Massey Energy strikes $960M deal for rival Appalachian coal producer Cumberland

Massey agrees to buy rival coal company for $960M

CHARLESTON, W.Va. — Coal producer Massey Energy Co. said Tuesday it has agreed to buy privately held rival Cumberland Resources Corp. for $960 million in cash and stock.

Richmond, Va.-based Massey called Cumberland a good fit for its strategy of capitalizing on growing Asian demand for higher-priced metallurgical coal. Approximately half of Abingdon, Va.-based Cumberland’s 416 million tons of reserves in Virginia and Kentucky can be used as metallurgical coal, a key ingredient in making steel.

“We are extremely pleased with this acquisition opportunity and the value it represents for Massey stockholders,” Chief Executive Don Blankenship said in a statement. “The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy.”

That strategy centers on high-value metallurgical coal and demand in Asia — and resulting supply shortages in South America and Europe.

Massey recently announced its first shipment of 80,000 tons of metallurgical coal to China and expects to sell about 2 million tons of coal to India this year. Earlier this year, the company announced plans to invest $160 million this year in the first phase of a a mining complex capable of producing 2 million tons of metallurgical coal annually.

Abingdon, Va.-based Cumberland made $92 million on revenue of $550 million from 7.8 million tons of coal in 2009, Massey said.

The company focuses on underground mining — considered key, given the Environmental Protection Agency’s decision in 2009 to increase scrutiny on surface mining permits in West Virginia, Kentucky and Virginia. Massey said it expects the deal to add to profits in 2010.

Terms of the deal call for Massey to pay $640 million in cash and $320 million in stock. Massey ended 2009 with $665.8 million in cash and recently was able to withdraw a $72 million bond posted in a West Virginia lawsuit.

Massey tempered enthusiasm for the deal by noting that it is falling short of expectations during the first quarter. The company said preliminary data shows weather cut into production and shipments during the January and February, but it didn’t provide details.

The deal is expected to close in the second quarter.