Merger creates new coal giant
Jul 16 - McClatchy-Tribune Regional News - George Hohmann Charleston
Daily Mail, W.Va.
There's a new coal mining giant in Appalachia.
Cleveland-Cliffs Inc., the largest producer of iron ore pellets in North
America and a major supplier of metallurgical coal, announced it is buying
coal producer Alpha Natural Resources in a deal valued at $10 billion.
Cleveland-Cliffs is headquartered in Cleveland, Ohio. The company operates
six iron ore mines in Michigan, Minnesota and Eastern Canada, and three
coking coal mines -- the Pinnacle and Green Ridge mines in Pineville,
Wyoming County, and the Oak Grove Mine in Adger, Ala.
Alpha Natural Resources is headquartered in Abingdon, Va. The company was
formed in 2002 from the coal assets of Pittston Coal Co. In 2003 the company
acquired Coastal Coal Co., American Metals and Coal International, and Mears
Enterprises Inc. In 2005 Alpha acquired numerous mines, reserves and
operations in West Virginia and Virginia from the Nicewonder coal group.
Last month Alpha acquired Arch Coal Inc.'s Mingo Logan-Ben Creek coal mining
assets in West Virginia.
Alpha has 33 active underground mines, 24 active surface mines and 11 coal
preparation plants in Virginia, West Virginia, Kentucky and Pennsylvania.
Alpha's West Virginia properties are operated as the Whitetail business unit
near Kingwood, Preston County; the Brooks Run North unit near Erbacon,
Webster County; the Brooks Run South unit at Kepler and Litwar, and the
Callaway business unit at Black Bear.
Cleveland-Cliffs and Alpha said in a joint statement that the combined
company will be renamed Cliffs Natural Resources. It will have nine iron ore
facilities and more than 60 coal mines in north and South America and
Australia.
Cliffs Natural Resources will have estimated 2008 annual revenue of nearly
$6.5 billion and annual sales volume in excess of 30 million tons of iron
ore, nearly 18 million tons of metallurgical coal and will ship about 17
million tons of steam coal.
The deal puts the combined company in the Appalachian coal production big
league with the likes of Consol Energy and Massey Energy.
Coal companies are flush with cash from record-high prices. Bill Raney,
president of the West Virginia Coal Association said today, "When you look
at the overall economy and what's going on in the energy field, it's
absolutely unbelievable. The Appalachian region is somewhat the antithesis
of the remainder of the country."
Today's deal could signal a new round of mergers in the industry, which
remains fragmented. In April St. Louis-based Patriot Coal agreed to acquire
Charleston-based Magnum Coal in a $709 million deal.
Raney said it's particularly interesting that steel companies appear to have
a renewed interested in owning coal mining companies. He noted that steel
giant ArcelorMittal has expressed interest in coal mines in Australia and
Russia and JSW Steel of India wants to acquire United Coal Co.
"Those who have observed the industry over the last three decades may recall
the heavy presence of U.S. Steel and Bethlehem Steel in the coal-mining
business -- and their subsequent exit," Raney said. "Now, the worldwide
demand for steel and metallurgical coal has prompted what is seemingly a
history-repeating series of activities, with the steel companies once again
entering the coal extraction business."
Cleveland-Cliffs and Alpha said their combination is expected to result in
savings of at least $200 million beginning in 2010, mostly from enhanced
coal processing and blending efficiencies and the elimination of duplicative
administrative expenses.
Cliffs Natural Resources will be headquartered in Cleveland. The company
will have two operating divisions -- iron ore, headed by Donald Gallagher,
operated from Cleveland and coal, headed by Kevin Crutchfield, operated from
Abingdon.
Joseph Carrabba, Cleveland-Cliff's chairman, president and chief executive
officer, said in a prepared statement, "Today's announcement represents a
significant milestone for both companies. Cliffs Natural Resources will be
positioned as a diversified natural resources company with significant
holdings in a variety of important minerals. By combining our companies'
complementary operations and management capabilities, we will be well
positioned to meet the world's increasing demand for raw materials.
"Since its inception in 2002, Alpha has been highly respected for its
industry leading expertise around both the operation and
acquisition/integration of coal properties, and we are confident our two
management teams and more than 8,900 employees will achieve great things
together," Carrabba said.
Michael Quillen, Alpha's chairman and chief executive officer, said in a
prepared statement, "Together, Alpha and Cleveland-Cliffs will have the
size, the management depth and the mining expertise to compete on the global
stage as demand for raw materials continues to increase around the world.
"This transaction is financially compelling for Alpha's stockholders, who
will benefit from enhanced value today alongside growth opportunities in the
future," Quillen said.
The agreement calls for Alpha stockholders to receive 0.95 shares of
Cleveland-Cliffs common shares and $22.23 in cash for each share of Alpha
common stock. Based on Cleveland-Cliff's closing price Tuesday, Alpha
stockholders would receive the equivalent of $128.12 per share -- a premium
of 35 percent over Alpha's closing stock price Tuesday.
The transaction is expected to close by the end of this year. When that
happens, Cleveland-Cliffs shareholders will own about 60 percent of the
company and Alpha shareholders will own about 40 percent. |