CONSOL Energy (NYSE: CNX) sold non-producing western Canadian coal assets in the closing days of 2012 for $127m in two separate transactions, the company said Jan. 3.
In the first transaction, CONSOL partnered with Forbes & Manhattan Inc. (F&M), a private merchant bank headquartered in Toronto, Canada, for the sale of a portion of its metallurgical coal assets located in Alberta, Canada. Ram River Coal Corp., a private Ontario company created by F&M to purchase the coal assets, acquired 100% of the Ram River and Scurry Ram coal properties on Dec. 21, 2012, for a total consideration of $105m ($102.5m payable to CONSOL). The Ram River coal property has an in-situ coal resource of about 380 million tons and estimated washed coal product of approximately 75 million tons.
Years ago, CONSOL had been in the coal production business in western Canada with Luscar Ltd., but had exited active production there.
On closing, Ram River Coal made an aggregate cash payment of $55m ($52.5m payable to CONSOL) and under the terms of the asset purchase agreement shall make additional payments to CONSOL of $25.5m on or before June 21, 2013, and $24.5m on or before June 21, 2014. CONSOL has retained the right to receive up to $20m of the second or third cash payments in common shares of Ram River Coal.
Concurrent with the closing of the acquisition, Ram River Coal closed an offering of common shares at a price of $1.00 per share for aggregate gross proceeds of $85m. Ram River Coal retained Delano Capital Corp. and Cormark Securities Inc. to act as agents in connection with the offering. The lead investors in the offering were Liberty Metals & Mining Holdings LLC, a wholly-owned subsidiary of Boston-based Liberty Mutual Insurance, and corporations controlled by Lundin family trusts. Ram River Coal expects to close a second tranche of the offering for additional proceeds of $20m on or before Jan, 31, 2013.
In the second transaction, effective Dec. 20, 2012, CONSOL agreed to sell its interest in other coal assets, subject to certain conditions, in Alberta, for $24m. The buyer is Riversdale Resources, headquartered in Sydney, Australia. The primary asset is the Grassy Mountain surface mine, where CONSOL’s share of the recoverable reserves is estimated to be 30 million tons. CONSOL anticipates closing this transaction during the second quarter of 2013.
“These two sales represent a continuation of our successful strategy of pulling value forward and focusing on our near-term opportunity set,” said J. Brett Harvey, CONSOL Chairman and CEO.
The $127m in cash from these sales, when combined with the previous 2012 asset sales of $224m, means that CONSOL sold assets in excess of $350m during the year. None of the assets sold in 2012 generated revenue during the year. The company expects to sell additional, unnamed non-core assets in 2013.
CONSOL has 12 bituminous coal mining complexes in four states and reports proven and probable coal reserves of 4.5 billion tons. It is also a leading Eastern U.S. gas producer, with proved reserves of 3.5 trillion cubic feet.