Coal buyout fever is onWeb postedSunday, August 3, 2008Coal buyout fever is on; Cominco makes $14 billion deal in W.Va.By Tim Huber
AP Business Writer
CHARLESTON, W.Va. (AP) - A global consolidation of the coal industry is shifting into overdrive.
Mining giant Teck Comincosaid July 29 it will buy up all of the Fording Canadian Coal Trust forclose to $14 billion in cash and stock. The deal is just the latest ina growing string of giant acquisitions centered on coking coal, a keyraw material for certain steel mills.
Teck Cominco operates a large zinc mine in Interior Alaska.
Coking coal prices havegained more than 50 percent since April 1 to $250 a ton or more, drivenby tight supplies and demand from China, India, Russia, Europe andBrazil. When combined with the soaring cost of scrap metal, iron oreand other raw materials, mining interests such as Teck Cominco andinternational steel companies have begun snapping up coal producers inthe U.S. and overseas.
Teck Chief Executive DonLindsay described the deal as an opportunity to build a diversifiedenergy company by expanding a business with “pretty good” long-termprospects.
“This industry has strongfundamentals, not withstanding that the economy will be cyclical,”Lindsay told analysts during a conference call. “The long-term trendssuggest that the economic development in China and India and Brazil andRussia and many other countries will continue to require steel andseaborne metallurgical coal.”
Teck Cominco, the world'slargest producer of zinc and metallurgical coal, will pay $12.4 billionin cash and issue 36.9 million shares for Fording Canadian. The deal isexpected to close in late October, pending regulatory and investorapproval.
Fording shareholders willreceive $82.00 per share in cash and 0.245 of a Teck Cominco Class Bsubordinate voting share. Fording says that's a 17 percent premium overthe weighted average trading price during the last 20 days on theToronto Stock Exchange.
In exchange, Teck Comincowould receive the 80.1 percent of Fording it doesn't already own andthe open-ended mutual fund's stake in their Elk Valley Coal, whichoperates five six Canadian surface mines capable of producing 25million tons of metallurgical coal annually. Elk Valley bills itself asthe source of 21 percent of the world's seaborne hard coking coal,essentially the equivalent of most U.S. metallurgical coal.
The deal serves as a reminderthat virtually every U.S. coal mine operator, especially those with metcoal mines close to shipping ports on the Atlantic coast, has a giantbulls eye on its back.
Already, iron ore producerCleveland-Cliffs has bid $8 billion for Abingdon, Va.-based coal mineoperator Alpha Natural Resources, St. Louis-based Peabody Energy hasincreased its stake in the Millennium Mine, a coking coal operation inQueensland, Australia, and Luxembourg-based ArcelorMittal, the world'slargest steel producer, snapped up more of Australia's Macarthur Coaland all of two small Appalachian met-coal producers.
Plenty of potential targetsremain, among them St. Louis-based Patriot Coal, Pittsburgh-basedConsol Energy and Richmond, Va.-based Massey Energy Co.
There's also some potentialbuyers, particularly the combination of Cleveland-Cliffs and Alpha, ifthe deal overcomes the objections of a major Cleveland-Cliffsshareholder.
Alpha Chief Executive MikeQuillen noted the acquisition would give his company much deeperpockets and allow Alpha to roll up more coal operators.
“Our approach as consolidator of the coal industry has not changed,” he said.