Massey Cuts Coal Deal With India's Essar
Wednesday November 28, 4:16 pm ET
By Tim Huber, AP Business Writer
Massey Energy Teams With Essar Group to Develop Coal Projects in India
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CHARLESTON, W.Va. (AP) -- Massey Energy Co. and a subsidiary of Indian industrial giant Essar Group said Wednesday they have agreed to work together on potential coal projects.
The agreement comes amid ambitious expansion plans by both companies. Faced with strong international demand for coal, Massey plans to increase annual production about 20 percent to approximately 48 million tons by 2010. Meanwhile, Essar recently bought a Canadian steel plant for $1.6 billion and plans to build a second $1.6 billion mill on northern Minnesota's iron range.
The companies say they'll focus first on developing coke ovens as well as coal reserves and a prep plant for Essar in India. They say their deal also covers evaluating mining projects in India and coke projects in India and elsewhere.
"Essar is looking to dramatically increase its steel production and energy generation," Massey Chief Executive Don Blankenship said in a statement. "Massey has some of the best metallurgical and steam coal reserves in North America and the expertise to develop modern, cost-effective coal mining and processing operations overseas to fuel the expansion."
Essar Steel Holdings Ltd. Chief Executive J. Mehra said, "Our companies have the technical expertise and marketplace knowledge that will allow us to expand and leverage mutual opportunities in India and around the world."
The deal puts Massey into a small group of U.S. coal companies with overseas interests.
St. Louis-based Peabody Energy Corp., the world's largest coal company, owns mines in Australia and has an office in China, while Birmingham, Ala.-based Drummond Coal Co. has a mine in Colombia.
"If there's a backdrop here, it's that Indian demand for imported coal has been one of the key drivers to this global tightening of the coal markets," said Stifel, Nicolaus & Co. analyst Paul Forward, whose firm expects to perform investment banking business for Massey soon. "The Indians and other importers of coal are increasingly looking to the U.S. and the Appalachians in particular."
Shipping bottlenecks in Australia, strong demand in China, the weak U.S. dollar and high ocean freight rates have increased demand for Appalachian coal in Europe and South America. As a result, prices for metallurgical coal used to manufacture coke for steelmaking have topped $90 a ton. And the price of steam coal used to generate electricity has benefited as well. Central Appalachian steam coal, for instance, recently jumped $2.50 to top $55 a ton.
In the long term, Forward believes it behooves an Indian company such as Essar to set up a relationship with the likes of Massey, which has approximately 2.2 billion tons of coal reserves in West Virginia, Virginia and Eastern Kentucky.
"In places like India, where the real limitation on new power plant development and industrial development is access to energy, it makes sense," Forward said. "Within Central Appalachia, Massey is by far the largest reserve holder and they'll be the ones that an Indian company will look to try to establish a relationship."
Based in Richmond, Va., Massey is the nation's fourth-largest coal producer by revenue and operates 19 mining complexes in West Virginia, Kentucky and Virginia. Its stock rose $2.35, or 7.6 percent, to $33.15 Wednesday.
Essar Global Ltd. has approximately $10 billion in assets in the steel, energy, communications, shipping and construction industries. It employs about 20,000 people and has operations in India, Canada, the U.S., Africa, the Middle East, Caribbean and Southeast Asia. |
