Coal operator Robert Murray, who began years ago with one mine, Powhatan No. 6 in Ohio, and had already grown his Murray Energy operation to be the largest privately owned coal producer in the U.S., will get massively bigger with a pending buy of five longwall mines from CONSOL Energy (NYSE: CNX).
Murray Energy and CONSOL Energy said Oct. 28 that they have entered into an agreement for Murray Energy’s purchase of the stock of Consolidation Coal from CONSOL Energy. This includes the McElroy, Shoemaker, Blacksville, Loveridge, and Robinson Run mining complexes in West Virginia, certain coal reserves, related river transportation and dock facilities, and other assets.
“No Company has developed a better legacy with its employees, with its customers, with the financial markets, with the regulatory agencies, or with the public in general, over many decades, than has CONSOL and Consolidation Coal,” said Robert Murray, Chairman, President, and CEO of Murray Energy. “Murray Energy intends to preserve this well-earned legacy.”
Murray Energy currently operates six underground longwall mining systems and 23 continuous mining units at mines in Utah, Illinois, Kentucky and Ohio. For the past few years it has been working on permits for a brand-new longwall mine in the Pittsburgh seam in Harrison County, W.Va. Its current longwall mines in the Northern Appalachia region, where the five CONSOL mines are located, are Powhatan No. 6 and Century in Ohio.
Consolidation Coal operates an equal number of longwalls (six) and CMs (23). McElroy has two longwalls, while the other four mines have one apiece. Murray Energy builds virtually all of its own mining machinery, including longwall systems, which makes for a nice synergy in this buy.
“With our expertise, we will be able to efficiently operate the acquired Consolidation Coal mines and provide their employees with an opportunity for long term employment,” stated Robert Moore, Executive Vice President, Chief Operating Officer, and Chief Financial Officer of Murray Energy.
“Most especially, Murray Energy operates safe coal mines, with a particular emphasis on fire protection. This will help assure the protection of the health and safety of our new employees,” said Murray.
Murray added: “The combined companies will allow Murray Energy to better serve our electric utility customers with reliable and low cost coal supplies, at accurate qualities. This is truly a momentous time for the combined employees of Murray Energy Corporation, and for our Company.”
According to U.S. Energy Information Administration data, major customers for the CONSOL mines to be sold to Murray include FirstEnergy (NYSE: FE), with the Robinson Run mine located next door to the company’s Harrison power plant in northern West Virginia, and American Electric Power (NYSE: AEP).
Deutsche Bank Securities acted as financial advisor to Murray Energy. Goldman Sachs & Co. and Deutsche Bank are providing committed financing to Murray Energy in connection with the transaction; Goldman Sachs is leading the financing. Kirkland & Ellis LLP acted as counsel to Murray Energy.
This deal, which is expected to close around the end of this year, will:
- Push Murray Energy’s direct employee count to 7,100, up from the current 3,300;
- Nearly double Murray’s annual coal production, as of June 30, from 30.1 million tons to 58.6 million tons;
- Increase Murray’s total coal reserves from 859 million tons to nearly 2.4 billion tons;
- Increase Murray’s active mining complexes from seven to 12 and its coal prep plants from six to 12;
- Up the Murray coal transloading facilities from three to eight, its harbor boats/towboats from three to 26, and its barges from zero now to 609 after the deal is completed.
Murray nears permit for new longwall mine in northern West Virginia
As for that new Murray longwall mine, West Virginia Department of Environmental Protection data shows that the permit application for that mine, filed in 2010, moved on Oct. 29 from an agency field office to the agency’s main office for final approval. If the application doesn’t run into any major opposition, the main office can usually have a permit issued in a few weeks from this point.
The mine is being permitted under Murray’s AmericanMountaineer Energy and would be called the AmericanMountaineer mine. The mine permit application that is getting close to approval also includes a prep plant for this operation, located in Harrison County near Wallace. This mine would work the Pittsburgh coal seam, the same seam that the five CONSOL mines work.
Murray Energy spokesman Gary Broadbent said the company expects the remaining permits at AmericanMountaineer Energy to be completed around June 1, 2014. The company, he added, has purchased an entire valley, which is intended to support the necessary facilities, including a preparation plant, slope, and bathhouse. All of the farms and homes in the area have been vacated, he said.
Notable is that this deal will push CONSOL out of the top rank of U.S. coal producers, a spot it has held for many years. The company is projecting coal sales this year of around 57 million tons, plunging to around 30 million tons in 2014 without these five mines. The U.S. Energy Information Administration put CONSOL at number 5 for U.S. coal production in 2011 at 62.1 million tons, with this pending sale of five mines pushing CONSOL down to number nine on that 2011 production list. Murray Energy, on the other hand, was number 12 on the EIA list for 2011 at 26.8 million tons of production, with this pending mine buy to push it up to number 6 on that list, just behind CONSOL. So basically CONSOL and Murray Energy will swap spots on the EIA list.
Also worth pointing out is that CONSOL’s Wolfpen Knob Development subsidiary has been permitting at the West Virginia DEP since 2008 its own new longwall mine in the Pittsburgh seam, this one in Monongalia County. That application for the Mason Dixon mine project is still pending, though apparently nearing a final approval. CONSOL didn’t say whether this project is impacted by the sale of mines to Murray, but did say generally that it has retained undeveloped coal reserves in Northern Appalachia.