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Arch 3rd largest US Coal Company Gobbles up International Coal for ~50% premium as M&A in Coal increases feverishly with Coal Demand,Prices – How to Play the Coal Theme (KOL)

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Coal  M&A has increased feverishly around the world with power companies,mining companies,energy companies looking to acquire Coal Assets as the prices of this fossil fuel have increased at an astounding rate.India and Chinese companies have been leading the charge acquiring coal mining companies and coal mines in places as far away as South Africa,Australia,Canada and Indonesia.Rio Tinto one of the 2 giant Mining Conglomerates has not been far behind acquiring Riverside Coal at a substantial premium.Despite the dirty nature of coal generated power and harmful effects on human health,coal usage is growing exponentially.China is by far the largest user of coal in the world consuming almost 3 billion tons annually.India is too joining the race as private utilities increase coal usage to power ultra mega power plants of 4000 MW capacity.Coal prices have reflected the fundamental increasing by more than 75% with prices of metallurgical coal increasing to $225 a ton.

Arch Coal and International Coal

Arch Coal is the 3rd largest Coal Company in the USA. During the year ended December 31, 2009, the Company sold approximately 126.1 million tons of coal and  operated 19 active mines at 11 mining complexes located in the United States.  On October 1, 2009, the Company acquired Rio Tinto’s Jacobs Ranch mine with 345 million tons of coal reserves and integrated it into the Black Thunder mine.International Coal on the other hand is a small producer with a market cap of $2.2 billion previously which has managed a nearly 50% premium.Market Cap of $2.2 Billion  is a producer of coal in Northern and Central Appalachia .As of December 31, 2009, the Company operated a total of 11 surface and 11 underground coal mines located in Kentucky, Maryland, Virginia, West Virginia and Illinois.The Company’s mines in Central Appalachia produced 10.1 million tons of coal in 2009, and the mines in Northern Appalachia produced 3.9 million tons of coal in 2009.

How to Play the Coal Theme

Investing in Coal has become a good idea despite the large increases in the price of coal companies and coal ETF KOL.Investing in Coal Companies in India and China is even a better idea as they are located close to the biggest Coal Customers and have low transportation costs.KOL gives exposure to both Chinese and American companies while for expsoure to Coal Companies in India direct investment in Indian stock markets are needed.Coal India Limited which is the world’s largest producer of Coal is still underpriced and despite production slowdown has massive pricing power leading to increased profits.

Arch Coal to Acquire International Coal for $3.4 Billion

Arch Coal Inc. agreed to buy International Coal Group Inc. for $14.60 a share in an all-cash transaction valued at $3.4 billion to become the second-largest U.S. metallurgical coal producer.Arch expects pro forma metallurgical sales to reach 11 million tons in 2011 and 14 million tons over the next three years from the combined operations, the St. Louis-based company said in a statement. International Coal is based in Scott Depot, West Virginia.The sale gives Arch assets in every major domestic coal basin, the company said. Arch’s reserve base will increase 25 percent to 5.5 billion tons. Arch has dedicated throughput rights at an East Coast export terminal and access to shipping terminal on the Gulf Coast and West Coast.


Abhishek Shah

3 Responses so far | Have Your Say!

  1. Frances Kinloch

    I have one share of International coal company in which I never received the $14.50 when Arch Coal bought International Coal. Please tell me how I can get my $14.50? Sincerely, Frances Kinloch