overall demand or otherwise, including changes in weather patterns, would materially and adversely affect our results of operations.

 

The use of alternative energy sources for power generation could reduce coal consumption by U.S. electric power generators, which could result in lower prices for our coal. Declines in the prices at which we sell our coal could reduce our revenues and materially and adversely affect our business and results of operations.

 

In 2011, a substantial majority of the tons we sold were to domestic electric power generators. The amount of coal consumed for U.S. electric power generation is affected by, among other things:

 

 

Gas-fired electricity generation has the potential to displace coal-fired generation, particularly from older, less efficient coal-powered generators. We expect that many of the new power plants needed to meet increasing demand for electricity generation may be fueled by natural gas because gas-fired plants are cheaper to construct and permits to construct these plants are easier to obtain as natural gas-fired plants are seen as having a lower environmental impact than coal-fired plants. In addition, state and federal mandates for increased use of electricity from renewable energy sources could have an adverse impact on the market for our coal. Many states have mandates requiring electricity suppliers to use renewable energy sources to generate a certain percentage of power. There have been numerous proposals to establish a similar uniform, national energy portfolio standard in the U.S., although none of these proposals have been enacted to date. Possible advances in technologies and incentives, such as tax credits, to enhance the economics of renewable energy

sources could make these sources more competitive with coal. Any reduction in the amount of coal consumed by domestic electric power generators could reduce the price of coal that we mine and sell, thereby reducing our revenues and materially and adversely affecting our business and results of operations.

 

Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected revenues or higher than expected costs.

 

Our future performance depends on, among other things, the accuracy of our estimates of our proven and probable coal reserves. The estimates of our reserves are based on engineering, economic and geological data assembled, analyzed and reviewed by internal and third-party engineers and consultants. We update our estimates of the quantity and quality of proven and probable coal reserves periodically to reflect the production of coal from the reserves, updated geological models and mining recovery data, the tonnage contained in new lease areas acquired and estimated costs of production and sales prices. There are numerous factors and assumptions inherent in estimating the quantities and qualities of, and costs to mine, coal reserves, including many factors beyond our control, including the following:

 

 

As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any particular group of properties, classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and properties, and revenues and expenditures associated with our mining operations, may vary materially from estimates. Any inaccuracy in our estimates related to our reserves could result in decreased profitability from lower than expected revenues and/or higher than expected costs.

 

Increases in the costs of mining and other industrial supplies, including steel-based supplies, diesel fuel, rubber tires and explosives, or the inability to obtain a sufficient quantity of those supplies, may adversely affect our operating costs or disrupt or delay our production.

 

Our coal mining operations use significant amounts of steel, electricity, diesel fuel, explosives, rubber tires and other mining and industrial supplies. The cost of roof bolts we use in our underground mining operations depends on the price of scrap steel. We also use significant amounts of diesel fuel and tires for the trucks and other heavy machinery we use. If the prices of mining and other industrial supplies, particularly steel-based supplies, diesel fuel and rubber tires, increase, our operating costs may be adversely affected. In addition, if we are unable to procure these supplies, our coal mining operations may be disrupted or we could experience a delay or halt in our production.

 

A defect in title or the loss of a leasehold interest in certain property could limit our ability to mine our coal reserves or result in significant unanticipated costs.

 

We conduct part of our coal mining operations on properties that we lease. A title defect or the loss of a lease could adversely affect our ability to mine the associated coal reserves. We may not verify title to our

leased properties or associated coal reserves until we have committed to developing those properties or coal reserves. We may not commit to develop property or coal reserves until we have obtained necessary permits and completed exploration. As such, the title to property that we intend to lease or coal reserves that we intend to mine may contain defects prohibiting our ability to conduct mining operations. Similarly, our leasehold interests may be subject to superior property rights of other third parties or to royalties owed to those third parties. In order to conduct our mining operations on properties where these defects exist, we may incur unanticipated costs. In addition, some leases require us to produce a minimum quantity of coal and require us to pay minimum production royalties. Our inability to satisfy those requirements may cause the leasehold interest to terminate.

 

We outsource certain aspects of our business to third party contractors, which subjects us to risks, including disruptions in our business.

 

We contract with third parties to provide blasting services at all of our mines and loading services at our barge loadout facility located on the Green River. In addition, we contract with third parties to provide truck transportation services between our mines and our preparation plants. Accordingly, we are subject to the risks associated with the contractors’ ability to successfully provide the necessary services to meet our needs. If the contractors are unable to adequately provide the contracted services, and we are unable to find alternative service providers in a timely manner, our ability to conduct our coal mining operations and deliver coal to our customers may be disrupted.

 

The availability and reliability of transportation facilities and fluctuations in transportation costs could affect the demand for our coal or impair our ability to supply coal to our customers.

 

We depend upon barge, rail and truck transportation systems to deliver coal to our customers. Disruptions in transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could impair our ability to supply coal to our customers. In addition, increases in transportation costs, including the price of gasoline and diesel fuel, could make coal a less competitive source of energy when compared to alternative fuels or could make coal produced in one region of the United States less competitive than coal produced in other regions of the United States or abroad. If transportation of our coal is disrupted or if transportation costs increase significantly and we are unable to find alternative transportation providers, our coal mining operations may be disrupted, we could experience a delay or halt of production or our profitability could decrease significantly.

 

Our profitability depends in part upon the multi-year coal supply agreements we have with our customers. Changes in purchasing patterns in the coal industry could make it difficult for us to extend our existing multi-year coal supply agreements or to enter into new agreements in the future.

 

We sell a majority of our coal under multi-year coal supply agreements. Under these arrangements, we fix the prices of coal shipped during the initial year and may adjust the prices in later years. As a result, at any given time the market prices for similar-quality coal may exceed the prices for coal shipped under these arrangements. Changes in the coal industry may cause some of our customers not to renew, extend or enter into new multi-year coal supply agreements with us or to enter into agreements to purchase fewer tons of coal than in the past or on different terms or prices. In addition, uncertainty caused by federal and state regulations, including the Clean Air Act, could deter our customers from entering into multi-year coal supply agreements.

 

Because we sell a majority of our coal production under multi-year coal supply agreements, our ability to capitalize on more favorable market prices may be limited. Conversely, at any given time we are subject to fluctuations in market prices for the quantities of coal that we are planning to produce but which we have not committed to sell. As described above under “Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely affect our profitability and the value of our coal reserves,” the market prices for coal may be volatile and may depend upon factors beyond our control. Our profitability may be adversely affected if we are unable to sell uncommitted production at favorable prices or at all. For more information about our multi-year coal supply agreements, you should see the section entitled “Business — Sales and Marketing — Multi-Year Coal Supply Agreements.”

Our multi-year coal supply agreements subject us to renewal risks.

