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Should you expect big US coal mergers and acquisitions soon?

PART:
1 2 3 4 5 6 7 8 9 10
Part 8
Should you expect big US coal mergers and acquisitions soon? PART 8 OF 10

Why Cloud Peak Energy traded its Decker mine for port access

The deal

In September 2014, Cloud Peak Energy (CLD) announced that it signed a deal to sell its 50% stake in the Decker mine in Montana. It sold the stake to its joint venture partner—Ambre Energy. As a part of the deal, Cloud Peak Energy will transfer $66.7 million in outstanding reclamation and lease bonds for the Decker mine to Ambre Energy, reducing Cloud Peak’s debt.

Why Cloud Peak Energy traded its Decker mine for port access

Why Cloud Peak Energy traded its Decker mine for port access

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Export capacity

In addition to transferring debt, Cloud Peak Energy will also get an option of using up to 7 million tons of annual capacity. The annual capacity will be at the proposed Millennium Bulk terminals coal export facility in Washington State. At the time of the deal, the export facility was jointly owned by Ambre Energy and Arch Coal (ACI).

The deal has an initial term of ten years. There are four renewal options of five years each. Cloud Peak Energy will get up to a 3 million ton capacity in the first stage of the Millennium project. It will get four million tons in the second stage.

Powder River Basin producers, including Alpha Natural Resources (ANR) and Peabody Energy (BTU), are looking at export opportunities amid regulatory issues and competition from shale gas in domestic market.

Challenges for US coal exporters

While Asia is a big opportunity for coal producers across the world, US producers (KOL) are at a disadvantage due to location constraints. The Asian market is served primarily by producers in the Pacific Basin—including those in Australia and Indonesia. South African producers can also serve the European market, along with the Asian market. As a result, US producers may only be able to benefit from the opportunity if production in Australia and South Africa falls short. The opportunities from the new port infrastructure in the northwest are still under evaluation.

Ambre Energy didn’t take too much time to strike another deal after this. Find out more in the next part of this series.

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