Colorado-based Westmoreland Coal (NasdaqGM: WLB) announced Dec. 24 that it has entered into an agreement to acquire the Prairie and Mountain coal mining operations in western Canada of Sherritt International for about $435m.
These operations include seven producing thermal coal mines in the Canadian provinces of Alberta and Saskatchewan, a 50% interest in an activated carbon plant and a Char production facility. Sherritt up to now has been Canada’s larget thermal coal producer, a distinction that will now go to Westmoreland.
Westmoreland in recent years has largely been a captive miner to nearby customer power plants in the western U.S., with this deal extending that captive business model into Canada. Sherritt’s Mountain operations ship into the export steam coal market, though, so Westmoreland is adding an international profile that it didn’t have before.
“This is an historic event for Westmoreland. The acquisition of Sherritt’s coal operations represents a transformational opportunity to acquire seven producing coal mines, which are highly complementary to our existing operations and expertise,” said Keith Alessi, Westmoreland’s Executive Chairman. “This acquisition will more than double our business. It greatly diversifies our customer base and expands our operations into Western Canada, widely considered to be one of the most attractive mining jurisdictions globally. The combined business will be the sixth largest North American coal producer, as measured by 2012 production. Additionally, the activated carbon and Char activities, although small in proportion to the coal business, represent value-added product streams and provide an expansion in the industrial environmental market and entrance into the consumer market. We hope to expand these relationships.”
He said that Westmoreland looks forward to partnering with new power generation customers in Western Canada to provide low cost electricity to the region. Westmoreland anticipates forging strong relationships with the various provinces, communities and with the First Nations.
Robert King, Westmoreland’s President and CEO, also noted: “This acquisition significantly enhances our asset portfolio and positions Westmoreland as the leading mine mouth coal producer in North America. Furthermore, the Mountain operations and associated port capacity adds attractive optionality to our business model allowing us to deliver premium thermal coal into high growth Asian markets.”
Prairie operations include six mines shipping to nearby power plants
The Prairie operations consist of six operating surface mines located within Alberta and Saskatchewan and control of the mining rights to approximately 654 million tons of coal as of Dec. 31, 2012. In 2012, the Prairie operations being acquired delivered about 22 million tons of low-sulfur thermal coal to domestic utilities.
The Mountain operations consist of one operating surface mine, located in Alberta, that produced approximately 4 million tons of low-sulfur, thermal coal in 2012, primarily for the export market, and one surface mine currently in reclamation. The Mountain operations hold an aggregate reserve of approximately 22 million tons of coal as of Dec. 31, 2012.
The transaction also includes a Char production facility which sells to barbeque briquette producers and a 50% partnership interest in an Activated Carbon plant with Cabot Corp. The Char plant produced 130,000 tons of Char in 2012 and the Activated Carbon plant produced 14,500 tons of activated carbon in 2012.
Annual production of approximately 27 million tons doubles the production of Wesmoreland. A combined reserve base over Prairie and Mountain operations of over 675 million tons provides long term sustainability and security of supply for customers, the company added. The Prairie mines provide fairly predictable cash flows which are consistent with Westmoreland’s existing business model. The Mountain operations provide an entry point into the export market and strategic access to port facilities.
Opportunities have been identified to further optimize the mining operations based on Westmoreland’s experience, synergies and economies of scale, Westmoreland said.
As part of the transaction, Sherritt will undergo a pre-closing reorganization and sell its existing portfolio of coal and potash royalties and reserves to Altius Minerals Corp. Also under the terms of the arrangement agreement, Sherritt will indemnify Westmoreland against all past and future liability stemming from the Obed Mine impoundment release. The purchase price for the Prairie and Mountain operations is subject to customary adjustments including working capital.
The transaction has been unanimously approved by Westmoreland’s Board of Directors and is expected to be completed during the first quarter of 2014. Closing of the acquisition is subject to customary conditions, including the receipt of relevant regulatory approvals, including Investment Canada Act and Competition Act approval.
Westmoreland Coal is the oldest independent coal company in the U.S. The company’s coal operations include sub-bituminous coal mining in the Powder River Basin in Montana and Wyoming, and lignite mining operations in Montana, North Dakota and Texas. Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina.