On June 28, Arch Coal, Inc. and Bowie Resources, LLC announced that they have entered into a definitive agreement under which Arch will sell to Bowie its wholly-owned subsidiary, Canyon Fuel Company, LLC, for $435 million in cash, subject to customary adjustments for working capital and other items. Both companies have approved the transaction, which is expected to close in the third quarter of 2013.
"The sale of our Utah operations is consistent with our previously announced plan to unlock value for our shareholders by divesting certain non-core thermal coal assets," said John Eaves, Arch's president and CEO. "As part of our strategy, we have been diligently focused on optimizing our asset base, expanding our coal export network, reducing our discretionary capital spending and re-aligning our portfolio for growth. With this transaction, we're delivering on a number of these initiatives while also enhancing our financial flexibility."
Canyon Fuel includes the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation, all located in Utah. In addition to these active operations and related support facilities, Bowie will receive approximately 105 million tons of bituminous coal reserves in Utah. After the transaction is completed, Bowie plans to keep the existing 725-person workforce in place at the Canyon Fuel operations.
"From the inception of our ownership of Bowie, our goal has been to establish a core business rooted in the Western Bituminous Region and to grow it, not only organically but with synergistic acquisitions," said John Siegel, a principal owner of Bowie. "In that context, it would be hard to imagine a more logical next step in our evolution than the purchase of these superior Canyon Fuel mines."
Both companies are positioning for the future.
"The divestiture of Canyon Fuel will streamline Arch's mine portfolio and allow us to focus on the most value-enhancing parts of our business, such as building out and upgrading our Appalachian metallurgical coal platform and optimizing our low-cost thermal coal franchise to serve the domestic and export coal markets," said Eaves. "Our Utah operations have generated more than $600 million in free cash flow for Arch since 1998 and have created significant value for our company. But we believe that monetizing these assets now, before investing meaningful additional capital, is the right course of action for our shareholders."
Arch will retain its Mountain Coal Company's West Elk mine in Colorado and approximately 300 million tons of coal reserves in the Western Bituminous Region, including bituminous reserves located in southern Wyoming. In 2012, the West Elk mine sold 6.7 million tons of high-quality, low-sulfur coal, of which roughly 40 percent was shipped into the seaborne thermal market. "West Elk is a valuable, low-cost asset with a broad market reach that includes customers in the eastern and western United States and in the international arena," said Paul Lang, Arch's executive vice president and chief operating officer.
"Bowie has a long operating history in the Western Bituminous Region," said Eaves. "Bowie also has deep knowledge and experience in serving the region's customer base, and is well positioned to manage the opportunities and challenges associated with mining in Utah." We thank the talented employees of Canyon Fuel for their significant contributions to Arch's success over the past 15 years, including upholding exemplary safety and stewardship practices, providing countless hours of service and making many generous donations to local communities. We are confident that they will continue this track record of excellence as Bowie employees."
"The Bowie employees' motto of 'the best of the best' dovetails perfectly with the obvious work ethic and commitment to excellence that has long been the hallmark of the workforce at Canyon Fuel," said Siegel. "We are proud to bring these two skilled teams together, and we believe we have the opportunity to create something very special here."
Bowie has obtained a committed financing arrangement, led by Morgan Stanley Senior Funding Inc. and Deutsche Bank AG New York Branch, to fund the transaction.
Galena Private Equity Resources Fund ("Galena") will provide a cash investment to acquire a minority equity stake in Bowie.
Consummation of the transaction is subject to certain governmental and regulatory conditions and approvals and other customary conditions.
FBR Capital Markets & Co. and Deutsche Bank are acting as financial advisors to Arch for the transaction,Bank of America Merrill Lynch is providing certain financial advisory services to Arch, and Simpson Thacher & Bartlett is providing legal counsel to Arch.
Morgan Stanley & Co. LLC is acting as the financial advisor to Bowie, and Baker Botts LLP and Fultz Maddox Hovious & Dickens PLC are providing legal counsel to Bowie.blog comments powered by Disqus