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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 7
Should you expect big US coal mergers and acquisitions soon? PART 7 OF 10

Why Westmoreland Coal Company stands out in the coal industry

Kemmerer Mine

Westmoreland Coal Company (WLB) bought the Kemmerer Mine in Wyoming from Chevron (CVX) in 2012 at a cost of $164.5 million. The mine is a surface mine spread across 13,400 acres, producing 10,000 MMBtu (British thermal units per pound—a measure of heat content) of coal. The mine held reserves of over 98 million tons and produced 4.6 million tons of coal in 2013.

Why Westmoreland Coal Company stands out in the coal industry

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Canadian assets

The company acquired seven surface mines in Canada’s provinces of Alberta and Saskatchewan from Sherritt International. The acquisition completed in April 2014. The cost included $323 million in cash payment. Moreover, WLB has assumed $330 million in liabilities on these mines. The acquisition gives WLB access to around 650 million tons of proven and probable reserves as well as a 50% stake in a carbon plant.

Just like US operations, most customers in the Canadian mines are located close to the mines, giving WLB a logistical advantage over its peers.

Why Westmoreland Coal is different

Companies like WLB and Cloud Peak Energy (CLD) didn’t approach acquisitions hastily, unlike their larger peers (KOL)—including Peabody Energy (BTU) and Alpha Natural Resources (ANR). As a result, their capital structure remained light, saving them from the burden of huge interest expenses and maturing debt. Moreover, operating in the low-cost western region and being pure-play thermal coal producers helped these companies keep generating positive cash flows.

Westmoreland Coal only acquired assets that suited its business model. Plus, it acquired these assets at the right time. The Kemmerer Mine supplies coal to nearby power plants, giving the company a cost advantage. Even the recently acquired Canadian mines operate under the same model. As a result, the acquisitions strengthened the company’s position.

Westmoreland wasn’t the only coal producer active in the deal space in 2014. Let’s look at Cloud Peak Energy’s deal with Ambre Energy in the next part of this series.

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