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Peabody to sell New Mexico and Colorado coal assets

Published by
World Coal,

Following a competitive bidding process, Peabody Energy has entered into a definitive agreement to sell its New Mexico and Colorado coal assets to Bowie Resource Partners LLC, based in Louisville, Kentucky, for US$358 million in cash, subject to customary working capital adjustments.

Bowie will acquire the El Segundo and Lee Ranch mining complexes in New Mexico and the Twentymile mining complex in Colorado – which have combined coal reserves of approximately 330 million short t – plus the assumption of certain liabilities, creating the largest bituminous coal producer in the western US. Bowie will also assume approximately US$105 million in related liabilities.

"This transaction is consistent with our stated focus area of portfolio optimisation. While our New Mexico and Colorado operations and workforce have been substantial contributors to our success over the years, we are reshaping our portfolio focus around our core regions, including the Powder River Basin, Illinois Basin and Australia," commented President and CEO Glenn Kellow. "At this time, we believe it is appropriate to monetise the value of these mines in a transaction that would bring forward multiple years of cash flows."

Peabody's New Mexico and Colorado mines are projected to produce 11 million shirt t in 2016. Based on Peabody's current operating plans, pre-tax cash flows after capital expenditures for these mines are projected to be approximately US$70 million in 2016. It is expected that the acquisition will nearly double the size of Bowie's production output to 25 million short tpy, generating top line revenues of US$1 billion annually.

"These acquisitions fit the vision and model that were the genesis of BRP [Bowie], as we continue to buck the industry trend with long-term contractual partnerships with our customers and secure margins in our niche," said John Siegel, Executive Chairman of Bowie Resources. "The El Segundo and Twentymile mining complexes have exemplary safety and productivity records, long-term relationships with domestic customers and superior reserve quality that combine to render this an accretive and synergistic acquisition for us that will create economies of scale and lower cost.”

As part of this transaction, a US private equity fund will invest US$112 million of common equity and US$201 million of preferred equity to facilitate the acquisition and buyout of Galena US Holdings, Inc., an affiliate of Trafigura Beheer BV and Bowie's existing partner. Trafigura will continue to be the exclusive export marketing agent for Bowie’s production.

"While Galena has been a great partner, we will continue to utilise Trafigura's vast expertise to meet the needs of power generation customers around the world," Siegel added.

Transaction closing is anticipated to occur before the end of 1Q16, subject to certain governmental and regulatory approvals, and other customary conditions.

Edited from various sources by Harleigh Hobbs

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