As part of an overall plan to unlock shareholder value, coal miner Arch Coal (NASDAQOTH: ACIIQ ) announced today it is selling its non-core thermal coal assets in Utah to Bowie, a privately owned coal company in Louisville, Ky.
Arch said it was selling its Canyon Fuel Company, along with approximately 105 million tons of bituminous coal reserves in Utah, for $435 million cash. Canyon Fuel includes the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation in Utah. The coal miner had forecast earlier that Canyon Fuel would sell around 9 million tons of coal, primarily to regional power producers and domestic industrial facilities in Utah, Nevada, and California.
Arch Coal President and CEO John W. Eaves said: "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 realigning our portfolio for growth. With this transaction, we're delivering on a number of these initiatives while also enhancing our financial flexibility."
The company says the sale streamlines Arch's mine portfolio and allows it to build out and upgrade its Appalachian metallurgical coal platform while also permitting it to optimize its low-cost thermal coal franchise to serve domestic and export coal markets. It pulls forward multiple years' worth of expected cash flows for Arch, reduces future capital expenditure spending, and increases its liquidity, all of which serves to improve its financial stability.
Arch expects to achieve cumulative capital and administrative cost savings of more than $200 million from 2014 through 2017 as a result of the Canyon Fuel sale. It will recognize a pre-tax gain of approximately $120 million that will be included in Arch's adjusted EBITDA calculation.
Eaves went on to add, "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.
Bowie obtained a committed financing arrangement, led by Morgan Stanley's senior funding division and Deutsche Bank's New York branch. Galena Private Equity Resources Fund will provide a cash investment to acquire a minority equity stake in Bowie.
FBR Capital Markets & Co. and Deutsche Bank are acting as financial advisors to Arch for the transaction, Bank of America's Merrill Lynch division is providing financial advisory services to Arch, and Simpson Thacher & Bartlett is providing legal counsel to Arch.
Morgan Stanley & Co. is acting as the financial advisor to Bowie, and Baker Botts LLP and Fultz Maddox Hovious & Dickens PLC are providing legal counsel to Bowie.