Coal Gets Fired Up for M&A Mania

Can't you feel the electricity in the air? Consider where that electricity comes from.

An audible buzz is continuing to build around the shares of coal producers, with Appalachian giant Massey Energy (NYSE: MEE  ) leading the charge. Massey's shares have spiked by a third already since The Wall Street Journal first reported murmurs of a possible sale last month. Rival miner Alpha Natural Resources (NYSE: ANR  ) has reportedly made an offer already, and Arch Coal (NYSE: ACI  ) may also join the fray.

The world's largest coal producer -- Coal India -- recently revealed that both Massey Energy and Peabody Energy (NYSE: BTU  ) had approached the miner regarding the potential sale of individual U.S. mines. Coal India is flush with cash following a $3.4 billion IPO, and is targeting about $1.2 billion for foreign acquisitions in Australia, Indonesia, and the United States.

Peabody Energy, for its part, may be looking to monetize select U.S. assets to help fund its own acquisition strategy, which is clearly focused upon expanding capacity for seaborne production in Australia. If price action is any indication, last week's separate rumor that Peabody might gobble up James River Coal (Nasdaq: JRCC  ) has been met with considerable skepticism.

But Massey's potential suitors are not confined to coal miners. In a fresh twist, steelmaker ArcelorMittal (NYSE: MT  ) is the latest name in a long list of companies keen to pounce upon Massey's 2.8 billion tons of coal in reserves (which includes 1.3 billion tons of metallurgical coal). For the steelmaker, acquiring Massey would be all about a vertical move deeper into the supply chain for a strategic advantage in production costs.

Massey may be the latest morsel to find itself on the plates of potential suitors, but I expect merger and acquisition activity to continue heating up as the coal sector adapts to the enormity of this bull market that Peabody Energy describes as "a long-term supercycle." I view Caterpillar's remarkable decision to acquire mining equipment manufacturer Bucyrus (Nasdaq: BUCY  ) through a similar lens, since the coal industry represents a significant portion of Bucyrus' client base.

Coal miners and related companies recognize the sheer scope and longevity of this global bull market for coal. The time has come for Fools to generate some electricity in their long-term gains by making room for coal. To find out what becomes of Massey Energy, track our coverage by adding the ticket to your watchlist by clicking here.

The coal tag in the Motley Fool CAPS community lists 32 companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of Arch Coal and Peabody Energy. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.


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