Cliffs Natural Resources Inc. has entered into a definitive agreement to acquire all of the coal operations of privately owned INR Energy, LLC.
INR’s operations include two underground continuous mining method metallurgical coal mines — the Powellton and Chilton-Dingess mines and one open-surface mine — the Toney Fork #2 mine. In addition to these mines, INR is currently working on several other development projects within this same complex that Cliffs will actively pursue.
All current INR operating and near-term development mines are fully permitted for life of mine, which equates to approximately one-third of the reserve base. Under its long-term operating plans, Cliffs would not anticipate a need to bring additional newly permitted mines online prior to 2017.
INR’s operations also include a state-of-the-art coal preparation and processing facility completed in 2008, along with a new 110-car unit-train batch-weight load out facility with access to the CSX railroad.
Coal from INR-owned mines is processed by INR’s Preparation Plant and then shipped to customers via the CSX rail line and exported from the port of Norfolk. Coal products can also be trucked to a wholly owned river loading facility on the Big Sandy River and then barged via the Ohio River system to the port of New Orleans for export.
While maintenance capital expenditures are approximately $25 to $30 million annually, Cliffs expects to make growth capital expenditures totaling $125 million by 2012 to support the build-out of additional mine assets and preparation plant infrastructure.
|
Cliffs said it plans to finance the $757-million acquisition through available liquidity, including cash on hand and the company’s $600-million credit facility. The transaction — which is subject to customary closing conditions, including Hart-Scott-Rodino review — is expected to close within 60 days.
The acquisition includes a metallurgical and thermal coal mining complex with a state-of-the-art coal preparation and processing facility located in southern West Virginia. The complex includes a large, long-life reserve base with an estimated 68 million tons of metallurgical coal and 51 million tons of thermal coal. This reserve base would increase Cliffs’ total global reserve base to over 175 million tons of metallurgical coal and over 57 million tons of thermal coal.
The INR acquisition provides several important advantages and features including long-life mine assets, operational flexibility, new equipment and no legacy liability exposure. Cliffs said each of the operating mines in West Virginia are currently managed by experienced operators and that the business will be reported in Cliffs North American Coal business segment, led by Donald Gallagher, president of Cliffs’ North American business unit.
“This acquisition represents a compelling opportunity for Cliffs to add complementary high-quality coal products that will immediately contribute to EBITDA and cash-flow generation,” commented Joseph A. Carrabba, Cliffs’ Chairman, President and CEO. “When combined with our current coal production in West Virginia, Alabama and Queensland, Australia, Cliffs estimates 2011 global equity production capacity of approximately 9 million tons at a split of approximately 7 million tons metallurgical and 2 million tons thermal.
"We currently anticipate expanding INR’s production of high-volatile metallurgical coal to 2.4 million tons by 2012, increasing Cliffs total future global equity coal production capacity to nearly 11 million tons split at 8 million tons metallurgical and 3 million tons thermal,” added Carrabba.
INR’s coal operations have established customer relationships, and while a vast majority of remaining 2010 production is under contract, production in 2011 and beyond remains largely open. In 2011, Cliffs anticipates this business will generate approximately $300 million in revenue and $100 million in EBITDA. Utilizing increased volumes and similar pricing and cost assumptions, in 2012 Cliffs expects this business to generate over $400 million in revenue and approximately $175 million in EBITDA.
Cliffs indicated that INR’s expected 2010 production is split equally between metallurgical and thermal coal products. The metallurgical/thermal coal mix is expected to shift to increased metallurgical coal production with a percentage split of approximately 65/35 in future years based on current production plans.
INR Energy, LLC is a producer and exporter of high-volatile metallurgical and thermal coal.
Cliffs Natural Resources, an international mining and natural resources company, is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. The company is organized through three geographic business units:
The North American business unit comprises six iron ore mines owned or managed in Michigan, Minnesota and Canada and two coking coal mining complexes located in West Virginia and Alabama. The Asia Pacific business unit comprises two iron ore mining complexes in Western Australia and a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. The Latin American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.
Other projects under development include a biomass production plant in Michigan and Ring of Fire chromite properties in Ont., Canada. Over recent years, Cliffs has been executing a strategy designed to achieve scale in the mining industry and focused on serving the world's largest and fastest growing steel markets.