 

We sell most of the coal we produce under multi-year coal supply agreements. As a result, our results of operations are dependent upon the prices we receive for the coal we sell under these contracts. To the extent we are not successful in renewing, extending or renegotiating our multi-year coal supply agreements on favorable terms, we may have to accept lower prices for the coal we sell or sell reduced quantities of coal in order to secure new sales contracts for our coal.

 

Prices and quantities under our multi-year coal supply agreements are generally based on expectations of future coal prices at the time the contract is entered into, renewed, extended or reopened. The expectation of future prices for coal depends upon factors beyond our control, including the following:

 

 

For more information regarding our major customers and multi-year coal supply agreements, see “Business — Sales and Marketing.”

 

The loss of, or significant reduction in purchases by, our largest customers could adversely affect our profitability.

 

For the year ended December 31, 2011, we derived approximately 63% of our total coal revenues from sales to our two largest customers — Louisville Gas and Electric (“LGE”) and Tennessee Valley Authority (“TVA”). For the fiscal year ended December 31, 2011, coal sales to LGE and TVA constituted approximately 35% and 28% of our total coal revenues, respectively. Our multi-year coal supply agreements with LGE expire in 2015 and 2016, and our multi-year coal supply agreements with TVA expire in 2013 and 2018; however, most of our multi-year coal supply agreements with LGE and TVA contain reopener provisions pursuant to which either party can request reopening to renegotiate price and other terms for the remaining term of such agreement, and, subsequent to any such reopening, the failure to reach an agreement can lead to the termination of such agreement. In addition, one of our multi-year coal supply agreements with TVA provides that, commencing on July 1, 2011, TVA has the unilateral right to terminate the agreement upon 60 days’ written notice, in which case TVA is required to pay us a termination fee equal to 10% of the base price multiplied by the remaining number of tons to be delivered under the agreement. If our multi-year coal supply agreements with LGE or TVA are terminated early pursuant to the reopener provisions, or we fail to extend or renew our multi-year coal supply agreements with LGE or TVA, our business and results of operations could be materially and adversely affected. Even if we are able to extend or renew our multi-year coal supply agreements with LGE and TVA, if market prices for coal such agreements are low at the time of such extensions or renewals or increases in costs during the term of such extended or renewed agreements are greater than the offsets from our cost pass-through and inflation adjustment provisions under such extended or renewed agreements, our business and results of operations could be materially and adversely affected.

Our multi-year coal supply agreements typically contain force majeure provisions allowing the parties to temporarily suspend performance during specified events beyond their control. Most of our multi-year coal supply agreements also contain provisions requiring us to deliver coal that satisfies certain quality specifications, such as heat value, sulfur content, ash content, chlorine content, hardness and ash fusion temperature. These provisions in our multi-year coal supply agreements could result in negative economic consequences to us, including price adjustments, purchasing replacement coal in a higher-priced open market, the rejection of deliveries or, in the extreme, contract termination. Our profitability may be negatively affected if we are unable to seek protection during adverse economic conditions or if we incur financial or other economic penalties as a result of the provisions of our multi-year coal supply agreements.

 

If our multi-year coal supply agreements with LGE or TVA are terminated or if we fail to extend or renew our multi-year coal supply agreements with LGE or TVA, we may be unable to timely replace such agreements. In such a case, our business and results of operations could be materially and adversely affected.

 

Our assets and operations are concentrated in Western Kentucky and the Illinois Basin, and a disruption within that geographic region could adversely affect the Company’s performance.

 

We rely exclusively on sales generated from products distributed from the terminals we own, which are exclusively located in the Illinois Basin and Western Kentucky. Due to our lack of diversification in geographic location, an adverse development in these areas, including adverse developments due to catastrophic events or weather and decreases in demand for coal or electricity, could have a significantly greater adverse impact on our ability to operate our business and our results of operations than if we held more diverse assets and locations.

 

The amount of indebtedness we have incurred could significantly affect our business.

 

At December 31, 2011, we had consolidated long-term indebtedness of approximately $159.7 million, which is comprised of the following: $100.0 million in borrowings under the Senior Secured Term Loan, $40.0 million in borrowings under the Senior Secured Revolving Credit Facility, and $19.7 million in other long-term debt. As of December 31, 2011, we had a long-term obligation owed to Armstrong Resource Partners associated with the financing transaction in connection with the transfer of an undivided interest in certain land and mineral reserves to Armstrong Resource Partners totaling $71.0 million. We also have significant lease and royalty obligations, including, but not limited to, our capital lease obligations that totaled approximately $14.1 million as of December 31, 2011 and our obligations under non-cancelable operating leases that totaled approximately $53.4 million. Future minimum advance royalties totaled approximately $4.0 million as of December 31, 2011. In addition to advance royalties, production royalties are payable based on the quantity of coal minded in future years and prospective changes to mine plans. Our ability to satisfy our debt, lease and royalty obligations, and our ability to refinance our indebtedness, will depend upon our future operating performance. Our ability to satisfy our financial obligations may be adversely affected if we incur additional indebtedness in the future. In addition, the amount of indebtedness we have incurred could have significant consequences to us, such as:

 

 

 

If we further increase our indebtedness, the related risks that we now face, including those described above, could intensify. In addition to the principal repayments on our outstanding debt, we have other demands on our cash resources, including capital expenditures and operating expenses. Our ability to pay our debt depends upon our operating performance. In particular, economic conditions could cause our revenues to decline, and hamper our ability to repay our indebtedness. If we do not have enough cash to satisfy our debt service obligations, we may be required to refinance all or part of our debt, sell assets or reduce our spending. We may not be able to, at any given time, refinance our debt or sell assets on terms acceptable to us or at all.

 

We may be unable to comply with restrictions imposed by our Senior Secured Credit Facility and other financing arrangements.

 

The agreements governing our outstanding financing arrangements impose a number of restrictions on us. For example, the terms of our Senior Secured Credit Facility, leases and other financing arrangements contain financial and other covenants that create limitations on our ability to, among other things:

 

 

They also require us to maintain certain financial ratios and comply with various other financial covenants. Our ability to comply with these restrictions may be affected by events beyond our control. A failure to comply with these restrictions could adversely affect our ability to borrow under our Senior Secured Credit Facility or result in an event of default under these agreements. In the event of a default, our lenders and the counterparties to our other financing arrangements could terminate their commitments to us and declare all amounts borrowed, together with accrued interest and fees, immediately due and payable. If this were to occur, we may not be able to pay these amounts, or we may be forced to seek an amendment to our financing arrangements, which could make the terms of these arrangements more onerous for us. As a result, a default under our existing or future financing arrangements could have significant consequences for us. For more information about some of the restrictions contained in our Senior Secured Credit Facility, leases and other financial arrangements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

 

Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities, which could adversely affect our business or prospects.

 

Our certificate of incorporation provides that we will renounce any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may be from time to time presented to (i) members of our board of directors who are not our employees, (ii) their respective employers and (iii) affiliates of the foregoing (other than us and our subsidiaries), other than opportunities expressly presented to such directors solely in their capacity as our director. This provision will apply even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to

do so. Furthermore, no such person will be liable to us for breach of any fiduciary duty, as a director or otherwise, by reason of the fact that such person pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity. None of such persons or entities will have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our subsidiaries. See “Description of Capital Stock.”

