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Coal buyout fever is officially on




CHARLESTON, W.Va.

A global consolidation of the coal industry is shifting into overdrive.

Mining giant Teck Cominco said Tuesday it will buy up all of the Fording Canadian Coal Trust for close to $14 billion in cash and stock. The deal is just the latest in a growing string of giant acquisitions centered on coking coal, a key raw material for certain steel mills.

Coking coal prices have gained more than 50 percent since April 1 to $250 a ton or more, driven by tight supplies and demand from China, India, Russia, Europe and Brazil. When combined with the soaring cost of scrap metal, iron ore and other raw materials, mining interests such as Teck Cominco and international steel companies have begun snapping up coal producers in the U.S. and overseas.

Teck Chief Executive Don Lindsay described the deal as an opportunity to build a diversified energy company by expanding a business with “pretty good” long-term prospects.

“This industry has strong fundamentals, not withstanding that the economy will be cyclical,” Lindsay told analysts during a conference call. “The long-term trends suggest that the economic development in China and India and Brazil and Russia and many other countries will continue to require steel and seaborne metallurgical coal.”

Teck Cominco, the world’s largest producer of zinc and metallurgical coal, will pay $12.4 billion in cash and issue 36.9 million shares for Fording Canadian. The deal is expected to close in late October, pending regulatory and investor approval.

Fording shareholders will receive $82.00 per share in cash and 0.245 of a Teck Cominco Class B subordinate voting share. Fording says that’s a 17 percent premium over the weighted average trading price during the last 20 days on the Toronto Stock Exchange.

In exchange, Teck Cominco would receive the 80.1 percent of Fording it doesn’t already own and the open-ended mutual fund’s stake in their Elk Valley Coal, which operates five six Canadian surface mines capable of producing 25 million tons of metallurgical coal annually. Elk Valley bills itself as the source of 21 percent of the world’s seaborne hard coking coal, essentially the equivalent of most U.S. metallurgical coal.

The deal serves as a reminder that virtually every U.S. coal mine operator, especially those with met coal mines close to shipping ports on the Atlantic coast, has a giant bulls eye on its back.

Already, iron ore producer Cleveland-Cliffs has bid $8 billion for Abingdon, Va.-based coal mine operator Alpha Natural Resources, St. Louis-based Peabody Energy has increased its stake in the Millennium Mine, a coking coal operation in Queensland, Australia, and Luxembourg based ArcelorMittal, the world’s largest steel producer, snapped up more of Australia’s Macarthur Coal and all of two small Appalachian met-coal producers.

Plenty of potential targets remain, among them St. Louisbased Patriot Coal, Pittsburghbased Consol Energy and Richmond, Va.-based Massey Energy Co.

There’s also some potential buyers, particularly the combination of Cleveland-Cliffs and Alpha, which has operations in Letcher County, if the deal overcomes the objections of a major Cleveland-Cliffs shareholder.

Alpha Chief Executive Mike Quillen noted the acquisition would give his company much deeper pockets and allow Alpha to roll up more coal operators.

“Our approach as consolidator of the coal industry has not changed,” he said.


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