Peabody Energy (NYSE: BTU) announced on Monday that it has completed its purchase of the Shoal Creek seaborne metallurgical coal mine in Alabama from Birmingham-based Drummond Company, Inc. for $387 million.
Shoal Creek, which employs 450 people, is located on the Black Warrior River in Jefferson, Tuscaloosa and Walker counties and serves Asian and European steel mills. Its location on the river provides direct access to barge transportation to the McDuffie Coal Terminal at the Port of Mobile, where Panamax and Cape-sized vessels are loaded. The Alabama met coal industry is the port’s biggest revenue source.
A press release explained that the acquisition includes the well-capitalized mine, preparation plant and logistical assets and excludes legacy liabilities other than reclamation. The sale was announced in September, with the final closing amount reflecting customary purchase price adjustments.
Peabody President and CEO Glenn Kellow celebrated the addition as a boon for Peabody’s portfolio and applauded Drummond for its work in developing and operating the mine.
“This accretive Shoal Creek purchase represents a tremendous step in Peabody’s commitment to upgrade our seaborne metallurgical coal portfolio and target the highly attractive seaborne demand centers,” Kellow said.
He added, “We believe the Shoal Creek acquisition clearly meets our strict investment filters, with expected high returns and rapid payback, a very attractive valuation, and tangible synergies. We believe the transaction offers significant strategic and financial benefits for Peabody in our ongoing drive to create additional shareholder value. We applaud the Drummond team for developing and managing this high-quality operation.”
Shoal Creek coal typically prices at or near the high-vol A index, which historically has sold at a modest discount to the Australian hard coking coal index.
The mine produced 2.1 million tons of metallurgical coal in 2017 and sold 2.4 million tons, generating $387.0 million in revenues, $160.8 million in net income and $161.8 million in adjusted earnings before interest, tax, depreciation and amortization (EBITDA). Shoal Creek has realized 54 percent gross margins through the first nine months of 2018 on 2.0 million tons produced and 1.9 million tons sold, with realized revenues of $173 per ton, costs of $80 per ton1, net income of $162.1 million and adjusted EBITDA of $163.3 million.
All regulatory requirements were met as required by the conditions to closing, and a new collective bargaining agreement became effective at closing. The new labor agreement provides for a 401(k) program; the prior multiemployer pension plan is no longer effective and related obligations are not included in the acquisition. Prior retiree healthcare liabilities were also retained by Drummond.
“We are very pleased to welcome the productive Shoal Creek workforce to the Peabody team,” Kemal Williamson, Peabody President Americas, emphasized. “Peabody looks forward to safely and quickly integrating the mine into our portfolio and benefitting from the experienced workforce and well-capitalized nature of the operation.”
Shoal Creek has 58 million tons of proven and probable reserves with an initial 17 million tons with minimal anticipated capital requirements under the current mine plan, and additional reserves expected to be accessed with relatively low capital requirements. Shoal Creek uses longwall mining technology to mine both the Blue Creek and Mary Lee coal seams.
Sean Ross is a staff writer for Yellowhammer News. You can follow him on Twitter @sean_yhn