US-based coal company Peabody has entered into an agreement to acquire the Shoal Creek metallurgical coal mine from private coal producer Drummond Company for $400m.


Image: Peabody Energy headquarters in St. Louis, Missouri. Photo courtesy of Peabody Energy, Inc.

Through the mine acquisition, Peabody is expected to add about two million tons per year of high quality hard coking coal sales.

The acquisition includes the purchase of the mine, preparation plant and supporting assets, but excludes legacy liabilities other than reclamation.

Subject to regulatory approvals, the transaction is expected to be completed prior to the end of 2018.

Peabody president and chief executive officer Glenn Kellow said: “Peabody has consistently outlined our intention to upgrade our metallurgical coal platform and make strategic investments using a strict set of filters.

“We believe the purchase of the well-capitalized and high-quality Shoal Creek Mine meets these filters, offers major logistical advantages and represents an opportunity to create significant value.”

Located on the Black Warrior River in Central Alabama, the Shoal Creek coal mine serves Asian and European steel mills with high-vol A coking coal.

The mine was discovered in 1994 and currently employs nearly 400 people.

Strategically positioned on the Black Warrior River, the Shoal Creek mine direct access to barge transportation, eliminating trucking or rail requirements.

It accesses seaborne markets through the Port of Mobile in the Gulf of Mexico catering to Asia-Pacific and European steel mills.

Kellow said: “The acquisition allows us to expand volumes and margins from our met coal platform, enhances our scale, and offers complementary products to customers.  We applaud the Drummond team for developing a high-quality operation, and we look forward to advancing that reputation for excellence.”

The transaction is expected to further increase Peabody’s exposure to highly attractive, growing seaborne demand centers. It intends to finance the acquisition with cash on the balance sheet.

The firm stated: “Peabody expects Shoal Creek to seamlessly integrate into Peabody’s operating and SG&A platforms with minimal friction costs.

“The acquisition represents an opportunity to accelerate usage of a portion of Peabody’s substantial net operating loss tax position.”