Arch Coal (NYSE: ACI) said Aug. 19 that it has completed the sale of its Canyon Fuel Co. LLC unit to an affiliate of Bowie Resources LLC for $423m in cash, which is inclusive of working capital adjustments.
The sale includes the Sufco and Skyline longwall mines, the Dugout Canyon continuous miner (formerly longwall) operation and about 105 million tons of bituminous coal reserves, all located in Utah.
“The sale of our Utah operations is advantageous for Arch and our shareholders, allowing us to monetize assets in our portfolio that aren’t core to our long-term strategic plans,” said John Eaves, Arch president and CEO. “We are pleased with the value this transaction creates, as the sale puts Arch in a strong position for an evolving domestic coal market.”
In addition to the cash proceeds received, Arch expects to record a pre-tax gain of approximately $120m in the third quarter of 2013 related to the Canyon Fuel sale. Arch also forecasts cumulative capital and administrative cost savings of more than $200m from 2014 through 2017 due to the divestiture of its Utah assets. Furthermore, following this transaction, Arch anticipates further streamlining its operations to achieve an additional $10m in annual administrative cost reductions.
“This divestiture pulls forward multiple years of cash flows and reduces Arch’s future capital and cost outlays,” said Eaves. “Moreover, the sale of our Utah assets provides an incremental boost in liquidity, further enhancing our financial flexibility and positioning Arch for future debt reduction as coal markets rebound.”
Arch is retaining the West Elk longwall mine in Colorado and approximately 300 million tons of bituminous coal reserves in the Western Bituminous Region. Included in that total are the Saddleback Hills and Elk Mountain reserves in southeastern Wyoming. There have been plans for years to develop a coal gasification plant on the site of these Wyoming reserves.
“The divestiture of Canyon Fuel further streamlines our asset portfolio and shifts our focus to the most value-enhancing parts of our business, such as building out and upgrading our Appalachian metallurgical coal platform and optimizing our low-cost thermal coal franchise to serve the domestic and export coal markets,” said Eaves.
Bowie Resources is the owner of the Bowie No. 2 longwall mine in Colorado and an affiliate in January bought several coal upgrading plants around the country from Headwaters Inc.
Bowie Resource Partners LLC, a joint venture between Bowie Resources LLC and the Galena Private Equity Resource Fund managed by Galena Asset Management, made this buy.
The new joint venture combines Bowie and Canyon Fuel mining assets to create a highly competitive coal producing company serving the Western U.S. power generation industry and export markets via the U.S. West Coast, Bowie said in an Aug. 19 statement. Based in Louisville, Ky., with a regional office in Grand Junction, Colo., Bowie Resource Partners will employ over 1,100 staff and have an annual productive capacity of 15 million–17 million tons of thermal coal.
“We’re delighted to have completed the purchase of Canyon Fuel Company and formed a significant new coal producer in a strategically advantageous location,” said John Siegel, Chairman of Bowie Resource Partners. “Even as our industry is faced with certain domestic consumptive challenges, we believe we have a niche opportunity to grow our business significantly over the long-term, and we are excited about those prospects.”
Major customers for the existing Bowie No. 2 mine include the Tennessee Valley Authority. Major customers for the Canyon Fuel mines include PacifiCorp, the Intermountain Power Agency, TVA and NV Energy.
The Galena Private Equity Resource Fund was created in 2012 to invest in equity and debt of small- to medium-sized metals and mining companies in a producing, development or expansion phase. The fund is managed by Galena Asset Management which was formed in 2003 and is a wholly owned subsidiary of Trafigura Beheer BV.
St. Louis-based Arch Coal is one of the world’s top coal producers for the global steel and power generation industries, serving customers in 25 countries on five continents. Its network of mining complexes is the most diversified in the United States, spanning every major coal basin in the nation. The company controls more than 5 billion tons of high-quality metallurgical and thermal coal reserves, with access to all major railroads, inland waterways and a growing number of seaborne trade channels.