BRISTOL HERALD COURIER
AND THE ASSOCIATED PRESS
ABINGDON, Va. – Absorbing Cumberland Resources Corp. will help to double Massey Energy Co.’s sales of expensive coal used in steel mills, the company said this week.
But it remains unclear how that purchase – a $960 million cash and stock deal – will change Cumberland’s presence in Washington County, Va.
One of the nation’s largest privately owned coal companies, Cumberland has operated in Southwest Virginia for years, restoring one large historic house in the center of Abingdon for its management offices. The company is in the process of restoring a second house as well.
Harry Childress, spokesman for Cumberland Resources, offered no comment on the transaction when contacted this week.
Cumberland operates about 25 underground mines straddling the Kentucky-Virginia border, and employs about 1,000 miners and staff. This week, Massey reported that Cumberland made $92 million on 2009 revenue of $550 million from 7.8 million tons of coal.
Cumberland’s focus on underground mining is considered key to the purchase deal, given the U.S. Environmental Protection Agency’s 2009 decision to increase scrutiny on surface mining permits in West Virginia, Kentucky and Virginia.
Massey said it expects the purchase deal to add to its profits in 2010.
When announcing the deal this week, Massey said about half the 416 million tons of reserves that Cumberland owns in the region can be used as metallurgical coal. And although Cumberland hasn’t been a big metallurgical producer, Massey said it plans to turn that around.
“The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy,” Massey Chief Executive Don Blankenship said.
Massey expects to sell upwards of 20 million tons of metallurgical coal a year by 2012 – riding strong demand from the burgeoning economies of Asia – and believes Cumberland’s assets will contribute a quarter of that.
Massey recently announced its first shipment of 80,000 tons of metallurgical coal to China and expects to sell about 2 million tons of coal to India this year. Earlier this year, the company announced plans to invest $160 million this year in the first phase of a mining complex capable of producing 2 million tons of metallurgical coal annually.
Massey’s cash and stock offer for Cumberland represents the latest shift by a major U.S. coal producer to cash in on growing demand for metallurgical, or coking, coal – a key ingredient in making steel – by Asian steel mills.
“The market is strong,” Massey Chief Executive Don Blankenship said. “Whether it will absorb 20 million tons at real high prices, I think it will by 2012.”
ResourceInvestor.com reported this week that the deal has been approved by the boards of both companies.
Terms of the deal call for Massey to pay $640 million in cash and $320 million in stock. Massey ended 2009 with $665.8 million in cash and recently was able to withdraw a $72 million bond posted in a West Virginia lawsuit.
Investors seemed to like deal, which is expected to close in the second quarter. Massey shares spiked to a 52-week high of $54.09 Wednesday, and closed Friday at $49.91.
Bristol Herald Courier staff reporter Debra McCown contributed to this report.
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