ST. LOUIS, June 19, 2019 /PRNewswire/ -- Arch Coal,
Inc. (NYSE: ARCH) and Peabody Energy Corporation (NYSE: BTU) today
announced that they have entered into a definitive agreement to
combine the companies' Powder River Basin and Colorado assets in a highly synergistic joint
venture aimed at strengthening the competitiveness of coal against
natural gas and renewables, while creating substantial value for
customers and shareholders.
The joint venture is expected to unlock synergies with a pre-tax
net present value of approximately $820
million.1 Average joint venture synergies are
projected to be approximately $120
million per year over the initial 10 years.2 The
joint venture will be 33.5 percent owned by Arch and 66.5 percent
owned by Peabody.
"We are excited about this transaction's potential to enhance
the value of Arch's top-tier thermal coal assets," said Arch Chief
Executive Officer John W. Eaves.
"This new joint venture should allow us to realize the full
potential of our valuable assets in the Powder River Basin and
Colorado and benefit our customers
in the process. The significant operating synergies will enhance
the competitiveness of these assets and also enable us to continue
to generate long-term, sustainable returns for our shareholders. We
look forward to completing this transaction in a timely
manner."
"The Peabody/Arch joint venture is an extraordinary example of
industrial logic targeted to strengthen the competitive position of
our products and create significant value for multiple stakeholders
in a low-cost combination with exceptional physical synergies,"
said Peabody President and Chief Executive Officer Glenn Kellow. "The transaction unites two
strong, culturally aligned workforces with a commitment to core
values such as safety and sustainability. We believe this joint
venture allows us to offer enhanced products and security of supply
for customers, increased value for shareholders, greater
efficiencies for railroads, long-term opportunities for employees
and strength for the communities in which we operate."
Governance of the joint venture will consist of a five-member
board of managers appointed by Arch and Peabody. Each party will
have voting rights in proportion to its ownership percentages, with
certain items requiring supermajority approval. As the operator,
Peabody will manage all activities including the marketing of coal.
Arch and Peabody will share profits, capital requirements and cash
distributions of the joint venture in proportion to ownership
percentages.
Among other assets, the joint venture will combine two
productive and adjacent U.S. coal mines – Arch's Black Thunder Mine
and Peabody's North Antelope Rochelle Mine (NARM), which share a
property line of more than seven miles – into a single, lower-cost
complex.
Aggregated synergies are expected to enable the joint venture to
significantly reduce costs well beyond what each company could
achieve alone. A lower cost structure enables coal to better
compete against other energy sources for electricity generation and
create value. Expected substantial synergies include, among
others:
- Optimization of mine planning, sequencing and accessing
otherwise isolated reserves;
- Improved efficiencies in deployment of the combined equipment
fleet;
- More efficient procurement and warehousing;
- Enhanced blending capabilities to more closely meet customer
requirements;
- Improved utilization of the combined rail loadout system and
other rail efficiencies;
- Reductions in long-term capital requirements; and
- Leveraging of shared services.
Underpinning the combination, Peabody has the lowest cost
position among major Powder River Basin (PRB) producers and Arch
has some of the highest-quality coal in the PRB. Arch is
contributing its low-cost, higher-margin West Elk Mine that
enhances Peabody's Twentymile Mine in Colorado. Further PRB synergies are expected
from the integration of the Caballo, Rawhide and Coal Creek mines, which have some of the best
overburden-to-coal ratios in the world. Together with Black Thunder
and NARM, the PRB assets represent five of the 10 most productive
mines in the United States. The
inclusion of the Colorado assets
will lead to additional synergies and offer the ability to better
serve domestic customers while preserving seaborne coal
optionality.
The combination of assets from two recognized companies is
expected to advance continued responsible mining and reclamation
for decades to come, benefiting all stakeholders.
"In addition to enhancing the competitiveness of our western
thermal coal platform, this move represents an excellent fit with
our well-defined strategy for long-term value creation and growth,"
Eaves said. "While we expect our thermal coal assets to contribute
significantly to our overall financial performance well into the
future, we plan to focus our future growth and all of our projected
growth capital on our core coking coal segment. Earlier this year,
we announced plans to develop a second, world-class, High-Vol A
longwall mine on the Leer reserves in northern West Virginia, and will continue to evaluate
additional investments on this 200-million-ton reserve base over
time. Looking ahead, we anticipate continued, favorable market
dynamics in global coking coal markets, and view our premier coking
coal portfolio as the centerpiece of our strategy to drive
exceptional, long-term returns."
At the same time, Arch plans to drive forward with its highly
successful capital return program. Since launching the program in
May 2017, Arch has returned
$725.6 million to shareholders via
buybacks and dividends. As part of this program, Arch has bought
back 8.1 million shares, or nearly one third of its initial shares
outstanding, through March 31, 2019.
