Ohio-based utility FirstEnergy, coal company Boich Cos. sell one-third interest in their jointly owned Signal Peak coal mine in Montana to Gunvor subsidiary for US$400M
October 18, 2011
– FirstEnergy Will Receive Nearly $260 Million
The FirstEnergy Corp. (NYSE:FE - News) and Boich Companies subsidiaries that jointly own the Signal Peak coal mine in Montana announced that Pinesdale LLC, a fully owned subsidiary of the Gunvor Group, Ltd., one of the world's leading commodity traders, has purchased a one-third interest in the venture for $400 million.
As part of the transaction, FirstEnergy will receive nearly $260 million of the proceeds. Additionally, the transaction will reduce FirstEnergy debt by approximately $360 million due to deconsolidation and will result in an estimated gain for FirstEnergy of $390 million due to the revaluation of the asset.
FirstEnergy and Boich Companies, a privately held Columbus, Ohio-based coal company, originally purchased Signal Peak in 2008 as a joint venture, with FirstEnergy acquiring a 45 percent interest for $125 million. In 2009 FirstEnergy invested an additional $8.5 million, increasing its interest to 50 percent.
The current value of the Signal Peak operation is in excess of $1.5 billion, which includes existing debt. As part of the definitive purchase agreement, FirstEnergy and Boich Companies will transfer their interests in Signal Peak mine to Global Mining Holding Company, LLC (Global Holding), a new holding company that will include various Signal Peak entities. FirstEnergy Ventures, a FirstEnergy subsidiary, WMB Marketing, a Boich subsidiary, and Gunvor Group each will own a one-third interest in Global Holding.
"We evaluated multiple offers for Signal Peak, but the agreement with Gunvor Group enabled us to obtain a substantial return on our initial investment while at the same time creating a joint venture with one of the world's leading commodity trading organizations," said FirstEnergy President and Chief Executive Officer Anthony J. Alexander.
"This transaction will continue to maximize both the mine and rail investment we have made in Montana over the last three years and make our operation even stronger," said Wayne Boich, Jr., President and Chief Executive Officer, Boich Companies. "One of the key advantages that Gunvor Group brings to this venture is the ability to utilize their commodity trading relationships in such markets as Japan, China, Korea and Chile to sell more coal."
"We're very excited about entering the coal business with two leaders in the field like FirstEnergy and Boich Companies," said Timothy Legge, chairman of Gunvor S.A. "Signal Peak represents our first investment in a coal mine located in the U.S. It presents Gunvor with the opportunity to use the existing rail and port operations to market this high quality, low sulfur bituminous coal to expanding markets around the world, particularly in the Pacific and Asia markets through our arrangements with Westshore Terminals in Vancouver, the prime coal moving terminal on the West Coast. Because Westshore is a deep water port we can utilize large bulk carriers capable of holding up to 200,000 tons of coal."
As part of the new agreement, FirstEnergy Generation Corp., a subsidiary of FirstEnergy Corp., has revised its original coal purchase agreement with Signal Peak to reduce from 7.5 million short tons* annually to no more than 2 million each year of the mine's production. In addition, Gunvor also has a substantial coal purchase agreement with Signal Peak. Overall, the production forecast for Signal Peak, including future surface operations, is expected to rise to approximately 15 million clean tons per year from the current nine million tons, which can be sold to Gunvor as well as other domestic and international customers.
Compared to typical eastern coal, Signal Peak produces stable, high-quality bituminous coal with approximately 50 percent lower sulfur and ash content. In addition, it has lower mercury content and significantly higher heat value than sub-bituminous coal found in the nearby Powder River Basin (PRB), meaning higher kilowatt-hour production with significantly lower carbon dioxide emissions per megawatt.
Since 2008, operations at Signal Peak have been expanded, new equipment has been installed and a 35-mile rail spur to an existing Burlington Northern Santa Fe railway line was built.
FirstEnergy is a diversified energy company dedicated to safety, reliability and operational excellence. Its 10 electric distribution companies comprise the nation's largest investor-owned electric system. Its diverse generating fleet features non-emitting nuclear, scrubbed baseload coal, natural gas, and pumped-storage hydro and other renewables, and has a total generating capacity of approximately 23,000 megawatts.
* "Short ton" is a ton used in the U.S. which is 2,000 pounds. This differs from a metric ton which is equivalent to 2,204 pounds.