Alpha Natural Resources to Acquire Mining Assets From Arch Coal
ABINGDON, Va., June 20 /PRNewswire-FirstCall/ — Alpha Natural Resources, Inc. has reached a definitive agreement with St. Louis-based Arch Coal, Inc. to acquire their Mingo Logan Ben Creek complex in Mingo County, W. Va., in an asset purchase. The assets will be purchased and managed through a newly formed subsidiary, Cobra Natural Resources, LLC.
For a purchase price of $40 million, subject to adjustments for working capital, Alpha will obtain between nine and 10 million tons of surface and deep mine reserves. These high Btu, low sulfur reserves are suitable for both the metallurgical steel and electric utility markets.
Cobra Natural Resources is projected to have an annual run rate in excess of one million tons of coal. More than 70 percent of production is expected to be sold as metallurgical coal to foundries and steel mills.
Alpha plans to capitalize on significant synergies between the newly acquired assets and its Callaway Natural Resources business unit, which has several operations in the immediate area. Highlights of the acquisition and expected synergies:
— Alpha will acquire Arch’s Mountaineer deep mine and Hernshaw B-1 contract deep mine, which together produce about one million tons per year of high-quality metallurgical and thermal coal. — Arch has agreed to purchase more than 500,000 tons of production from Cobra in 2007, and more than 650,000 tons in 2008, at market pricing. — Alpha will acquire Arch’s state-of-the-art Black Bear coal preparation plant and rail loading facility, which is located on the Norfolk Southern rail line and has an annual throughput capacity of approximately 10 million tons. — Callaway plans to transition production from the nearby White Flame surface mine and the Nicewonder Contracting King Coal Highway project directly to Cobra for washing and blending. This is expected to generate cost savings over the current arrangement, in which coal is loaded through a Callaway facility in Red Jacket, W. Va. — Currently, Arch is paid a throughput fee for processing and loading coal from Callaway’s Premium Energy surface mine. That fee will no longer be incurred. Also the Premium Energy mine will no longer pay Arch any overriding royalty fees. — As part of the agreement with Arch, Alpha obtains an existing fee-based contract with a third party to process and transload coal through Cobra. The facilities have sufficient excess capacity to consider other third-party processing agreements.
“This is a great opportunity and is typical of the bolt-on, complementary acquisitions Alpha has done many times in our brief history,” said Michael Quillen, Alpha’s chairman and CEO. “Arch Coal has created a first-rate facility at Mingo Logan, and we’re pleased to acquire these assets as Arch transitions their longwall production to the new Mountain Laurel complex.”
“By blending production from our new Cobra mines with our Callaway surface mine production, we’ll be able to maximize price potential of the collective reserves we have in the area,” said Kevin Crutchfield, Alpha’s president. “Adding in the various fees we no longer will be paying, and factoring in the significant synergies we’re obtaining, this acquisition should generate more than $25 million of EBITDA (earnings before interest, taxes, depreciation, depletion and amortization) in 2008 as well as significant positive free cash flow.”
Approximately 150 jobs are expected to be retained at the Mingo Logan facilities after the acquisition is completed. The agreement is subject to customary closing conditions and is expected to close by the end of June 2007.
General Location Map -Existing Alpha Operations & Mingo Logan Operations Southwestern Virginia & Southern West Virginia (Photo: http://www.newscom.com/cgi-bin/prnh/20070620/AQW041) About Alpha Natural Resources
Alpha Natural Resources is a leading supplier of high-quality Appalachian coal to electric utilities, steel and coke producers, and industrial customers. Approximately 91 percent of the company’s reserve base is high Btu coal and 82 percent is low sulfur, qualities that are in high demand among electric utilities which use steam coal. Alpha is also one of the nation’s largest producers and exporters of metallurgical coal, a key ingredient in steel manufacturing. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 69 mines feeding 10 coal preparation and blending plants. The company and its subsidiaries employ more than 3,500 people.
ANRG Forward Looking Statements
This news release includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Alpha’s expectations and beliefs concerning future events and involve risks and uncertainties that may cause actual results to differ materially from current expectations. These factors are difficult to predict accurately and may be beyond Alpha’s control. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; the consummation of financing, acquisition or disposition transactions and the effect thereof on our business; our ability to successfully integrate the operations we have acquired with our existing operations, as well as our ability to successfully integrate operations we may acquire in the future; our plans and objectives for future operations and expansion or consolidation; the failure to complete the Mingo Logan acquisition and failure to attain projected operational and financial targets; our relationships with, and other conditions affecting, our customers; timing of changes in customer coal inventories; changes in, renewal of and acquiring new long-term coal supply arrangements; inherent risks of coal mining beyond our control; environmental laws, including those directly affecting our coal mining production, and those affecting our customers’ coal usage; competition in coal markets; railroad, barge, truck and other transportation performance and costs; the geological characteristics of Central and Northern Appalachian coal reserves; availability of mining and processing equipment and parts; our assumptions concerning economically recoverable coal reserve estimates; availability of skilled employees and other employee workforce factors; regulatory and court decisions; future legislation and changes in regulations, governmental policies or taxes; changes in postretirement benefit obligations; our liquidity, results of operations and financial condition; decline in coal prices; forward sales and purchase contracts not accounted for as a hedge; indemnification of certain obligations not being met; continued funding of the road construction business; and disruption in coal supplies. These and other risks and uncertainties are discussed in greater detail in Alpha’s Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements in this news release or elsewhere speak only as of the date made. New uncertainties and risks come up from time to time, and it is impossible for Alpha to predict these events or how they may affect the company. Alpha has no duty to, and does not intend to, update or revise the forward-looking statements in this news release after the date it is issued. In light of these risks and uncertainties, investors should keep in mind that the results, events or developments disclosed in any forward- looking statement made in this news release may not occur.
Use of Forecasted EBITDA
Alpha Natural Resources is unable to provide in this press release a reconciliation of forecasted EBITDA, a non-GAAP measure, to the most directly comparable GAAP measure, net income, because certain items that would be necessary to quantify for such a reconciliation are out of our control and/or cannot be reasonably predicted. For example, it is impractical to estimate certain changes in future circumstances, market conditions, assumptions and other risks, such as those included in the above forward-looking statements, that may impact these items that are necessary to quantify for such a reconciliation.
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Alpha Natural Resources, Inc.
CONTACT: Investors-Media, Ted Pile of Alpha Natural Resources,+1-276-623-2920
Web site: http://www.alphanr.com/