 

For example, affiliates of our non-employee directors may become aware, from time to time, of certain business opportunities, such as acquisition opportunities, and may direct such opportunities to other businesses in which they have invested or advise, in which case we may not become aware of or otherwise have the ability to pursue such opportunities. Further, such businesses may choose to compete with us for these opportunities. As a result, our renouncing our interest and expectancy in any business opportunity that may be, from time to time, presented to such persons or entities could adversely impact our business or prospects if attractive business opportunities are procured by such persons or entities for their own benefit rather than for ours.

 

The general partner of Armstrong Resource Partners, L.P. may be removed or control of Armstrong Resource Partners, L.P. may be otherwise transferred to a third party without the consent of holders of our common stock.

 

Armstrong Resource Partners is majority-owned by Yorktown. Pursuant to the ARP LPA, Yorktown may remove our subsidiary, Elk Creek GP, as general partner of Armstrong Resource Partners, L.P. or otherwise cause a change of control of Armstrong Resource Partners, L.P. without our consent or the consent of the holders of our common stock. If such a change in control of Armstrong Resource Partners, L.P. were to occur, our ability to enter into, or obtain renewals of, coal lease or mining license agreements with Armstrong Resource Partners, L.P. could be adversely affected. We may then have to seek alternative agreements or arrangements with unrelated parties and such alternative agreements or arrangements may not be available or may be on less favorable terms.

 

Some officers of Armstrong Energy may spend a substantial amount of time managing the business and affairs of Armstrong Resource Partners and its affiliates other than us.

 

These officers may face a conflict regarding the allocation of their time between our business and the other business interests of Armstrong Resource Partners. Armstrong Energy intends to cause its officers to devote as much time to the management of our business and affairs as is necessary for the proper conduct of our business and affairs, notwithstanding that our business may be adversely affected if the officers spend less time on our business and affairs than would otherwise be available as a result of such officers’ time being split between the management of Armstrong Energy and of Armstrong Resource Partners.

 

The fiduciary duties of officers and directors of Elk Creek GP, as general partner of Armstrong Resource Partners, L.P., may conflict with those of officers and directors of Armstrong Energy.

 

As the general partner of Armstrong Resource Partners, L.P., our subsidiary Elk Creek GP has a legal duty to manage Armstrong Resource Partners, L.P. in a manner beneficial to the limited partners of Armstrong Resource Partners, L.P. This legal duty originates in Delaware statutes and judicial decisions and is commonly referred to as a “fiduciary duty.” However, because Elk Creek GP is owned by Armstrong Energy, the officers and directors of Elk Creek GP also have fiduciary duties to manage the business of Elk Creek GP and Armstrong Resource Partners, L.P. in a manner beneficial to Armstrong Energy. The board of directors of Elk Creek GP, which includes some of the directors and executive officers of Armstrong Energy, Inc., may resolve any conflict between the interests of Armstrong Energy, Inc. and our stockholders, on the one hand, and Armstrong Resource Partners, L.P. and its unit holders, on the other hand, and has broad latitude to consider the interests of all parties to the conflict.

 

Conflicts of interest may arise between Armstrong Energy, Inc. and Armstrong Resource Partners, L.P. with respect to matters such as the allocation of opportunities to acquire coal reserves in the future, the terms

and amount of any related royalty payments, whether and to what extent Armstrong Resource Partners, L.P. may borrow under our Senior Secured Credit Agreement or other borrowing facilities we may enter into and other matters. Armstrong Energy may continue to provide credit support to Armstrong Resource Partners to support borrowings it may make in connection with any acquisition of reserves or for other purposes, including the funding of distributions to its unit holders. In addition, we may determine to permit Armstrong Resource Partners to engage in other activities, including the acquisition of coal reserves that will not be used by Armstrong Energy.

 

As a result of these relationships, conflicts of interest may arise in the future between Armstrong Energy, Inc. and its stockholders, on the one hand, and Armstrong Resource Partners, L.P. and its unit holders, on the other hand.

 

We have established a conflicts committee comprised of independent directors of Armstrong Energy to address matters which Armstrong Energy’s board of directors believes may involve conflicts of interest. See “Management” and “Management — Board of Directors and Board Committees — Conflicts Committee.”

 

Armstrong Energy’s board of directors may change the management and allocation policies relating to Armstrong Resource Partners without the approval of our stockholders.

 

Armstrong Energy’s board of directors has adopted certain management and allocation policies to serve as guidelines in making decisions regarding the relationships between and among Armstrong Energy and Armstrong Resource Partners with respect to matters such as tax liabilities and benefits, inter-group loans, inter-group interests, financing alternatives, corporate opportunities and similar items. These policies are not included in our certificate of incorporation or by-laws and our board of directors may at any time change or make exceptions to these policies. Because these policies relate to matters concerning the day to day management of our company, no stockholder approval is required with respect to their adoption or amendment. A decision to change, or make exceptions to, these policies or adopt additional policies could disadvantage Armstrong Energy or its stockholders.

 

Holders of shares of our common stock may not have any remedies if any action by our directors or officers in relation to Armstrong Resource Partners has an adverse effect on only Armstrong Energy common stock.

 

Principles of Delaware law and the provisions of the certificate of incorporation and by-laws may protect decisions of our board of directors in relation to Armstrong Resource Partners that have a disparate impact upon holders of shares of common stock of Armstrong Energy. Under the principles of Delaware law and the Delaware business judgment rule, you may not be able to successfully challenge decisions in relation to Armstrong Resource Partners that you believe have a disparate impact upon the holders of shares of our common stock of Armstrong Energy if its board of directors is disinterested and independent with respect to the action taken, is adequately informed with respect to the action taken and acts in good faith and in the honest belief that the board is acting in the best interest of stockholders.

 

Our capital structure may inhibit or prevent acquisition bids for our company.

 

The fact that substantially all of the economic value of the equity interests in Armstrong Resource Partners is expected to be owned by persons or entities other than us or our controlled affiliates could present complexities and in certain circumstances pose obstacles, financial and otherwise, to an acquiring person that are not present in companies which do not have capital structures similar to ours.

 

Yorktown will continue to have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

After giving effect to this offering, Yorktown is expected to beneficially own approximately     % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). As a result, Yorktown will retain the ability to direct and control our business affairs. Yorktown has

influence over our decisions to enter into any corporate transaction regardless of whether others believe that the transaction is in our best interests. As long as Yorktown continues to hold a large portion of our outstanding common stock, it also will have the ability to influence the vote in any election of directors.

