The acquisition will increase Arch’s reserves by 25% to 5.5 billion tons. It comes as the North American coal industry undergoes a rationalisation with fellow US producer Alpha Natural Resources becoming the largest coking coal producer in the country after swallowing Massey Energy and with Walter last month completing its $C3.3 billion acquisition of Western Coal Corp.
Arch will be the US’ second-largest coking coal producer after Alpha once the acquisitions are completed.
As part of the takeover Arch will acquire ICG’s 13 active mines, along with one major mining complex under development, across three coal basins in the states of Illinois, Kentucky, West Virginia, Maryland and Virginia.
Arch expects its 2011 pro forma metallurgical coal sales to reach 11Mt.
Over the next three years, Arch anticipates met coal volumes from the combined operations to expand to more than 14Mtpa, with further opportunities for revenue growth emerging from significant blending opportunities between ICG's low-volatile and rank A high-volatile met coals and Arch's existing rank B high-volatile met products.
"The combination with ICG creates a highly effective platform for optimizing the value of the combined company's met product slate and for creating entirely new synthetic blends of mid-volatile met coals that command a significant premium in the global market," Arch president and chief operating officer John W. Eaves said.
"In addition, ICG's Tygart Valley No. 1 met mine, which is currently under development and expected to come online in early 2014, promises a compelling strategic growth opportunity."
International Coal Group president and CEO Ben Hatfield said: "ICG has assembled a high-quality portfolio of low-cost mining operations and reserves, and one of the industry's most talented and productive workforces. By teaming up with Arch, we expect to realize tremendous value for the shareholders of both companies while ensuring that our operations achieve their full potential."
ICG's predominantly underground reserve base of 1.1Bt, nearly 30% of which is met quality, provides significant additional opportunities for future coal volume growth, according to Arch.
Macquarie Capital USA metals and mining analyst Curtis Woodworth said consolidation in North America in the past six months had mostly been coke and coal-driven.
“Everyone wants to have exposure to that. The only way you can really do that is if you have scale.” Woodworth told Bloomberg.
Arch expects to unlock additional value – and expand its participation in global markets further – through the increased use of its transportation and logistics network.
Arch has dedicated throughput rights at an export facility on the East Coast; access to shipping terminals on the Gulf Coast and West Coast; dedicated and wholly owned terminal capacity on the inland waterways system; and significant barge and mid-streaming capacity under commitment for the movement of coal through the Gulf.
"Through this extensive transportation network we have significant and growing access to high-growth seaborne metallurgical and thermal coal markets in Europe, South America and Asia," Eaves said.
With expected annual synergies of up to $US80 million the acquisition will make the combined group one of the US’ lowest cost producers, Arch chairman and chief executive officer Steven F. Leer said.
"The acquisition of ICG is a significant strategic step that strengthens Arch's position as a world-class, global coal franchise positioned for growth," he said.
"This transaction will greatly expand our participation in global met markets; provide a powerful platform for future organic met coal production growth; enhance and further diversify our met and thermal coal product slate; extend our operating portfolio into every major US coal-producing basin; and solidify our position as one of the industry's lowest cost producers."
