Report: Mechel hires JP Morgan to sell U.S. coal business

A June 28 Reuters report, citing unnamed sources, said that Russian commodities producer Mechel OAO, under pressure to cut its debt, has hired investment bank JP Morgan to sell its U.S. coal mining business, Mechel Bluestone.

These are the metallurgical coal mining operations in southern West Virginia that Mechel bought in 2009 from coal operator Jim Justice. One of the unnamed sources suggested to Reuters that a price tag for U.S. business in the current market would be roughly half the original value.

Notable is that many U.S. coal producers, like Alpha Natural Resources (NYSE: ANR) and Arch Coal (NYSE: ACI), are looking to beef up their met coal assets in the face of systemic, long-term problems in the steam coal market. So the Mechel Bluestone assets would have value above that of steam coal assets.

Earlier this month, Mechel pushed back development of its key Elga coal deposit in Russia by up to five years. Poor market conditions have also delayed Mechel’s plans to sell up to 25% of its entire mining division, Reuters noted.

Bluestone operates three mining complexes in West Virginia, producing mostly steel-making coal for customers in United States but also Canada, Europe, Asia and South America.

JP Morgan and Mechel declined to comment for the Reuters report.

In October-November 2012, Mechel OAO temporarily idled its Bluestone mines due to high levels of coal inventories and adverse market conditions, but is gradually bringing at least some of them back on-line. “In January 2013, we resumed mining operations in surface mines at Justice Energy and Dynamic Energy, and in March 2013 we resumed mining operations in Mine 65 at Keystone,” said Mechel in an annual report filed April 16 at the SEC. “In April 2013, we started mining operations in Pocahontas No. 11 Contour and Auger No. 2 mine at Keystone. Mining operations in other mines are anticipated to resume once market conditions improve.”

The Bluestone mines are located in McDowell and Wyoming counties in southern West Virginia, near Beckley. The mines are organized around three mining complexes -Keystone No. 1 and No. 2 (collectively called Keystone), Justice Energy and Dynamic Energy – all of which are located in close proximity to each other. Together, the mining complexes comprise three active surface mines and three active underground mines.

The Bluestone mining business sold 2 million tonnes of coking and steam coal in 2012, 73% of which was sold to the export market. Substantially all of the coal was sold on the spot market.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.