Another Day and Another TAKEOVER in the Commodities space. Cleveland-Cliffs (CLF) is the latest CONSOLIDATOR and has agreed to pay $10 Billion to acquire Virginia-based COAL mining company, Alpha Natural Resources (ANR). The $10 Billion price tag represents a 35% PREMIUM to the 7/15/08 closing price of ANR's shares !Bloomberg Breakdown:
* Cleveland-Cliffs is North America's Largest IRON ORE producer (iron ore is an essential ingredient for manufacturing STEEL). The company also has iron ore assets in Brazil and Australia, including an 85% stake in Portman Ltd, Australia's 3rd Largest producer of iron ore.
* Alpha Natural is the U.S.'s Largest exporter of coking coal (also known as 'metallurgical coal')...another essential, unique raw ingredient required for STEELmaking. Prices for metallurgical coal have more than DOUBLED in the past year as transportation constraints in Australia and South Africa curbed supplies. Fording Canadian, the second-largest exporter of the coal, signed contracts in May for 90% of its 2008 production at $275 a ton, twice the average $97 a ton in 2007. Buying ANR will allow Cleveland-Cliffs to more than DOUBLE their output of coking coal to 18 million tons and become North America's Largest Producer of the commodity, with 30% market share.
* Cleveland-Cliffs is paying about $16.19 a ton for Alpha's 618 million tons of steel-grade coal reserves. That compares with an average Wall Street valuation of all U.S. coal reserves, which mostly are lower grades used in power plants (for electricity), of about $4.60 a ton. Prices for metallurgical coal have more than DOUBLED in the past year as transportation constraints in Australia and South Africa curbed supplies. Fording Canadian, the second-largest exporter of the coal, signed contracts in May for 90% of its 2008 production at $275 a ton, twice the average $97 a ton in 2007.
* The combined company WILL :
1.) Be named Cliffs Natural Resources and expects to have Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of about $4.7 billion and SALES of about $10 billion in 2009
2.) Own IRON ORE Reserves of about 1 billion tons + COAL Reserves of 916 million tons (more than triple CLF's previous coal reserves)
3.) Generate about 43% of total company sales from COAL...for some perspective, iron ore was responsible for about 76% of Cleveland-Cliffs' total sales in 2007
4.) Own 9 iron ore facilities and more than 60 coal mines in North America, South America and Australia.
bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=CLF:US&sid=a4pYPf
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Staying with the COAL theme, Bloomberg priced the COAL RESERVES of some popular U.S. coal stocks using current spot market prices...to say the LEAST, these names appear to be UNDERvalued :
* Peabody Energy (BTU) --> Coal reserves of 9.3 billion tons, the world's largest, are worth at least $146 billion at today's market prices..while the company's stock is (only) valued at $18 billion on the New York Stock Exchange...BTU is trading at 12% of its Reserves
* Massey Energy (MEE) --> Massey has Coal reserves of about 2.2 billion tons...Coal reserve valuation totals about $240 billion..compared with the $6.25 billion valuation (marketcap) of its shares...MEE is valued at 2.5% of its Reserves (fyi - Massey is North America's Largest supplier of coking/metalurgical coal..a type of coal that's required for steelmaking)
* International Coal (ICO) --> Coal reserves of about 958 million tons are worth about $11.5 billion..compared with the $1.7 billion value of its shares...ICO is trading at 13% of its Reserves
bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=BTU:US&sid=alMPYyLmoHvo
Data Courtesy: Bloomberg
Full Disclosure: I own shares of BTU.
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