Massey Energy announced earlier today that it plans to buy Cumberland Resources and its affiliate companies.
According to a Massey news release, the deal is worth $960 million and includes 416 million tons of coal reserves. According to the release:
Based in Abingdon, Virginia, Cumberland operates primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. Its assets include an estimated 416 million tons of contiguous coal reserves, a preparation plant in Kentucky served by the CSX railroad and a preparation plant in Virginia served by the Norfolk Southern railroad. Of the estimated reserves, Massey believes more than half (216 million tons) have metallurgical coal qualities.
Cumberland’s existing operations currently produce both steam and metallurgical quality coals. Approximately 4.8 million tons of its current annual production is of metallurgical quality of which 800,000 tons are currently being sold into the metallurgical coal market. Massey expects to be able to produce approximately 5.0 million tons of metallurgical quality coal annually with the existing Cumberland assets. Massey does not expect any additional development capital would be required to reach this production target.
Massey CEO Don Blankenship said:
We are extremely pleased with this acquisition opportunity and the value it represents for Massey stockholders. The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy in Central Appalachia. Cumberland’s track record of low-cost production, their focus on underground mining and their low legacy liabilities are consistent with Massey’s history and strategy. We believe this acquisition is an excellent fit for Massey. Our analysis shows it will be accretive to earnings per share beginning this year and we believe it will add significant shareholder value.
To put the deal into a little perspective, remember that Massey’s most recent SEC filings indicate the company holds about 2.4 billion tons of reserves.
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This is a good acquisition for MEE (lots of synergies)…..Not so sure how they think they can market an additional 4.0MM tons of existing production into the met market though……looks to me like the Gilliam boys (Cumberland’s owners) would have already cracked the code on this…Oh well – super MEE salesmen I guess….
As for $960MM – that seems a little steep…~$96MM/anuual production ton….WOW!!….But if anyone can figure this out it is Mr. Blankenship….like him or not he always seems to have a plan….
Any other bloggers have any thoughts on this?
This company is already mining and selling a fair market share. Massey just picked up another contract , out of the country, and the VA met coal will bring a high price. Once it leaves the USA the protests don’t seem to matter as much, China doesn’t really care about the carbon.