Peabody to Acquire Shoal Creek Mine Assets

Peabody (NYSE: BTU) announced today that it has signed a definitive agreement to purchase the Shoal Creek metallurgical coal mine from private coal producer the Drummond Company, for US$400 million.

Shoal Creek is located on the Black Warrior River in Central Alabama and serves Asian and European steel mills with high-vol A coking coal.

As quoted from the press release:

The transaction involves the purchase of the mine, preparation plant and supporting assets, and excludes legacy liabilities other than reclamation. The purchase price is subject to customary working capital adjustments. Closing is expected prior to the end of 2018 and is subject to regulatory approvals, certain conditions precedent, including negotiation by Drummond of a collective bargaining agreement with the union-represented workforce, and other customary conditions.

“Peabody has consistently outlined our intention to upgrade our metallurgical coal platform and make strategic investments using a strict set of filters. We believe the purchase of the well-capitalized and high-quality Shoal Creek Mine meets these filters, offers major logistical advantages and represents an opportunity to create significant value,” said Peabody president and chief executive officer Glenn Kellow. “The acquisition allows us to expand volumes and margins from our met coal platform, enhances our scale, and offers complementary products to customers. We applaud the Drummond team for developing a high-quality operation, and we look forward to advancing that reputation for excellence.”

Peabody believes the acquisition is consistent with the company’s previously stated investment filters: maintain financial strength; fit within the company’s strategic focus areas of the PRB, ILB, seaborne met and seaborne thermal; provide expected returns above Peabody’s weighted average cost of capital with a reasonable payback period; bring about tangible synergies; and create value for the company’s shareholders.

The acquisition represents a number of strategic and financial benefits for Peabody:

• Upgrading Peabody’s Metallurgical Coal Platform: Shoal Creek represents the next phase of Peabody’s initiative to upgrade its metallurgical coal platform. The mine adds approximately 2 million tons per year of high quality hard coking coal sales that are expected to expand Peabody’s met coal volumes and margins, with costs comparable to Peabody’s average met coal range.
• Quality Assets Serving Growing Demand Centers:Shoal Creek is strategically positioned on the Black Warrior River with direct access to barge transportation, eliminating trucking or rail requirements. The mine accesses seaborne markets through the Port of Mobile in the Gulf of Mexico serving Asia-Pacific and European steel mills.

Click here to read the full announcement