 

Yorktown is also in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Yorktown may also pursue acquisition opportunities that are complementary to our business, and, as a result, those acquisition opportunities may not be available to us. As long as Yorktown, or other funds controlled by or associated with Yorktown, continue to indirectly own a significant amount of our outstanding common stock, Yorktown will continue to be able to strongly influence or effectively control our decisions. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

Failure to obtain or renew surety bonds on acceptable terms could affect our ability to secure reclamation and coal lease obligations and, therefore, our ability to mine or lease coal.

 

Federal and state laws require us to obtain surety bonds to secure performance or payment of certain long-term obligations, such as mine closure or reclamation costs, federal and state workers’ compensation costs, coal leases and other obligations. We may have difficulty procuring or maintaining our surety bonds. Our bond issuers may demand higher fees, additional collateral, including letters of credit or other terms less favorable to us upon those renewals. Because we are required by state and federal law to have these bonds in place before mining can commence or continue, failure to maintain surety bonds, letters of credit or other guarantees or security arrangements would materially and adversely affect our ability to mine or lease coal. That failure could result from a variety of factors, including lack of availability, higher expense or unfavorable market terms, the exercise by third party surety bond issuers of their right to refuse to renew the surety and restrictions on availability on collateral for current and future third party surety bond issuers under the terms of our financing arrangements.

 

Our ability to operate our business effectively could be impaired if we fail to attract and retain key management personnel.

 

Our ability to operate our business and implement our strategies depends on the continued contributions of our executive officers and key employees. In particular, we depend significantly on our senior management’s long-standing relationships within our industry. The loss of any of our senior executives could have a material adverse effect on our business. In addition, we believe that our future success will depend on our continued ability to attract and retain highly skilled management personnel with coal industry experience and competition for these persons in the coal industry is intense. We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future, and our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.

 

We are subject to various legal proceedings, which may have an adverse effect on our business.

 

We are involved in a number of threatened and pending legal proceedings incidental to our normal business activities. While we cannot predict the outcome of the proceedings, there is always the potential that the costs of litigation in an individual matter or the aggregation of many matters could have an adverse effect on our cash flows, results of operations or financial position.

 

A shortage of skilled labor in the mining industry could reduce labor productivity and increase costs, which could have a material adverse effect on our business and results of operations.

 

Efficient coal mining using modern techniques and equipment requires skilled laborers in multiple disciplines such as equipment operators, mechanics, electricians and engineers, among others. We have from time to time encountered shortages for these types of skilled labor. If we experience shortages of skilled labor in the future, our labor and overall productivity or costs could be materially and adversely affected. If coal

prices decrease in the future or our labor prices increase, or if we experience materially increased health and benefit costs with respect to our employees, our results of operations could be materially and adversely affected.

 

Our work force could become unionized in the future, which could adversely affect the stability of our production and materially reduce our profitability.

 

All of our mines are operated by non-union employees. Our employees have the right at any time under the National Labor Relations Act to form or affiliate with a union, subject to certain voting and other procedural requirements. If our employees choose to form or affiliate with a union and the terms of a union collective bargaining agreement are significantly different from our current compensation and job assignment arrangements with our employees, these arrangements could adversely affect the stability of our production through potential strikes, slowdowns, picketing and work stoppages, and materially reduce our profitability.

 

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.

 

Our ability to receive payment for the coal we sell depends on the continued creditworthiness of our customers. The current economic volatility and tightening credit markets increase the risk that we may not be able to collect payments from our customers. A continuation or worsening of current economic conditions or other prolonged global or U.S. recessions could also impact the creditworthiness of our customers. If the creditworthiness of a customer declines, this would increase the risk that we may not be able to collect payment for all of the coal we sell to that customer. If we determine that a customer is not creditworthy, we may not be required to deliver coal under the customer’s coal sales contract. If we are able to withhold shipments, we may decide to sell the customer’s coal on the spot market, which may be at prices lower than the contract price, or we may be unable to sell the coal at all. Furthermore, the bankruptcy of any of our customers could have a material adverse effect on our financial position. In addition, competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk of payment default.

 

We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls. We have identified control deficiencies, including material weaknesses, in the past, which have been remediated. If we are unable to establish and maintain effective internal controls, our financial condition and operating results could be adversely affected.

 

We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting. We are also in the process of performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We anticipate that we will be required to comply with Section 404 for the year ending December 31, 2013.

 

However, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations that remain unremediated. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency or combination of deficiencies in internal controls over financial reports that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. A “significant deficiency” is a deficiency or combination of deficiencies that is less severe than a material weakness.

 

We have identified deficiencies in our internal control over financial reporting, including in connection with the financial statement close process for the year ended December 31, 2011, in which we identified an error in our calculation of depreciation, depletion, and amortization. Although we believe this material weakness has been remediated, if we are unable to appropriately maintain the remediation plan we have

implemented and maintain any other necessary controls we implement in the future, our management might not be able to certify, and our independent registered public accounting firm might not be able to deliver an unqualified report on the adequacy of our internal control over financial reporting.

 

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our consolidated financial statements, and as a result our common stock price may be adversely affected. If we fail to remedy any material weakness, our consolidated financial statements may be inaccurate, we may face restricted access to the capital markets and our common stock price may be adversely affected.

 

Terrorist attacks and threats, escalation of military activity in response to these attacks or acts of war could have a material adverse effect on our business, financial condition or results of operations.

 

Terrorist attacks and threats, escalation of military activity or acts of war may have significant effects on general economic conditions, fluctuations in consumer confidence and spending and market liquidity, each of which could materially and adversely affect our business. Future terrorist attacks, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions affecting our customers may significantly affect our operations and those of our customers. Strategic targets, such as energy-related assets and transportation assets, may be at greater risk of future terrorist attacks than other targets in the United States. Disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Environmental, Other Regulations and Legislation

 

New regulatory requirements limiting greenhouse gas emissions could adversely affect coal-fired power generation and reduce the demand for coal as a fuel source, which could cause the price and quantity of the coal we sell to decline materially.

 

One major by-product of burning coal is carbon dioxide (“CO₂”), which is a greenhouse gas and a source of concern with respect to global warming, also known as Climate Change. Climate Change continues to attract government, public and scientific attention, especially on ways to reduce greenhouse gas emissions, including from coal-fired power plants. Various international, federal, regional and state proposals are being considered to limit emissions of greenhouse gases, including possible future U.S. treaty commitments, new federal or state legislation that may establish a cap-and-trade regime, and regulation under existing environmental laws by the EPA and other regulatory agencies. Future regulation of greenhouse gas emissions may require additional controls on, or the closure of, coal-fired power plants and industrial boilers and may restrict the construction of new coal-fired power plants.

 

The permitting of new coal-fired power plants has also recently been contested by state regulators and environmental advocacy organizations due to concerns related to greenhouse gas emissions. In addition, a federal appeals court has allowed a lawsuit pursuing federal common law claims to proceed against certain utilities on the basis that they may have created a public nuisance due to their emissions of carbon dioxide, although the U.S. Supreme Court has since held that federal common law provides no basis for such claims. Future regulation, litigation and permitting related to greenhouse gas emissions may cause some users of coal to switch from coal to a lower-carbon fuel, or otherwise reduce the use of and demand for fossil fuels, particularly coal, which could have a material adverse effect on our business, financial condition or results of operations. See “Business — Regulation and Laws — Climate Change.”

