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Murray Energy Buys 5 CONSOL Longwall Mines


CONSOL Energy sold its Consolidation Coal Co. subsidiary, which contains all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy for $3.5 billion in value. The mines being sold are the McElroy, Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines. Collectively, these mines produced 28.5 million tons of thermal coal in 2012. Murray Energy is acquiring approximately 1.1 billion tons of Pittsburgh No. 8 seam reserves. CONSOL’s River and Dock Operations are included in the transaction. In 2012, the fleet of 21 towboats and 600 barges transported 19.3 million tons of coal and other commodities along the upper Ohio River system.

“The sale of these five mines — assets that have long contributed to America’s economic strength and our company’s legacy — was a very difficult decision for our team,” said Brett Harvey, chairman and CEO, CONSOL Energy. “The employees at these mines are among the safest and most productive miners anywhere in the world. In the end, we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines.”

The sale effectively doubles the production capacity of Murray Energy and halves the production capacity of CONSOL Energy. Murray Energy currently operates six underground longwall mining systems and 23 continuous mining units. Consolidation Coal operates an equal number of each. In 2012, CONSOL Energy was ranked No. 5 in the U.S. with 56.5 million tons and Murray Energy was ranked eighth with 29.3 million tons. The two companies would swap positions in that ranking of U.S. coal producers.

“No company has developed a better legacy with its employees, with its customers, with the financial markets, with the regulatory agencies, or with the public in general, over many decades, than CONSOL and Consolidation Coal,” said Robert E. Murray, chairman, president and CEO of Murray Energy. “Murray Energy intends to preserve this well-earned legacy.”

Of the $3.5 billion, CONSOL Energy will receive $850 million in cash to be paid at the closing and future payments expected to total nearly $184 million in value resulting from the retention of a royalty on select reserves, certain water treatment payments and tolling fees at CONSOL’s Baltimore Terminal.

In addition to the mines, miners and equipment, Murray Energy will acquire $2.4 billion of CONSOL’s liabilities, which includes a $2.1 billion acquisition of other postretirement benefit plans. Other acquired liabilities include $105 million of workers' compensation, $61 million of coal workers’ pneumoconiosis, $13 million of long-term disability, and $149 million of environmental.

Additionally, Murray Energy is acquiring CONSOL’s United Mine Workers of America (UMWA) 1974 Pension Trust Obligations. CONSOL Energy, under contract with the UMWA, currently services the obligation through a $5.50 per hour contribution, or approximately $33 million per year. If this payment stream were to be capitalized, it would have a present value of approximately $941 million.

Deutsche Bank Securities acted as financial advisor to Murray Energy. Goldman Sachs & Co. and Deutsche Bank are providing committed financing to Murray Energy in connection with the transaction; Goldman Sachs is leading the financing. Kirkland & Ellis LLP acted as counsel to Murray Energy.