Mark A. Levin, an analyst for BB&T Capital Markets in Richmond said Alpha acquired Massey to gain access to its metallurgical coal supplies used in steel production and the long-term success of the merger will depend on the international demand for that type of coal.
“Clearly, the transaction is a big bet on the strength of global metallurgical coal prices,” Levin said. “The strength of met coal prices are dependent on robust Chinese and Indian economic growth. A lot of the success of this deal will depend on what China and India look like over the next several years. If their economies keep growing at a rapid rate then we will have a structural shortage of metallurgical coal supply, and that is what Alpha is counting on.”
He further described the joining of the companies as a “major metallurgical coal powerhouse, not just on a domestic level but on a global level.”
Levin said it is difficult to say how the cultures of the firms will mesh.
“Massey’s culture was shaped by Don Blankenship, and he was a very powerful force,” he said. “Alpha has excellent leadership. Kevin Crutchfield is very capable and is in the process of really transforming Alpha into something much more recognizable on an international scale.”
Justin Molavi, an industry analyst at IBISWorld, said he expects Alpha will put a major emphasis on safety going forward.
“Alpha will surely emphasize safety, as it has in the past, to make sure their operations are airtight,” he said. “Alpha is in the position to lose value if they do not deliver on staying safe as they did in the past and as such, this will be a priority.”
“Massey’s acquisition essentially represents a purchase of the metallurgical coal mines at a discount. Integrating these mines into Alpha’s portfolio will not be a problem given the economies of scale involved and the proximity of Massey’s and Alpha’s mines,” he continued.
Source: Richmond Times Dispatch
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