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Posts Tagged ‘Massey’

Mining Week 24/’12: Steam coal world is changing

June 11, 2012 Comments off

Top Stories of the Week:

  • Indonesian and US supply drives coal prices lower
    • A surge of exports of thermal coal (used for power generation) from Indonesia and the increasing exports from the USA caused by domestic replacement of coal demand by gas demand are driving thermal coal prices to the lowest point in 2 years.
    • Continued low sales prices are causing various coal miners to get close to financial distress. As their share prices have decreased too, analysts expect a new wave of acquisitions in the industry.
    • Sources: Financial Times; Seeking Alpha
  • Alpha closes steam coal mines in USA
    • Alpha Natural Resources, the company that recently bought Massey for $8.5bln, is reducing steam coal production and cutting approx. 150 jobs by closing 4 small mines in Kentucky and offices in 4 US cities, aiming to reduce G&A by 50-60$mln/year.
    • The company mentions low coal prices and new regulations for coal-fired power plants as the key reasons that the mines have become uneconomical and are unlikely to return to making a profit.
    • Sources: Alpha Natural Resources news release; Wall Street Journal; Reuters
  • Xstrata reveals GlenStrata organization structure

    • The organization structure revealed in the merger documentation supporting Glencore’s bid for Xstrata shows a merger of the organization with very little initial integration. The heads of marketing of the business units continue to report to Glasenberg, and the heads of the asset groups continue to report to Davis.
    • Glasenberg agreed to not using his significant share of voting power to force any changes of the or structure for the first years after the merger.
    • Sources: Xstrata – Glencore merger documentation

Trends & Implications:

  • The global changes of steam/energy coal business are mainly demand-driven. China and India are building coal-fired power stations at a high pace, increasing their share of global demand. At the same time stronger regulation in the Western world and the promise of cheap gas are suppressing the demand. As a result the coal business is getting more global, with a larger part of demand being imported from overseas.
  • The business unit focus of the GlenStrata organization reveals an inclination to try to realize the arbitrage opportunities that make up a large part of the merger’s synergy potential on a product-by-product basis. Global markets for each of the products is diverse enough to make a generic approach to geographic, product, and timing arbitrage unpractical.

©2012 | Wilfred Visser | thebusinessofmining.com

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Arch to Buy International Coal for $3.4bln

May 3, 2011 Comments off

“Arch Coal Inc. said it will acquire International Coal Group Inc. for $3.4 billion, becoming the latest coal producer seeking to secure reserves and take advantage of rising prices in the market for metallurgical coal used by steelmakers. St. Louis-based Arch said the all-cash deal will create the fourth-largest coal producer globally and the second-largest U.S. producer of metallurgical coal. The appetite for the relatively scarce, deep-mined form of coal is driven by infrastructure growth in emerging economies like China, India and Brazil.

The deal will enable Arch, which has significant port and barge capacity, to boost exports of high-quality metallurgical coal currently produced by ICG, said Steven F. Leer, Arch’s CEO, in an interview. ‘They bring products we don’t have, and we bring infrastructure that they don’t have,’ Mr. Leer said. ‘It becomes a hand-in-glove fit.’ The combined company would have total shipments of 179 million tons of coal, based on 2010 results, including metallurgical and thermal coal.”

Source: Wall Street Journal, May 3 2011

Observations:

  • Both global steam coal (power generation) demand and metallurgical coal (steel making) demand are expected to rise strongly in the coming decade on the back of strong growth of BRIC-countries. As these countries will not be able to satisfy the domestic demand, imports will increase. This repositions North America as a potential large exporter of coal.
  • The announcement of the acquisition coincides with Massey’s report of a quarterly loss, indicating the cost pressure the industry in the USA is experiencing. Massey will likely be bought by Alpha Natural Resources for $7.1bln, creating a big competitor to the Arch-International combination.

Implications:

  • Arch expects annual cost savings of $70-80mln, justifying a premium of approx. $1bln over ICL’s pre-announcement market cap of $2.2.bln. However, in mid 2010 market cap was as low as $1.0bln. Additional revenue-enhancing synergies as discussed by mr. Leer are required to create value for Arch’s shareholders.
  • Most current merger and acquisition attempts in the US coal market are largely synergy driven. The American market lagged earlier consolidation trends in the global industry, leaving merger opportunities on the table in an industry with many small players. At the end of this wave of consolidation most likely some 2-4 large American coal miners will be created, potentially with strong cross-border activities in Canada.

©2011 | Wilfred Visser | thebusinessofmining.com

Alpha agrees to buy Massey for $8.5bn

January 31, 2011 Comments off

“Alpha Natural Resources, the third-biggest US coal producer, agreed to buy its rival Massey Energy for about $8.5bn in cash and stock, as the consolidation of the global coal sector continues apace.

