Arch Coal Inc.
) continues with its strategic asset divestment program. The
company announced that it has divested its subsidiary Hazard
Complex to Blackhawk Mining, LLC ("Blackhawk"). Prior to
post-closing adjustments, the deal value was $26.3 million in
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Per the agreement, Blackhawk obtained the Hazard thermal coal
mining complex and allied infrastructure. Post transaction,
Blackhawk added around 38 million tons of thermal coal reserves
in eastern Kentucky to its portfolio.
This transaction enables Arch Coal to pass on $15.6 million
of reclamation liabilities to Blackhawk. The company
expects to be discharged from $43.8 million of reclamation surety
As Arch Coal will retain selective coal reserves at Hazard, the
company is expected to obtain future royalty payments of $35
million in aggregate over the next five years.
We note that Arch Coal had obtained ownership of Kentucky-based
Hazard Complex from the acquisition of International Coal Group
("ICG") in Jun 2011. The complex includes four active surface
mines - East-Mac & Nellie, Rowdy Gap, Bearville and Thunder
Ridge. The Teton preparation plant and Kentucky River Loading
facility are also part of this thermal coal complex.
Blackhawk owns and operates four underground and five surface
mines, and two processing and loading facilities in Kentucky.
Arch Coal sold 1.7 million tons of thermal coal, sourced from
Hazard Complex, in 2013. This property provided $4.8 million of
earnings before interest, taxes, depreciation and amortization to
the company last year.
We remind investors that Arch Coal is continuously selling its
assets. Including the latest transaction, the company has already
made two divestments so far this year. On Feb 10, 2014, Arch Coal
sold its wholly-owned subsidiary, ADDCAR Systems, L.L.C. to an
Australian firm, UGM Holdings Pty. Ltd. for $21 million.
We consider these divestitures as a strategic move to address the
company's long-term objective of focusing more on profitable
ventures while lowering its debt burden.
As per a World Steel Association report, the long-term prospects
for metallurgical (met) coal remain bullish due to chances of
improvement in demand in the Asian, North African, European and
the Middle East markets in the coming years. This is primarily
due to higher steel demand driven by growth in the automotive,
energy and residential construction sectors.
The divestiture will allow Arch Coal to allocate its resources as
per market conditions and priorities, particularly concentrating
on the budding Appalachian met coal franchise and the low-cost
Western thermal coal platform. In addition, the proceeds from the
transaction will strengthen Arch Coal's liquidity. The company
can utilize the funds to enhance its met coal reserves, thereby
meeting growing future demand.
Arch Coal Inc. currently has a Zacks Rank #3 (Hold). However,
some better-ranked stocks in the same sector include
Rhino Resource Partners LP
Range Resources Corporation
Warren Resources Inc.
), each with a Zacks Rank #1 (Strong Buy).