 

Extensive environmental requirements, including existing and potential future requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline.

 

Coal contains impurities, including but not limited to sulfur, mercury, chlorine and other elements or compounds, many of which are released into the air when coal is burned. The operations of our customers are

subject to extensive environmental requirements, particularly with respect to air emissions. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide (“SO₂”), particulate matter, nitrogen oxides (“NOx”), and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury, SO₂, NOx, toxic gases and other air pollutants have been proposed or could become effective in coming years. In addition, concerted conservation efforts that result in reduced electricity consumption could cause coal prices and sales of our coal to materially decline.

 

Considerable uncertainty is associated with these air emissions initiatives. The content of additional requirements in the U.S. is in the process of being developed, and many new initiatives remain subject to review by federal or state agencies or the courts. Stringent air emissions limitations are either in place or may be imposed in the short to medium term, and these limitations will likely require significant emissions control expenditures for many coal-fired power plants. As a result, these power plants may switch to other fuels that generate fewer of these emissions and the construction of new coal-fired power plants may become less desirable. The EIA’s expectations for the coal industry assume there will be a significant number of as yet unplanned coal-fired plants built in the future. Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on demand for and prices received for our coal.

 

In addition, contamination caused by the disposal of coal combustion byproducts, including coal ash, can lead to material liability to our customers under federal and state laws. In addition, the EPA has proposed a rule concerning management of coal combustion residuals. New EPA regulation of such management would likely increase the ultimate costs to our customers of coal combustion. Such liabilities and increased costs in turn could have a material adverse effect on the demand for and prices received for our coal.

 

See “Business — Regulation and Laws” for more information about the various governmental regulations affecting us.

 

Legal requirements that we expect to significantly expand scrubbed coal-fired electricity generating capacity may be overturned or not enacted at all, which could result in less demand for Illinois Basin coal than we anticipate and materially and adversely affect our coal prices and/or sales.

 

Although a number of legal requirements have been or are in the process of being implemented that are expected to expand significantly the scrubbed coal-fired electricity generating capacity in the U.S., regulations driving this trend are subject to legal challenge, and could also be the subject of future legislation that withdraws any authorization for such requirements. For example, the recently finalized Cross-State Air Pollution Rule (“CSAPR”) has been challenged in court by a number of southern and Midwestern states and several energy companies. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling to stay the CSAPR pending judicial review. The outcome of such legal proceedings, and other possible developments including, for example, changes in presidential administration and the administration of the EPA, or the enactment by Congress of more lenient air pollution laws than are currently in effect, could result in significantly less expansion of scrubbed coal-fired electricity generating capacity than we anticipate. This in turn could mean that the strong increase in demand for relatively high-sulfur Illinois Basin coal we believe will occur in the future may not materialize, or may not materialize as soon as it otherwise would. This could adversely affect the demand for our coal and the price we will receive, which could materially and adversely affect our coal prices and/or sales.

 

Our failure to obtain and renew permits and approvals necessary for our mining operations could negatively affect our business.

 

Coal production is dependent on our ability to obtain and maintain various federal and state permits and approvals to mine our coal reserves within the timeline specified in our mining plans. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by regulators, which may increase the costs or possibly preclude the continuance of ongoing mining operations or the development of future mining operations. In addition, the public, including

non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and otherwise impact the permitting process, including through court intervention. The slowing pace at which necessary permits are issued or renewed for new and existing mines has materially impacted coal production, especially in Central Appalachia. Permitting by the Army Corps of Engineers (the “Corps”), the EPA and the Department of the Interior has become subject to “enhanced review” under both the Surface Mining Control and Reclamation Act of 1977 (the “SMCRA”), and the federal Clean Water Act (the “CWA”), to reduce the harmful environmental consequences of mountain-top mining, especially in the Appalachian region.

 

For example, in April 2010, the EPA issued comprehensive interim final guidance regarding the review of certain new and renewed CWA permit applications for Appalachian surface coal mining operations. EPA’s guidance is subject to several pending legal challenges related to its legal effect and sufficiency including consolidated challenges pending in Federal District Court in the District of Columbia led by the National Mining Association. This guidance may apply to our applications to obtain and maintain permits that are important to our operations. We cannot give any assurance regarding the impact that this or any successor guidance may have on the issuance or renewal of such permits.

 

Typically, we submit the necessary permit applications 12 to 30 months before we plan to mine a new area. Some of our required mining permits are becoming increasingly difficult to obtain within the time frames to which we were previously accustomed, and in some instances we have had to delay the mining of coal in certain areas covered by the application in order to obtain required permits and approvals. Permits could be delayed in the future if the EPA continues its enhanced review of CWA applications. If the required permits are not issued or renewed in a timely fashion or at all, or if permits issued or renewed are conditioned in a manner that restricts our ability to efficiently and economically conduct our mining activities, we could suffer a material reduction in our production and our operations, and there could be a material adverse effect on our ability to produce coal profitably. See “Business — Regulation and Laws.”

 

Section 404(q) of the CWA establishes a requirement that the Secretary of the Army and the Administrator of the EPA enter into an agreement assuring that delays in the issuance of permits under Section 404 are minimized. In August 1992, the Department of the Army and the EPA entered into such an agreement. The 1992 Section 404(q) Memorandum of Agreement (“MOA”) outlines the current process and time frames for resolving disputes in an effort to issue timely permit decisions. Under this MOA, the EPA may request that certain permit applications receive a higher level of review within the Department of Army. In these cases, the EPA determines that issuance of the permit will result in unacceptable adverse effects to Aquatic Resources of National Importance (“ARNI”). Alternately, the EPA may raise concerns over Section 404 program policies and procedures. An ARNI is a resource-based threshold used to determine whether a dispute between the EPA and the Corps regarding individual permit cases are eligible for elevation under the MOA. Factors used in identifying ARNIs include the economic importance of the aquatic resource, rarity or uniqueness, and/or importance of the aquatic resource to the protection, maintenance, or enhancement of the quality of the waters.

 

We received notice from the EPA dated July 25, 2011 that it believes that the proposed discharge plan submitted by us in connection with our Section 404 permit application for the expanded mining at our Midway Mine would result in unacceptable impacts on ARNIs, and in particular, downstream waters outside the scope of the permit area. As a result, it is possible that the Corps will deny our pending permit application, or that the EPA will elevate the permit application to a higher level of review should the Corps proceed with the issuance of the permit notwithstanding EPA’s concerns. Ultimately, the EPA may consider initiating a Section 404(c) “veto” of the permit. A material delay in the issuance of this permit, or other Section 404 permits that we may require as part of our mining operations, or the denial or veto of such permits, could have a materially negative effect on our operations and profitability.

Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers’ demands.

 

Federal or state regulatory agencies have the authority under certain circumstances following significant health and safety incidents, such as fatalities, to order a mine to be temporarily or permanently closed. If this were to occur, capital expenditures could be required in order for us to be allowed could be required in order for us to be allowed to reopen the mine. In the event that these agencies order the closing of our mines, our coal sales contracts generally allow us to issue force majeure notices which suspend our obligations to deliver coal under these contracts. However, our customers may challenge our issuances of force majeure notices. If these challenges are successful, we may have to purchase coal from third-party sources, if it is available, to fulfill these obligations, incur capital expenditures to reopen the mines and/or negotiate settlements with the customers, which may include price reductions, the reduction of commitments or the extension of time for delivery or terminate customers’ contracts. Any of these actions could have a material adverse effect on our business and results of operations.

 

Extensive environmental laws and regulations impose significant costs on our mining operations, and future laws and regulations could materially increase those costs or limit our ability to produce and sell coal.

 

The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities with respect to environmental matters such as:

 

 

The costs, liabilities and requirements associated with the laws and regulations related to these and other environmental matters may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. We cannot assure you that we have been or will be at all times in compliance with the applicable laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from our operations. We may incur material costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. If we are pursued for sanctions, costs and liabilities in respect of these matters, we could be materially and adversely affected.

 

New legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations, including proposals related to the protection of the environment that would

further regulate and tax the coal industry, may also require us to change operations significantly or incur increased costs. For example, in December 2008, the U.S. Department of the Interior’s Office of Surface Mining Reclamation and Enforcement (the “OSM”) revised the original “stream buffer zone” rule (the “SBZ Rule”), which had been issued under the SMCRA in 1983. The SBZ Rule was challenged in the U.S. District Court for the District of Columbia. In a March 2010 settlement with the litigation parties, the OSM agreed to use its best efforts to adopt a final rule by June 2012. In addition, Congress has proposed, and may in the future propose, legislation to restrict the placement of mining material in streams. The requirements of the revised SBZ Rule or future legislation, when adopted, will likely be stricter than the prior SBZ Rule to further protect streams from the impact of surface mining. Such changes could have a material adverse effect on our financial condition and results of operations. See “Business — Regulation and Laws.”

 

If the assumptions underlying our estimates of reclamation and mine closure obligations are inaccurate, our costs could be greater than anticipated.

 

SMCRA and counterpart state laws and regulations establish operational, reclamation and closure standards for all aspects of surface mining, as well as most aspects of underground mining. We base our estimates of reclamation and mine closure liabilities on permit requirements, engineering studies and our engineering expertise related to these requirements. Our management and engineers periodically review these estimates. The estimates can change significantly if actual costs vary from our original assumptions or if governmental regulations change significantly. We are required to record new obligations as liabilities at fair value under generally accepted accounting principles. In estimating fair value, we considered the estimated current costs of reclamation and mine closure and applied inflation rates and a third-party profit, as required. The third-party profit is an estimate of the approximate markup that would be charged by contractors for work performed on our behalf. The resulting estimated reclamation and mine closure obligations could change significantly if actual amounts change significantly from our assumptions, which could have a material adverse effect on our results of operations and financial condition.

 

Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us.

 

Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time, which may affect runoff or drainage water or other aspects of the environment. We could become subject to claims for toxic torts, natural resource damages and other damages as well as for the investigation and clean up of soil, surface water, groundwater, and other media. Such claims may arise, for example, out of conditions at sites that we currently own or operate, as well as at sites that we previously owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share.

 

We maintain extensive coal refuse areas and slurry impoundments at a number of our mines. Such areas and impoundments are subject to extensive regulation. Slurry impoundments have been known to fail, releasing large volumes of coal slurry into the surrounding environment. Structural failure of an impoundment can result in extensive damage to the environment and natural resources, such as bodies of water that the coal slurry reaches, as well as liability for related personal injuries and property damages, and injuries to wildlife. Some of our impoundments overlie mined out areas, which could pose a heightened risk of failure and of damages arising out of failure. If one of our impoundments were to fail, we could be subject to substantial claims for the resulting environmental contamination and associated liability, as well as for civil or criminal fines and penalties.

 

Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a condition referred to as “acid mine drainage,” which we refer to as AMD. The treating of AMD can be costly. Although we do not currently face material costs associated with AMD, it is possible that we could incur significant costs in the future.

These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us.

 

Changes in the legal and regulatory environment could complicate or limit our business activities, increase our operating costs or result in litigation.

 

The conduct of our businesses is subject to various laws and regulations administered by federal, state and local governmental agencies in the United States. These laws and regulations may change, sometimes dramatically, as a result of political, economic or social events or in response to significant events. Certain recent developments particularly may cause changes in the legal and regulatory environment in which we operate and may impact our results or increase our costs or liabilities. Such legal and regulatory environment changes may include changes in:

 

 

In 2006, the Federal Mine Improvement and New Emergency Response Act of 2006 (the “MINER Act”), was enacted. The MINER Act significantly amended the Federal Mine Safety and Health Act of 1977 (the “Mine Act”), imposing more extensive and stringent compliance standards, increasing criminal penalties and establishing a maximum civil penalty for non-compliance, and expanding the scope of federal oversight, inspection, and enforcement activities.

 

Following the passage of the MINER Act, the U.S. Mine Safety and Health Administration (“MSHA”), issued new or more stringent rules and policies on a variety of topics, including:

 

 

Subsequent to passage of the MINER Act, Illinois, Kentucky, Pennsylvania, Ohio and West Virginia have enacted legislation addressing issues such as mine safety and accident reporting, increased civil and criminal penalties, and increased inspections and oversight. Other states may pass similar legislation in the future. Also, additional federal and state legislation that further increase mine safety regulation, inspection and enforcement, particularly with respect to underground mining operations, has been considered in light of recent fatal mine accidents. In 2010, the 111th Congress introduced federal legislation seeking to impose extensive additional safety and health requirements on coal mining. While the legislation was passed by the House of Representatives, the legislation was not voted on in the Senate and did not become law. On January 26, 2011, the same legislation was reintroduced in the 112th Congress by Senators Jay Rockefeller (D-W.Va.), Tom Harkin (D-Iowa), Patty Murray (D-Wash.) and Joe Manchin III (D-W.Va.). Further workplace accidents are likely to also result in more stringent enforcement and possibly the passage of new laws and regulations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), that was signed into law on July 21, 2010, requires public companies to disclose in their periodic reports filed with the Securities and Exchange Commission (the “SEC”) substantial additional information about safety issues relating to our mining operations. After effectiveness of our registration statement, we will be subject to the provisions of the Dodd-Frank Act.

