Massey Energy Completes Acquisition of Cumberland Resources Corporation

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Researched by Industrial Info Resources (Sugar Land, Texas--Massey Energy Company (NYSE:MEE) (Richmond, Virginia) is in the process of integrating Cumberland Resources Corporation's (Abingdon, Virginia) operations into its business after finalizing the acquisition of Cumberland and its assets in April for $960 million (consisting of $640 million cash and $320 million in shares of Massey's common stock).

The acquisition has provided Massey with an estimated 416 million tons of coal reserves. Massey believes that more than half of that amount (216 million tons) has metallurgical coal properties. Also included in the transaction is Cumberland's existing operations, which currently employ about 1,000 miners and staff at 25 underground mines and two preparation plants in southwestern Virginia and eastern Kentucky. With this transaction, Massey now has an estimated total reserve base of 2.9 billion tons, of which approximately 1.3 billion tons are of metallurgical quality coal.

Based on its first quarter 2010 operating results released April 21, Massey indicates that the recent purchase of Cumberland will not only add to its 2010 profits, but also will help meet a growing demand for metallurgical, or coking, coal by steel mills. Cumberland sold about 7.8 million tons of coal in 2009 for $550 million, and of that amount, 4.8 million tons were metallurgical coal.

According to the World Steel Association (Brussels, Belgium), the international trade body for the iron and steel industry, U.S. crude steel production was up 52% during the first two months of 2010, compared to the same period last year. Crude steel production in China has increased 25%, and total world steel production has increased 27%. U.S. exports of metallurgical coal increased 83% during the first two months of 2010, while U.S. exports of steam coal declined 39% in the same period.

Not including production from the newly acquired Cumberland operations, Massey expects to produce and sell 35 million to 37 million tons in 2010 and 37 million to 42 million tons in 2011. Massey produced almost 38 million tons in 2009.

Before the acquisition, Massey estimated that the company's annual production of metallurgical coal was about 11 million tons. With the Cumberland assets, Massey expects to be able to produce an additional 5 million tons of metallurgical-quality coal a year, with no additional capital investment.

With the addition of Cumberland's reserve base, Massey officials expect to grow its annual production capacity of metallurgical coal to 20 million tons by the end of 2012. Cumberland's focus on underground mining has now put Massey Energy at an advantage, given the U.S. Environmental Protection Agency's 2009 decision to increase scrutiny on surface mining permits in West Virginia.

Massey's Chairman and CEO Don Blankenship said in the company's March 16 news release, "We are extremely pleased with this acquisition opportunity and the value it represents for Massey stockholders. The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy in Central Appalachia. Cumberland's track record of low-cost production, their focus on underground mining and their low legacy liabilities are consistent with Massey's history and strategy. We believe this acquisition is an excellent fit for Massey."

As a result of the acquisition, Massey is now considered the largest coal company in Central Appalachia.

Massey finished the Cumberland deal at the same time it faced an investigation of the explosion that killed 29 miners at the Upper Big Branch mine in West Virginia on April 5.

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