"With our strong and increasingly valuable coking coal portfolio
and continuing contributions from our thermal coal assets, we
remain sharply focused on generating high levels of free cash that
we can use to fuel our robust and ongoing capital return program,"
Eaves said.
Arch and Peabody will continue to operate the assets
independently until closing of the transaction. Closing is subject
to regulatory approval and the satisfaction of customary closing
conditions. Upon closing, Arch and Peabody will each contribute its
active Powder River Basin and Colorado mines, as well as related assets and
liabilities, into the joint venture. Each company expects to
proportionally consolidate the joint venture within their
respective financial statements.
In 2018, on a combined basis, the assets shipped 206.0 million
tons of coal. The assets are operated by a workforce of
approximately 3,300, with combined proven and probable reserves
totaling 3.4 billion tons as of December 31,
2018.
Conference Call
On June 19, 2019, Arch and Peabody
will each host conference calls to discuss the details of the joint
venture. Peabody's call will be held at 9:00
a.m. CDT, with Arch's call immediately following at
9:30 a.m. CDT.
Participants can access Peabody's call at PeabodyEnergy.com or
using the following dial-in numbers:
U.S. and Canada
888-312-3049
Australia 1800 849 976
United Kingdom 0808 238 9907
All other international participants, please contact Peabody
Investor Relations at (314) 342-7900 prior to the call to receive
your dial-in number.
Participants can access Arch's call at archcoal.com or using the
following dial-in numbers:
U.S. and Canada
800-667-5617
International 334-323-0509
U.S.-based Arch Coal, Inc. is a top coal producer for the global
steel and power generation industries. Arch operates a streamlined
portfolio of large-scale, low-cost mining complexes that produce
high-quality metallurgical coals in Appalachia and low-emitting
thermal coals in the Powder River Basin and other strategic supply
regions. For more information, visit www.archcoal.com.
Peabody is the leading global pure-play coal company and a
member of the Fortune 500, serving power and steel customers in
more than 25 countries on six continents. The company offers
significant scale, high-quality assets, and diversity in geography
and products. Peabody is guided by seven core values: safety,
customer focus, leadership, people, excellence, integrity and
sustainability. For further information, visit
PeabodyEnergy.com.
Credit Suisse and Lazard are acting as financial advisers to
Peabody for the transaction. Cravath, Swaine & Moore LLP and
Akin Gump Strauss Hauer & Feld LLP are acting as legal
advisers to Peabody. Goldman Sachs & Co. LLC is acting as
financial adviser to Arch. Latham & Watkins LLP and Baker Botts
LLP are acting as legal advisers to Arch.
Forward-Looking Statements: This press release contains
"forward-looking statements" – that is, statements related to
future, not past, events. In this context, forward-looking
statements often address our expected future business and financial
performance, and often contain words such as "expects," "aims,"
"anticipates," "intends," "plans," "believes," "seeks," or "will."
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. For us, particular
uncertainties arise from our ability to complete the joint venture
transaction in a timely manner, including obtaining regulatory
approvals and satisfying other closing conditions; from our ability
to achieve the expected synergies from the joint venture; from our
ability to successfully integrate the operations of certain mines
in the joint venture; from our emergence from Chapter 11 bankruptcy
protection; from changes in the demand for our coal by the domestic
electric generation and steel industries; from legislation and
regulations relating to the Clean Air Act and other environmental
initiatives; from competition within our industry and with
producers of competing energy sources; from our ability to
successfully acquire or develop coal reserves; from operational,
geological, permit, labor and weather-related factors; from the Tax
Cuts and Jobs Act and other tax reforms; from the effects of
foreign and domestic trade policies, actions or disputes; from
fluctuations in the amount of cash we generate from operations,
which could impact, among other things, our ability to pay
dividends or repurchase shares in accordance with our announced
capital allocation plan; from our ability to successfully integrate
the operations that we acquire; and from numerous other matters of
national, regional and global scale, including those of a
political, economic, business, competitive or regulatory nature.
These uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking
statements. We do not undertake to update our forward-looking
statements, whether as a result of new information, future events
or otherwise, except as may be required by law. For a description
of some of the risks and uncertainties that may affect our future
results, you should see the risk factors described from time to
time in the reports we file with the Securities and Exchange
Commission.
1 Synergies of approximately $820 million represent the combined net present
value of estimated pre-tax synergies projected over standalone
life-of-mine plans assuming third-party price assumptions and a 10
percent discount rate.
2 Average combined synergies of approximately
$120 million per year projected over
initial 10 years.
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SOURCE Arch Coal, Inc.