Alpha Looks To Be The Big Dog In U.S. Met Coal

This weekend's announcement from Alpha Natural Resources (NYSE:ANR) that it reached an agreement to acquire Massey Energy (NYSE:MEE) not only ends months of speculation about Massey's future, but it also represents yet another tremor through the metallurgical coal world. With steel prices already on the rise, met coal trading at about twice the price of steam coal and relatively modest near-term supply coming online, it seems a safe bet that met coal pricing is going to be a popular topic this year.

Alpha's Deal
Alpha agreed to pay over $7 billion in cash and stock to acquire Massey. The deal is being structured as a mix of equity and cash, with Massey shareholders getting 1.025 shares of Alpha (and thereby owning about 46% of the combined company) and $10 in cash. That is not only a 21% premium to where Massey closed on Friday (and the stock has been strong since the summer of 2010), but a rather high multiple relative to normal historical coal stock metrics. (For more, see Coal Burns Bright Despite Pressures.)

Alpha may have felt that it needed to make an impressive bid for Massey in order to fend off potential rivals. Though unattributed rumors are hardly proof, it does not seem unreasonable that companies like Arch Coal (NYSE:ACI) or ArcelorMittal (NYSE:MT) may have been interested in Massey as well.

What Alpha Will Be
With this deal, Alpha acquires 2.9 billion tons in coal reserves, with 1.3 billion of those being the more valuable metallurgical coal. All told, the combined company will have more than 5 billion tons in coal reserves and will become a real player in the global met coal market. Though BHP Billiton (NYSE:BHP), Mitsubishi and Teck Resources (NYSE:TCK) will still have roughly 40% of the world met coal market, the new Alpha will crack into the double-digits in terms of share of the global seabourne market.


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Investopedia: Will Aussie Flooding Rain On China's Parade?

Australia's summer has brought more than its usual wet season to parts of the country. This year the large northeastern state of Queensland has seen devastating flooding; the sort of flooding that leads to world news clips of people paddling boats through streets and animals seeking refuge wherever they can from the waters. Though the human toll of the disaster is likely to be severe for Australians, there are economic impacts that will stretch beyond the country and be felt throughout 2011. 

Trouble In Coal
Australia is a major producer of metallurgical coal, and mines in Queensland produce about half of the country's supply of this critical steel component. In particular, China is critically dependent upon Australia's met coal mines to feed its ever-hungry steel sector. With about 90 million tonnes of met coal already subject to force majeure, it would seem that steel customers in Asia are going to have to scramble (and pay up) to find the coal to fuel their blast furnaces.

BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), Wesfarmers and Xstrata all have major met coal operations in Australia. Even for those companies and mines that are relatively less affected, there is the issue of the ports and rails - flooding has damaged infrastructure and delayed ship loadings, and it will take some time to work through the backlog. While companies like Xstrata do have other producing areas (South Africa for Xstrata, for instance), there is only so much coal to go around. Likewise, for companies like Peabody (NYSE:BTU), which does have some operations in New South Wales (in addition to Queensland), there is only so much they can do to increase mine production in the short term.
 

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http://stocks.investopedia.com/stock-analysis/2011/Will-Aussie-Flooding-Rain-On-Chinas-Parade-RIO-BHP-BTU-TCK-ANR-MEE-CZZ0107.aspx

I realize this isn't really "news" anymore ... unfortunately, it got held up in queue. 

Met-Coal Mash Up

Given all the rumors and discussions about the bid, the actual announcement that Walter Energy (NYSE:WLT) is buying Canada's Western Coal for C$11.50 a share is perhaps something of an anticlimax. That notwithstanding, this deal will create the largest metallurgical coal pure-play and the third-largest met coal producer overall. 

The Deal
Under the terms of the deal announced Friday, Walter will offer Western Coal shareholders their choice of C$11.50 in cash or 0.114 shares of Walter Energy, or a combination thereof up to a limit of 70% total cash in the deal. That represents a total deal value of about $3.3 billion and a 56% premium on Western Coal shares before this chatter began. 


The New Company
As Walter Energy boasted in its press release on the deal, this combination will create the largest pure-play met coal producer in the world, with some 385 million tons of reserves. Met coal is used primarily in smelting iron and steelmaking, where the higher carbon content (and lower moisture) of this type of coal is necessary. That is different than thermal coal - the coal used to power electrical utilities, and the bulk of the coal produced and sold by companies like Peabody Energy (NYSE:BTU) and Arch Coal (NYSE:ACI). (For more, see Metallurgical Coal Update.)

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Peabody Looking To Stoke Up Profits

Oh what a fun earnings season we are having. One day you see positive news from transportation, the next day you see iffy news from a basic metals or materials company, and then the next day you see a bank report a shrinking loan book.

What, then, to make of the earnings of coal giant Peabody Energy (NYSE:BTU)? There is no question that Peabody had a solid quarter and management was relatively positive on near-term guidance. Moreover, near-term trends are looking good in the coal market. But does this mean the economy is getting better, or are their unique factors at work in the coal business?

For the full piece, please go to:
http://stocks.investopedia.com/stock-analysis/2010/Peabody-Looking-To-Stoke-Up-Profits-BTU-VALE-RTP-BHP-ANR0722.aspx

Penn Virginia Turning Coal Into Cash

Penn Virginia has been one of my favorite companies for a while, and it's a company that I have written about a lot over the years. Oddly enough, I've never actually pulled the trigger and owned it in my own portfolio. Maybe soon, though...

Say you want to invest a portion of your portfolio in coal, America's dominant energy source for electricity, but you also want to get a hefty stream of income from that investment. Unfortunately for dividend-seeking investors, the leading names in the coal industry like Peabody Energy (NYSE:BTU), Arch Coal (NYSE:ACI) and  Massey Energy Co. (NYSE:MEE) do not pay especially large dividends. What do you do?  

Well, you could try to buy a share in a coal mine lease, but that is quite frankly not an option for most regular people. You could also pursue a covered call writing strategy, but that may be a bit too much work for some investors. Or, you could also just buy the shares of a royalty partnership like Penn Virginia Resources (NYSE:PVR). 

http://stocks.investopedia.com/stock-analysis/2010/Penn-Virginia-Turning-Coal-Into-Cash-PVR-BTU-ACI-MEE-RRC-EOG-ARLP-NRP0512.aspx