The acquisition will make Canyon Fuel a wholly owned subsidiary of Arch Coal.
“Through the planned integration of the Canyon Fuel operations and our West Elk mine in Colorado, we will further enhance our ability to supply this growing segment of the marketplace," said Arch CEO Steven Leer.
Canyon Fuel owns and operates two longwall mines in Utah - Sufco in Sevier County and Dugout Canyon in Carbon County. In addition, the company owns the currently idle Skyline mine, which also is located in Carbon County.
In total, Canyon Fuel controls approximately 161 million tons of high-quality, low-sulfur coal reserves in Utah. In 2003, Canyon Fuel produced approximately 13 million tons of coal.
Income for 2003 - combining Arch's 65% interest and Itochu's 35% interest and excluding the cumulative effect of accounting change - would have totaled $26.4 million. EBITDA totaled approximately $62.3 million in 2003.
The acquisition is expected to be accretive to EBITDA immediately and accretive to earnings within 12 months.
Arch said the transaction is expected to have an increasingly positive impact on earnings as existing sales contracts expire and additional tons become available for sale into a much-improved market environment.
"Upon completion of the transaction, we will act immediately to integrate our western bituminous operations under the direction of a single management team, which should enhance our ability to operate these mines in the most cost-effective manner, enable us to react quickly to opportunities in the marketplace, and provide our customers with the best possible service," said Leer.
The new structure should lead to reduced overhead costs and other operating synergies, according to Leer.
"As the only company with a leading position in each of the nation's three principal low-sulfur coal basins, Arch is uniquely equipped to serve the nation's growing demand for the cleanest burning coals," he said.
"Western bituminous coal is becoming an increasingly important source of Btu's for many U.S. power plants, and we view our production and strong reserve position in this region as an excellent complement to our operations in the Powder River Basin and Central Appalachia."
The transaction is expected to close during the third quarter.
