Overview.
Kiewit Royalty Trust (the "Trust") is a royalty trust with royalty and
overriding royalty interests in certain coal leases. The Trust was formed for
the purposes of administering the income received from such coal leases and
distributing such income (together with interest earned thereon, if any, less
payment of or provision for obligations) to the holders of the units of
beneficial interest.
During the three month and six month periods ended June 30, 2021, the Trust
received a total of $44,874 and $142,135, respectively, of royalty and
overriding royalty payments, net of production expenses. The following table
reflects the royalty and overriding royalty payments, net of production
expenses, received by the Trust at the following mines:
Three Months Ended
June 30,
2021 2020
Decker Mine $ 44,874 $ 50,936
Spring Creek Mine - -
Total Royalty Income $ 44,874 $ 50,936
Six Months Ended
June 30,
2021 2020
Decker Mine $ 142,135 $ 651,673
Spring Creek Mine - -
Total Royalty Income $ 142,135 $ 651,673Decker Mine. Royalty and overriding royalty amounts received by the Trust from
the Decker Mine decreased to $44,874 during the second quarter of 2021, as
compared to $50,936 received during the same period in 2020. During the six
month period ended June 30, 2021, the royalty amounts decreased substantially by
$509,538, or approximately 78%, as compared to the same period in 2020. Until
2021, when the Decker Mine announced cessation of mining activities, the primary
producer currently was an East Decker Mine, which in recent years was the only
lease actively producing. The changes this quarter, as well as during the first
six months of 2021, resulted from the cession of mine operations. The royalty
payment received in second quarter related to first quarter production before
the Decker Mine announced that it would no longer be mining.
In December 2020, Lighthouse Resources, Inc., the owner of the Decker Mine,
filed for Chapter 11 bankruptcy, in the United States Bankruptcy Court for the
District of Delaware (Case No. 20-13056(JTD)). Lighthouse initially reduced
operations at the Decker Mine, and in first quarter 2021, the Decker Mine ceased
operations. The Trust is actively monitoring the bankruptcy filings, and is an
unsecured creditor in the bankruptcy case. In light of the pending bankruptcy,
the Trust no longer believes that it will receive additional royalty payments
from the Decker Mine, and as an unsecured creditor in the bankruptcy case, it is
unlikely the Trust will receive any payments from the bankruptcy trustee. At
this time, the Mine has indicated no additional royalty payments will be made to
the Trust in the future.
The Trust intends to auction its interests in the Decker Mine leases in order to
monetize these agreements. The auction is anticipated in September 2021, and it
is unknown whether the Trust will have any bidders for these assets. Following
the auction, any sale transaction will be subject to court approval or Unit
Holder approval. If the auction is successful and NTEC purchases the interests
in the Spring Creek Mines, the Trust intends to petition the applicable court to
liquidate and wind up the operations of the Trust pursuant to the terms of the
Trust Indenture.
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Spring Creek Mine. The Trust did not receive any royalty payments from the
Spring Creek Mine during the first six months of 2021 or 2020. Royalties with
respect to this mine are typically paid during the second half of each calendar
year but the timing of the first payment varies, and it can be received at the
end of the second quarter or beginning of the third quarter. However, it is
unknown whether the Trust will receive additional royalties from this mine in
the future due to various factors, including the financial struggles of the coal
operator, the lack of mining activities in the applicable mines, and the general
depletion of coal. In 2019, the Spring Creek Mine was sold to Navajo
Transitional Energy Company ("NTEC"), which is wholly owned by the Navajo
Nation, and is currently operating the mine as a contract operator. Operational
issues, together with general economic issues impacting coal mines, are
challenging and make it difficult for the Trust to predict the long-term status
of the operations of this mine.
On July 28th, 2021, the Trust executed an agreement with NTEC pursuant to which
NTEC has agreed to purchase certain overriding royalty interests owned by the
Trust in certain Spring Creek Mines, specifically lease MTM-069782 and
MTM-110692. The agreement is subject to various closing conditions, including
either court approval or Unit Holder approval of the transaction. At closing,
the Trust has agreed to convey to NTEC the leases free and clear of all liens in
exchange for a total cash value of $105,000, less advance minimum royalties
previously received by the Trust of $20,715.67, for an anticipated cash payment
of $84,274.33. Closing is late 2021 after the Trust obtains court approval or
Unit Holder approval.