 

In response to the April 2010 explosion at Massey Energy Company’s Upper Big Branch Mine and the ensuing tragedy, we expect that safety matters pertaining to underground coal mining operations may be the topic of additional new federal and/or state legislation and regulation, as well as the subject of heightened enforcement efforts. For example, federal authorities have announced special inspections of coal mines to evaluate several safety concerns, including the accumulation of coal dust and the proper ventilation of gases such as methane. In addition, federal authorities have announced that they are considering changes to mine safety rules and regulations which could potentially result in additional or enhanced required safety equipment, more frequent mine inspections, stricter and more thorough enforcement practices and enhanced reporting requirements. Any new environmental, health and safety requirements may be replicated in the states in which we operate and could increase our operating costs or otherwise may prevent, delay or reduce our planned production, any of which could adversely affect our financial condition, results of operations and cash flows.

 

Although we are unable to quantify the full impact, implementing and complying with new laws and regulations could have an adverse impact on our business and results of operations and could result in harsher sanctions in the event of any violations. See “Business — Regulation and Laws.”

 

Certain United States federal income tax preferences currently available with respect to coal exploration and development may be eliminated as a result of future legislation.

 

President Obama’s Proposed Fiscal Year 2012 budget recommends elimination of certain key United States federal income tax preferences relating to coal exploration and development (the “Budget Proposal”). The Budget Proposal would (1) eliminate current deductions and 60-month amortization for exploration and development costs relating to coal and other hard mineral fossil fuels, (2) repeal the percentage depletion allowance with respect to coal properties, (3) repeal capital gains treatment of coal and lignite royalties, and (4) exclude from the definition of domestic production gross receipts all gross receipts derived from the sale, exchange, or other disposition of coal, other hard mineral fossil fuels, or primary products thereof. The passage of any legislation as a result of the Budget Proposal or any other similar changes in United States federal income tax laws could eliminate certain tax deductions that are currently available with respect to coal exploration and development, and any such change could increase our taxable income and negatively impact the value of an investment in our common stock.

 

Risks Related to This Offering and Our Common Stock

 

An active, liquid trading market for our common stock may not develop.

 

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market on Nasdaq or otherwise or how active and liquid that market may become. If an active and liquid trading market does not develop, you may have difficulty selling any of our common stock that you purchase.

 

Our stock price may change significantly following the offering, and you could lose all or part of your investment as a result.

 

Even if an active trading market develops, the market price for shares of our common stock may be highly volatile and could be subject to wide fluctuations after this offering. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above

the initial public offering price due to a number of factors such as those listed in “— Risks Related to the Company.” Some of the factors that could negatively affect our share price include:

 

 

Furthermore, the stock market has recently experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.

 

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

 

The offering price per share of the common stock may not accurately reflect its actual value.

 

The initial public offering price per share of our common stock offered under this prospectus reflects the result of negotiations between us and the underwriters. The offering price may not accurately reflect the value of our common stock, and may not be indicative of prices that will prevail in the open market following this offering.

 

We do not anticipate paying any dividends on our common stock in the foreseeable future.

 

For the foreseeable future, we intend to retain earnings to grow our business. Payments of future dividends, if any, will be at the discretion of our board of directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors as our board of directors deems relevant. Our Senior Secured Credit Facility restricts our ability to pay cash dividends on our common stock and we may also enter into credit agreements or borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock.

 

We will incur increased costs as a result of being a public company.

 

As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a publicly traded company. Following the effectiveness of the registration statement of which this prospectus is a part, we will be a public company. As a public company with listed equity securities, we will need to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the

requirements of Nasdaq or other stock exchange on which our common stock is listed, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses. We will need to:

 

 

In addition, we also expect that being a public company subject to these rules and regulations will require us to accept less director and officer liability insurance coverage than we desire or to incur substantial costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

 

Future sales, or the perception of future sales, of our common stock may depress our share price.

 

We may in the future issue our previously authorized and unissued securities. At the closing of this offering, we will be authorized to issue      shares of common stock and preferred stock with such designations, preferences and rights as determined by our board of directors. The potential issuance of such additional shares of common stock will result in the dilution of the ownership interests of the purchasers of our common stock in this offering and may create downward pressure on the trading price, if any, of our common stock. The sales of substantial amounts of our common stock following the effectiveness of the registration statement of which this prospectus is a part, or the perception that these sales may occur, could cause the market price of our common stock to decline and impair our ability to raise capital. Based on      shares of common stock outstanding as of     , 2012, upon completion of this offering, we will have      shares of common stock outstanding. Of these outstanding shares, all of the shares of our common stock sold in this offering will be freely tradable in the public market, except for any shares held by our affiliates, as defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).

 

We, our directors, executive officers and stockholders have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock for a period of 180 days from the date of this prospectus, which may be extended upon the occurrence of specified events, except with the prior written consent of     .     , at any time and without notice, may release all or any portion of the common stock subject to the lock-up agreements entered into in connection with this offering. If the restrictions under the lock-up agreements are waived, our common stock will be available for sale into the market, which could reduce the market value for our common stock.

 

After the expiration of the lock-up agreements and other contractual restrictions that prohibit transfers for at least 180 days after the date of this prospectus, up to      restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144. Of these restricted securities, approximately      shares will be available for sale approximately      days after the date of this prospectus, subject to volume or other limits under Rule 144.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock, or if our operating results do not meet their expectations, the price and trading volume of our common stock could decline.

 

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. Securities analysts may elect not to provide research coverage of our common stock. This lack of research coverage could adversely affect the price of our common stock. We do not have any control over these reports or analysts. If any of the analysts who cover us downgrades our stock, or if our operating results do not meet the analysts’ expectations, our stock price could decline. Moreover, if any of these analysts ceases coverage of us or fails to publish regular reports on our business, we could lose visibility in the market, which in turn could cause our common stock price and trading volume to decline and our common stock to be less liquid.

 

You will incur immediate dilution in the book value of your common stock as a result of this offering.

 

The initial public offering price of our common stock is considerably more than the as adjusted, net tangible book value per share of our outstanding common stock. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares. Investors purchasing common stock in this offering will incur immediate dilution of $      in as adjusted, net tangible book value per share of common stock, based on the assumed initial public offering price of $      per share, which is the midpoint of the price range listed on the front cover page of this prospectus. In addition, following this offering, purchasers in the offering will have contributed     % of the total consideration paid by our stockholders to purchase shares of common stock. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.” In addition, if we raise funds by issuing additional securities, the newly-issued shares will further dilute your percentage ownership of us.

 

Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

 

The existence of some provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company that a stockholder may consider favorable, which could adversely affect the price of our common stock. The provisions in our amended and restated certificate of incorporation and bylaws that could delay or prevent an unsolicited change in control of our company include board authority to issue preferred stock without stockholder approval, and advance notice provisions for director nominations or business to be considered at a stockholder meeting. These provisions may also discourage acquisition proposals or delay or prevent a change of control, which could harm our stock price. See “Description of Capital Stock — Anti-Takeover Effects of Certain Provisions of Our Amended and Restated Certificate of Incorporation, Bylaws and Delaware Law.”

