Arch Coal, Inc. (NYSE:ACI) plans to buy a coal mine in Wyoming’s Powder River Basin from Rio Tinto plc (NYSE:RTP) for $761 million. The Jacobs Ranch mine includes 381 million tons of coal reserves and produced 42.1 million tons in 2008. It lies adjacent to another mine, Black Thunder, already owned by Arch.
Arch predicts that the acquisition will add between $145 million and $165 million to the company’s EBITDA in 2009. Virtually all of the mine’s production for 2009 is committed and priced, and about 75% of 2010 production and 50% of 2011 is also committed and priced.
The combined mines are expected “to create significant operating synergies.” Jacobs Ranch employs 600 people, and Arch declared that these employees “will be a tremendous addition to our company.”
The company apparently expects to reduce costs because of the proximity of the mines to one another. That seems pretty iffy.
Rio Tinto, which recently agreed to sell a 9% stake in the company to China’s Chinalco for $19.5 billion, gets some much needed cash, and lowers its operating expenses without having to fire anybody. Not bad in today’s world.
Paul Ausick
March 9, 2009
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