Boost for Massey with coal takeover

Finance

The coal portfolio of Massey Energy Co has received a major boost after the company this week signed an agreement to purchase Cumberland Resources Corp.

In a combined cash and stock transaction, Massey will pay US$960 million for the eastern US coal producer and its affiliated companies. Under the agreement, Massey will pay two-thirds of the total valuation in cash and one-third in shares.

Massey believes it will achieve operating synergies when this transaction and the integration of Cumberland’s operations are complete.

Cumberland primarily operates underground mines in southwestern Virginia and eastern Kentucky. Its assets include 416Mt of coal reserves, and preparation plants in Kentucky and Virginia. Much of Massey’s coal mining currently takes place in open-pit mines.

Recognised as one of the largest privately-owned coal producers in the US, Cumberland generated US$550 million and sold 7.8Mt in 2009.

Massey's chief executive officer and chairman Don Blankenship said: “We believe this acquisition is an excellent fit. Our analysis shows it will be accretive to earnings per share, beginning this year, and we believe it will add significant shareholder value.”

“Cumberland’s track record of low-cost production, its focus on underground mining and the low legacy liabilities are consistent with Massey’s history and strategy.”

Massey said it expected to produce about 5Mt/y of metallurgical quality coal with Cumberland’s assets, but wouldn’t require any additional development capital to reach this figure.

As of end-December 2009, Cumberland had about 8.1Mt of coal committed for sale this year, primarily with thermal-coal customers.