The deal would give Arch some 381-million tons of coal reserves near its Black Thunder mine, plus associated infrastructure of a high-speed rail loadout, a recently added overland conveyor and a near-pit crushing system along with a fleet of mining equipment and customer commitments.
Arch chairman and chief executive officer Steven Leer said Jacobs Ranch represents an excellent strategic fit with Arch’s existing assets in the Powder River Basin.
“The integration of Jacobs Ranch into the Black Thunder mine will create one of the world’s largest and most efficient mining complexes,” Leer said.
“Because Jacobs Ranch and Black Thunder share approximately six miles of property line, the combination is expected to create significant operating synergies.”
Arch said the combined black Thunder complex will have three load-outs capable of loading four trains simultaneously, along with 22 train-landing spots – “the most of any mine in the Powder River Basin”.
The company said its reserves in the basin, following the acquisition, would increase to 2.1 billion tons, out of its total reserve base of 3.1Bt, as of resource statements from December 31, 2008.
A bonus for Arch is the established customer contracts.
“Nearly 100 per cent of Jacobs Ranch’s projected production for 2009 is committed and priced under existing sales contracts,” Arch said.
“Additionally, more than 75 per cent of the mine’s projected 2010 production – and nearly 50 per cent of its 2011 production – is committed and priced.”
Arch said Jacobs Ranch had earnings before interest, taxes, depreciation and amortisation close to $US73 million during last year. Adding the operation will give the company EBITDA of $145-165 million for this year.
To finance the deal, Arch said it would use its own cashflow from operations as well as borrowings from its $US800-million revolving credit facility and “possibly other debt instruments”.
Rio equipment at Jacobs Ranch includes a 120-cubic-yard dragline, eight large electric shovels and more than 40 large haul trucks.
The completion of the deal is subject to various government and regulatory conditions.
Arch said Jacobs Ranch produced 42.1Mt of high-quality sub-bituminous coal for sale to power utilities throughout the US.
Rio said its process of divesting its subsidiary Rio Tinto Energy America will continue.
Rio chief financial officer Guy Elliot said the sale of Jacobs Ranch brings the group’s total asset sales to $US2.5 billion this year.
In recent analysis of the American coal market, Macquarie analysts recently noted that the thermal coal-rich Powder River Basin, which hosts large open cut operations, has 25% of the coking coal-focused Appalachian production costs to the east of the nation.
In December, Rio announced plans to cut back 14,000 jobs and net debt by $US10 billion by the end of 2009, with this figure implying the company may have to sell off some of its strongly performing assets.
Rio shares last traded up 3.9% to $47.50 on the Australian Securities Exchange.
