CA-Black-Transp

Massey Energy to Acquire Cumberland Resources


Signing a definitive agreement, Massey Energy intends to purchase Cumberland Resources Corp. and its affiliated companies for $960 million in a combined cash and stock transaction. Cumberland is one of the largest privately held U.S. coal producers. In 2009, Cumberland Resources generated $550 million based on the production and sale of 7.8 million tons of high quality Central Appalachian coal. Massey will acquire Cumberland free of debt.

Based in Abingdon, Va., Cumberland operates primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. Its assets include an estimated 416 million tons of contiguous coal reserves, a preparation plant in Kentucky served by the CSX railroad and a preparation plant in Virginia served by the Norfolk Southern railroad. Of the estimated reserves, Massey believes more than half (216 million tons) have metallurgical coal qualities.

Cumberland Resources’ existing operations currently produce both steam and metallurgical quality coals. Approximately 4.8 million tons of its current annual production is of metallurgical quality of which 800,000 tons are currently being sold into the metallurgical coal market. Massey expects to be able to produce approximately 5 million tons of metallurgical quality coal annually with the existing Cumberland assets. Massey does not expect any additional development capital would be required to reach this production target.

“The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy in Central Appalachia,” said Don Blankenship, Massey Energy’s chairman and CEO. “Cumberland’s track record of low-cost production, their focus on underground mining and their low legacy liabilities are consistent with Massey’s history and strategy.”

Massey believes it will achieve operating synergies when this transaction and the integration of the Cumberland Resources operations are complete. These synergies are expected to result from increased global marketing of metallurgical quality coal through Massey’s established sales network, sharing of operational best practices, purchasing synergies and working capital optimization.

At the end of 2009, Cumberland had approximately 8.1 million tons of coal committed and priced for sale in 2010, primarily with thermal coal customers. Massey expects to be able to use coal produced from the acquired operations to increase metallurgical coal sales by up to 5 million tons annually over the next couple of years. On a pro-forma basis, after adding the Cumberland reserves, Massey will have an estimated total reserve base of 2.9 billion tons. An estimated 1.3 billion tons of Massey’s total coal reserves are of metallurgical quality.

“Richard Gilliam, chairman and CEO of Cumberland, and his team have done an excellent job in building a great company. They have a tremendous workforce of over 1,000 talented and experienced miners and support staff that we will be proud to count among our Massey members. We consider ourselves fortunate to have the opportunity for such a quality asset to become part of the Massey organization,” said Baxter F. Phillips, president, Massey Energy.

Under the terms of the agreement, the aggregate consideration to be paid by Massey is $960 million, consisting of $640 million in cash and $320 million in shares of Massey’s common stock, calculated based upon the average closing price of Massey’s common stock for the 20 trading days ending on the day prior to the closing of the acquisition, subject to adjustment for working capital. The acquisition is expected to close in the second quarter of 2010. The boards of Massey and Cumberland have approved the transaction.