Major US coal miner sells five coal mines to focus on natural gas
Consol Energy (NYSE:CNX), the largest coal producer in the eastern US, has signed an agreement to sell five coal mines – about half of its production capacity – as it shifts its focus to natural gas and coal production for exports.
Murray Energy Corporation is buying Consolidation Coal Company (CCC) – a Consol subsidiary – for $3.5 billion, Consol noted in a statement on Monday.
"While this transaction furthers CONSOL's E&P growth strategy, the sale of these five mines – assets that have long contributed to America's economic strength and our company's legacy – was a very difficult decision for our team," commented J. Brett Harvey, Consol's CEO.
CCC holds five mines in West Virginia which collectively produced 28.5 million tonnes of thermal coal in 2012.
Murray will pay $850 cash as well as $184 million in future royalties. The new owner will also assume $2.4 billion in liabilities. The transaction is expected to result in a $1.3 billion pre-tax gain on Consol's Q4 2013.
The sale comes at a tough time for US coal producers. The US Environmental Protection Agency recently proposed a set of regulations to limit emissions from new power plants – a move which opponents view as the Obama administration's 'war on coal.'
As a result of its new focus, Consol expects to increase gas production by 30% over the next three years, partly from heavy investment in the company's Marcellus Shale play.
"We have a sizeable Marcellus Shale footprint in West Virginia, which will take a significant amount of labor and capital to develop," Harvey said.
But Consol is nowhere near giving up on coal. The company will hold on to coal assets in Pennsylvania as well as its flagship coking coal Buchanan Mine and the Miller Creek Mining Complex, both in southwestern Virginia. These assets feed foreign markets where demand is still growing, Consol President Nicholas J. DeIuliis told the New York Times.
In a conference call with reporters DeIuliis emphasized that this was not a "capitulation" but rather a move away from businesses that have "limited growth potential," The New York Times reports.
The announcement didn't spark much of a reaction on the New York exchange. Consol's share price shed half a percentage point by late afternoon, trading at $37.95 per share. Since falling sharply to $26.51 in July, the firm has gained 22%.