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Arch Coal sells Canyon Fuel Co. to Bowie Resource

World Coal,

Bowie Resources is to buy Arch Coal subsidiary, Canyon Fuel Co., for US$ 435 million in a joint venture with Galena Private Equity Resource Fund. The joint venture company, Bowie Resource Partners (BRP) will own the Bowie and Canyon Fuel mines and will be based in Louisville, Kentucky, with a regional office in Grand Junction, Colorado. BRP will have a productive capacity of 15–17 million tpa of thermal coal and a workforce of 1100 employees. The transaction is expected to close in Q3.

Canyon Fuel includes the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation, all located in Utah. In addition to these active operations and related support facilities, Bowie will receive approximately 105 million t of bituminous coal reserves in Utah.

Arch Coal: unlocking value for shareholders

"The sale of our Utah operations is consistent with our previously announced plan to unlock value for our shareholders by divesting certain non-core thermal coal assets," said John W. Eaves, Arch's president and CEO. "As part of our strategy, we have been diligently focused on optimising our asset base, expanding our coal export network, reducing our discretionary capital spending and re-aligning our portfolio for growth. With this transaction, we're delivering on a number of these initiatives while also enhancing our financial flexibility."

Positioning for the Future

"The divestiture of Canyon Fuel will streamline Arch's mine portfolio and allow us to focus on the most value-enhancing parts of our business, such as building out and upgrading our Appalachian metallurgical coal platform and optimising our low-cost thermal coal franchise to serve the domestic and export coal markets," said Eaves. "Our Utah operations have generated more than US$ 600 million in free cash flow for Arch since 1998 and have created significant value for our company. But we believe that monetising these assets now, before investing meaningful additional capital, is the right course of action for our shareholders."

Arch will retain its Mountain Coal Company's West Elk mine in Colorado and approximately 300 million t of coal reserves in the Western Bituminous Region, including bituminous reserves located in southern Wyoming. In 2012, the West Elk mine sold 6.7 million t of high-quality, low-sulfur coal, of which roughly 40% was shipped into the seaborne thermal market.

Strategic fit for Bowie

"Bowie has a long operating history in the Western Bituminous Region," said Eaves. "Bowie also has deep knowledge and experience in serving the region's customer base and is well positioned to manage the opportunities and challenges associated with mining in Utah. We thank the talented employees of Canyon Fuel for their significant contributions to Arch's success over the past 15 years, including upholding exemplary safety and stewardship practices, providing countless hours of service and making many generous donations to local communities. We are confident that they will continue this track record of excellence as Bowie employees."

The Canyon Fuel assets will join Bowie's 5 million tpa longwall operation in Paonia, Colorado, which opened in 1998 and was purchased by a group headed by John Siegel and Steve M. Rickmeier in July 2009. 60% of Bowie’s production and remaining reserves are committed to the Tennessee Valley Authority under a long-term contract.

Adapted from press release by Jonathan Rowland.

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