Massey Energy says buyout of Cumberland will lead to doubling of metallurgical coal

Massey plans doubling of metallurgical coal sales

CHARLESTON, W.Va. — Mine operator Massey Energy Co. said Wednesday that its $960 million acquisition of rival Cumberland Resources this week will help double sales of expensive coal used in steel mills by 2012.

Massey hopes to sell upwards of 20 million tons of metallurgical coal a year by then, riding strong demand from the burgeoning economies of Asia.

Cumberland should contribute about 5 million of those tons without significant capital investment, Massey officials said during a conference call.

The cash and stock deal represents the latest shift by a major U.S. coal producer to cash in on growing demand for metallurgical, or coking, coal by Asian steel mills.

The economies of China and India have rebounded much faster than in Europe and Asia, helping to push benchmark metallurgical coal prices to $200 per ton, approximately double the price of just a year ago.

“The market is strong,” Massey Chief Executive Don Blankenship said. “Whether it will absorb 20 million tons at real high prices, I think it will by 2012.”

Cumberland is Massey’s second big bet. The company, based in Virginia, recently it would spend $160 million this year to develop a southern West Virginia operation capable of producing 2 million tons of metallurgical coal each year. Massey also has agreements to work on coal projects with two Indian steel companies.

Cumberland hasn’t been a big metallurgical producer, but Massey plans to turn that around.

Cumberland Resources Corp. operates about 25 underground mines straddling the Kentucky-Virginia border. About half the 416 million tons of reserves Cumberland owns in the area can be used as metallurgical coal.

Investors liked the deal, which is expected to close in the second quarter.

Company shares spiked to a new 52-week high of $54.09 Wednesday.