Lignite producer North American Coal Corp. said Aug, 31 that it acquired, through a wholly owned subsidiary, four related companies – Reed Minerals Inc., Reed Hauling Inc., C&H Mining Co. Inc. and Reed Management LLC – from members of and entities controlled by the Reed family.
These companies, which will be known as Reed Minerals, are based in Jasper, Ala., and are involved in the mining of bituminous coal. This means that North American Coal, which long ago got out of the bituminous coal mining industry to focus on lignite mining, is getting back into bituminous coal.
The acquisition, which was funded using borrowings under North American Coal’s existing credit facility, was completed for a preliminary purchase price of approximately $62.5m, less certain amounts specified in the purchase agreement to complete the transaction on a “cash-free, debt-free” basis. The terms of the transaction also include an earn-out contingent on the average coal selling price received on the first 15 million tons of coal sold by North American Coal from the Reed Minerals operations. The earn-out payments will be paid quarterly and, if payable, will commence in the third quarter of 2012.
These operations mine and market steam coal and mid- to high-volatile metallurgical coal for sale primarily into the power generation and steel markets. Steam coal is primarily sold to a cooperative association which provides fuel under a long-term contract with a significant, unnamed U.S. utility. Met coal is sold to several customers. The acquired companies operate three mines on leased reserves in Central Alabama. For the year ended Dec. 31, 2011, the Reed Minerals companies sold 0.9 million tons of coal and had revenue of about $86m and net income of approximately $4m. North American Coal expects the acquisition to be accretive to earnings immediately.
Listed with the U.S. Mine Safety and Health Administration under Reed Minerals are the “active” Jap Creek and Town Creek strip mines, and the new Slate Creek strip job, which has no recorded production through the first half of this year.
“The acquisition of the Reed family’s mining business in Alabama provides North American Coal with an opportunity to expand our established surface mining business into bituminous coal markets,” said Bob Benson, president and CEO of North American Coal. “North American Coal has been looking for opportunities to grow. The Reed Minerals’ coal reserves, established reputation and location offer us that opportunity. The eight-year steam coal sales contract provides a stable revenue, profit and cash flow base while we further develop a metallurgical coal business platform. We believe this combination will offer the company, its customers and its employees a number of substantial benefits, which we expect will lead to significant opportunities for future growth and profitability.”
North American Coal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. It is headquartered in Dallas, Texas, and is a wholly-owned subsidiary of NACCO Industries (NYSE: NC).
One of North American Coal’s newest pieces of business is as the contract operator of the lignite mine that will supply Mississippi Power‘s in-construction Kemper County (also known as Plant Ratcliffe) IGCC project.
Also, the Coyote power plant owners – Otter Tail Power, Montana-Dakota Utilities, NorthWestern Energy and Northern Municipal Power Agency – announced in May that they have entered into an agreement with North American Coal to begin developing the Coyote Creek mine near the Coyote plant. The new mine should be ready to deliver lignite in May 2016 when the North Dakota station’s contract with Westmoreland Coal (NASDAQ: WLB) runs out.