Other Mines. In addition to the Decker Mine and Spring Creek Mine, the Trust
also owns rights in lease number 027475 in the Black Butte Mine in Sweetwater
County, Wyoming. Such mine is not part of any future mining plans yet the lease
continues to be active. Interests in this mine will also be subject to the
auction process discussed above relating to the Decker Mine. The Trust is
uncertain whether it will have any bidder on this asset.
Interest Income. The Trust generally earns interest on the royalty payments held
in reserve. During the six months ended June 30, 2021, the Trust earned a
nominal amount of interest of $2 compared to $496 of interest earned during the
six months ended June 30, 2020. The decrease in interest resulted from the low
interest rates and fewer royalty payments.
Trust Expenses. Trust expenses decreased slightly to $79,777 for the first six
months of 2021, as compared to $83,183 for the same period in 2020. Trust
expenses included fees of the Trustee, accountants, attorneys, and other
professionals that the Trustee employs in the administration of the Trust. Trust
expenses decreased to $37,331 for the three month period ending June 30, 2021,
as compared to $58,183 for the same period in 2020. The expenses fluctuate from
period to period largely because of the timing of when the Trust receives
invoices and pays its expenses. Further, the Trust is incurring additional fees
and expenses relating to the sale of its assets to NTEC and through the auction
process.
Liquidity and Capital Resources. The Trust's primary source of liquidity is the
royalty payments, and the Trust no longer expects to receive any royalty
payments. In accordance with the provisions of the Trust Indenture, generally
all income received by the Trust, net of Trust expenses and any amounts placed
in reserves, is distributed to the Unit Holders on a biannual basis as long as
the Trust has sufficient income. At this time, the Trust does not expect to make
any distributions in the near future due to the Trust's liquidity issues. The
Trust has suspended future distribution payments in light of the substantial
reduction in royalty income and is actively pursuing the liquidation of the
Trust.
Trust Reserves. The Trust did not establish any trust reserves in the second
quarter of 2020 but did establish a reserve in the first quarter of 2020 in the
amount of $576,223. This reserve was established to hold the funds until the
next scheduled biannual payment and was paid to Unit Holders in the beginning of
the third quarter of 2020.
During the first quarter of 2021, the Trust's distributable income was $54,816.
Historically, this amount would have been reserved to be paid at the Trust's
next distribution date within 10 days of June 30, 2021. At June 30, 2021, the
Trust's distributable income was $7,544, which was held in reserve, resulting in
a total reserve of $62,360. Because of the uncertainty of future royalty
payments, the Trust has temporarily suspended all distribution payments and
instead reserved such amounts to cover future expenses. Due to the uncertainty
with respect to timing or amount of future royalty payments, the Trust believes
such suspension is in its best interests. The Trust further believes that the
current reserved amounts will not be sufficient to pay expenses.
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Going Concern. The Trust may not have sufficient funding in order to continue to
operate. The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Trust's continuation as a
going concern is dependent upon continued mining activities and receipt of
timely royalty payments form the mines, especially the Decker Mine. Because of
the Trust's limited source of revenues, the recent bankruptcy of the Decker Mine
raises substantial doubt about the Trust's ability to continue as a going
concern. The Trust's financial statements currently do not include any
adjustments that might result from the outcome of any uncertainly as to the
Trust's ability to continue as a going concern.
Change in Trust Corpus. During the three- and six-month period ended June 30,
2021, the trust corpus remained unchanged.
Off-Balance Sheet Arrangements. As required by the Trust Indenture, the Trust is
intended to be passive in nature and the Trustee does not have any control over
or any responsibility relating to the operation of the mines under which the
Trust has any royalty interests and overriding royalty interests. The Trustee
has powers to collect and distribute proceeds received by the Trust and pay
Trust liabilities and expenses and its actions have been limited to those
activities. As a result, the Trust has not engaged in any off-balance sheet
arrangements.
Critical Accounting Policies and Estimates. The Trust's condensed financial
statements are prepared on a modified cash basis of accounting, which is a
comprehensive basis of accounting other than accounting principles generally
accepted in the United States of America, and as such there are no critical
accounting policies or estimates.
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KIEWIT ROYALTY TRUST 