 

Our management team may not be able to organize and effectively manage a publicly traded operating company, which could adversely affect our overall financial position.

 

Some of our senior executive officers or directors have not previously organized or managed a publicly traded operating company, and our senior executive officers and directors may not be successful in doing so. The demands of organizing and managing a publicly traded operating company are much greater as compared to a private company and some of our senior executive officers and directors may not be able to meet those increased demands. Failure to organize and effectively manage us could adversely affect our overall financial position.

Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which would dilute our existing stockholders, may adversely affect the market value of common stock.

 

In the future, we may attempt to increase our capital resources by making offerings of debt or additional offerings of equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock. Upon liquidation, holders of our debt securities and preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market value of our common stock, or both. Our preferred stock, which could be issued without stockholder approval, if issued, could have a preference on liquidating distributions or a preference on dividend payments that would limit amounts available for distribution to holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market value of our common stock and diluting their share holdings in us.

 

Non-U.S. holders of our common stock may be subject to United States federal income tax with respect to gain on the disposition of our common stock.

 

If we are or have been a “United States real property holding corporation” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), at any time within the shorter of (1) the five-year period preceding a disposition of our common stock by a non-U.S. holder (as defined below under “Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders”), or (2) such holder’s holding period for such common stock, and assuming our common stock is “regularly traded,” as defined by applicable United States Treasury regulations, on an established securities market, the non-U.S. holder may be subject to United States federal income tax with respect to gain on such disposition if it held more than 5% of our common stock at any time during the shorter of periods (1) and (2) above. We believe we are, and will continue to be, a United States real property holding corporation.

 

If our common stock is not considered to be regularly traded on an established securities market during the calendar year in which a sale or disposition occurs, the buyer or other transferee of our common stock generally will be required to withhold tax at the rate of 10% on the sales price or other amount realized as a prepayment of a transferor’s United States federal income tax liability, unless the transferor furnishes an affidavit certifying that it is not a foreign person in the manner and form specified in applicable United States Treasury regulations.

 

Various statements contained in this prospectus, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this prospectus speak only as of the date of this prospectus; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:

 

 

 

We estimate that the net proceeds to us from the sale of our common stock in this offering will be $      million, at an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses estimated at $      million. Our net proceeds will increase by approximately $      million if the underwriters’ option to purchase additional shares is exercised in full. Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us of this offering by $      million, or $      million if the underwriters’ option is exercised in full, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses.

 

We intend to use $      million of the net proceeds from this offering to repay a portion of our outstanding borrowings under our Senior Secured Term Loan, $      million of the net proceeds to repay a portion of our outstanding borrowings under our Senior Secured Revolving Credit Facility and the balance, if any, for general corporate purposes, including to fund capital expenditures relating to our mining operations and working capital. The interest rate applicable to the Senior Secured Term Loan and the Senior Secured Revolving Credit Facility fluctuates based on our leverage ratio and the applicable interest option elected. The interest rate as of December 31, 2011 was 5.25%. The Senior Secured Credit Facility matures on February 9, 2016. See “Description of Indebtedness.” Raymond James Bank, FSB, an affiliate of Raymond James & Associates, Inc. is a lender under our Senior Secured Term Loan and our Senior Secured Revolving Credit Facility and may receive a portion of the net proceeds of this offering. See “Conflicts of Interest.”

 

Historically, we have not paid cash dividends to holders of our common stock. For the foreseeable future, we intend to retain earnings to grow our business. Payments of future dividends, if any, will be at the discretion of our board of directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors that our board of directors deems relevant. Our Senior Secured Credit Facility restricts our ability to pay cash dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock.

 

The following table shows:

 

 

 

We derived this table from, and it should be read in conjunction with and is qualified in its entirety by reference to, our historical and unaudited pro forma consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Selected Historical Consolidated Financial and Operating Data,” “Unaudited Pro Forma Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

 

 

 

Dilution is the amount by which the offering price paid by purchasers of common stock sold in this offering will exceed the pro forma net tangible book value per share of common stock after the offering. As of December 31, 2011, our net tangible book value was approximately $     , or $      per share. Net tangible book value is our total tangible assets less total liabilities. Based on an assumed initial offering price of $      per share of common stock, on a pro forma as adjusted basis as of     , after giving effect to the offering of      shares of common stock and the application of the related net proceeds, our net tangible book value was $      million, or $      per share of common stock. Purchasers of common stock in this offering will experience immediate and substantial dilution in net tangible book value per share for financial accounting purposes, as illustrated in the following table:

 

 

A $1.00 increase in the assumed initial public offering price of $      per share (which is the midpoint of the range set forth in the cover of this prospectus) would increase our net tangible book value after the offering by $      million, and decrease the dilution to new investors by $     , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The following table sets forth, as of     , 2012, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering, after giving pro forma effect to the Deconsolidation and to the new investors in this offering at the assumed initial public offering price of $      per share, together with the total consideration paid and average price per share paid by each of these groups, before deducting underwriting discounts and commissions and estimated offering expenses.

 

 

The foregoing tables do not give effect to:

 

(a) 109,150 shares of restricted stock outstanding held by our employees, including our executive officers; and

 

(b) additional shares of common stock available for future issuance under our stock option and incentive plans.

 

If the underwriters’ over-allotment option is exercised in full, the number of shares held by new investors will be     , or approximately,     % of the total number of shares of common stock.

 

The following tables present our selected unaudited pro forma consolidated financial and operating data for the periods indicated for Armstrong Energy. The following unaudited pro forma consolidated financial data of Armstrong Energy at December 31, 2011 and for the year ended December 31, 2011, are based on the historical consolidated financial statements of our Predecessor, which are included elsewhere in this prospectus.

 

The unaudited pro forma consolidated balance sheet data at December 31, 2011 gives effect to (a) the issuance of common stock in this offering and the application of the net proceeds therefrom as described in “Use of Proceeds,” and (b) the contribution of net proceeds to Armstrong Energy from the Concurrent ARP Offering, as if each had occurred on December 31, 2011.

 

The unaudited pro forma consolidated financial data for the fiscal year ended December 31, 2011 gives effect to (a) adjustments to interest expense as a result of the repayment of a portion of the secured promissory notes from the proceeds of this offering and (b) net adjustments to interest expense as a result of the repayment of a portion of the secured promissory notes from the proceeds contributed from the Concurrent ARP Offering, partially offset by additional interest expense associated with an additional long-term obligation owed to Armstrong Resource Partners, as if each had occurred on January 1, 2011.

 

This unaudited pro forma consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

Our unaudited pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. Presentation of our unaudited pro forma consolidated financial and operating data is prepared in conformity with Article 11 of Regulation S-X. The unaudited pro forma consolidated financial and operating data is included for illustrative and informational purposes only and is not necessarily indicative of results we expect in future periods.

 

Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2011
(In thousands, except per share data)

 

 

 

 

 

Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2011
(Dollars in thousands)