Under the terms of the deal, Massey shareholders receive 1.025 Alpha shares plus $10 cash for each share held, valuing Massey at $69.33 a share, or 21 per cent more than its last trading price on Friday. The $8.5bn valuation includes net debt.

The combined operations will own more than 110 mines and coal reserves of about 5 billion tons, including one of the world’s largest metallurgical coal reserves. Alpha itself has 60 active mines throughout Virginia, West Virginia, Kentucky, Pennsylvania and Wyoming.”

Source: Financial Times, January 29 2011

Observations:

  • The announcement of the deal does not mention how the companies will handle potential liabilities springing from the safety investigations following April’s disaster in which 29 miners were killed. The deal is subject to shareholder and regulatory approval.
  • The merged entity will be the coal champion of North America, but will still be mainly focused on supplying the domestic industry.

Implications:

  • Will the agreement between Massey and Alpha lead to other bidders? Most likely not. ArcelorMittal was interested earlier, but the synergies to be achieved by Alpha might be larger and the corporate cultures of the companies are clearly more aligned. An alternative bidder will have to come with a very large premium to prevent Massey’s board from convincing the shareholders of the merits of merging with Alpha.
  • The $8.5bln deal (including net debt of approx. $1.4bln, making net deal value some $7.1bln) is one of the largest across industries in the last months. The deal shows the resurgance of mining M&A to be expected in 2011, with coal and gold being the primary commodities that will trigger M&A.

©2011 | Wilfred Visser | thebusinessofmining.com

Consolidation in coal mining as steel industry heats up

November 22, 2010 1 comment

“Vallar, the cash shell founded by financier Nat Rothschild, is paying $3bn to create a mining company that will see Indonesia’s powerful Bakrie family debut with a London listing for their interests.

A new company bundling together the assets of two Indonesian groups and the shares of Vallar will be listed in London as Bumi Plc. Shares in Vallar, which raised £700m ($1.1bn) in a public flotation in July, will be suspended.”

Source: Financial Times, November 16 2010

“Walter Energy Inc. is in talks to buy Canadian rival Western Coal Corp. for $3.24 billion to form a steelmaking-coal giant, the latest in a string of deals in the commodity sector as mining companies race to corner reserves ahead of rivals.

If the deal goes through, the combined company would have more than 20 million tons of annual coal-production capacity by the end of 2013 and would be the world’s largest publicly traded ‘pure-play’ metallurgical coal producer…

Massey Energy Co. is exploring a takeover offer from Alpha Natural Resources Inc., the biggest U.S. metallurgical coal producer. Global steelmaker ArcelorMittal is also interested in Massey.”

Source: Wall Street Journal, November 19 2010

Observations:

  • Vallar, a new mining company listed on the London Stock Exchange in June, will combine the coal mining assets of Bumi and Berau, the largest and fifth-largest coal miners of Indonesia, to create the largest exporter of coking coal to China.
  • North American coking (or metallurgical) coal producers are exploring mergers or partnerships to create a player that can export both to the east and the west.

Implications:

  • So far coal is one of the resource businesses that is least consolidated. Very few players are able of supplying coal around the world. The moves in North America and Indonesia indicate a trend to create larger suppliers in order to have a better negotiation position for contracts with steel makers.
  • Vallar is planning to use the Indonesian operations as a platform for further expansion in Indonesia and abroad. When listed the company mentioned it would be able to focus principally on regions and commodities where it could leverage the extensive network and strong prior operating and investment experience. As James Campbell, one of the founders, is a former executive of Anglo Coal, the move into coal mining does not come as a surprise.

©2010 | Wilfred Visser | thebusinessofmining.com

Massey’s board probes safety

May 6, 2010 Comments off

“Massey Energy Co.’s board is investigating how the mining company’s management handled federal safety violations over the past two years, stepping up pressure on Massey’s top executives.
Bobby R. Inman, Massey’s lead independent director, said in an interview that the directors launched their probe following last month’s mine disaster, in which an explosion killed 29 miners. …

Massey, of Richmond, Va., faces lawsuits by shareholder groups alleging that the company failed to enact promised safety improvements or to inform investors of risks related to safety issues, and by at least two families of miners killed in the accident, seeking damages under West Virginia’s wrongful-death statute.”

Source: The Wall Street Journal, May 5 2010

Observations:

    Massey Energy

  • The explosion on April 5 2010 killed 29 miners, making it the worst mining disaster in the USA in 40 years.
  • Massey’s shares dropped approx. 9%, corresponding to a market value decrease of over $400 million on the day after the mine disaster.

Implications:

  • Shareholders & WSJ seem to find the $400 million dollar loss more important that the lives of the 29 miners killed in the accident.
  • Shareholders complain about not being informed about the risk related to safety issues. Arguably the shareholders were more concerned about their financial gains than about the safety of the miners. Hopefully shareholders around the world will pressure the managers of ‘their’ companies to pay more attention to safety and less to short term profits.
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