Mechel, one of the leading Russian mining and steel groups, has announced that its subsidiaries have signed a definitive agreement to acquire 100 percent shares and interests of US entities Bluestone Industries, Inc., a West Virginia corporation, Dynamic Energy, Inc., a West Virginia corporation, JCJ Coal Group, LLC, a Delaware limited liability company and some of its West Virginia affiliates (together "Bluestone"), privately-held West Virginia-based coal businesses engaged in the mining, processing and sale of premium quality hard coking coal.
Accordingly, the aggregate merger consideration is $436 million paid in cash (including $36 million interest paid), approximately 83.3 million preferred shares, plus the assumption of approximately $132 million of net debt. Other business activities conducted by the owners of Bluestone Coal Corp., including steam coal operations in Kentucky and other non-coal operations, are not included in the transaction.
Commenting on the transaction Mechel CEO Igor Zyuzin stated, "The addition of Bluestone's production assets and large, high-quality coking coal reserves and resources establishes Mechel as one of the largest producers of coking coal in the world and provides us with additional scale that will drive added efficiencies through our business. Following the closing, we expect to have up to an estimated 725 million tons of coal reserves and resources in the US and a more diversified asset base, including a strong foothold in North America and enhanced European, American and Asian sales channels."
In addition, Mechel plans to expand Bluestone's capacities in order to reach a production level of more than seven million mt per year of high quality hard coking coal concentrate, Mr. Zyuzin said.
With four mining complexes comprising eight active open pit and five underground mines, Bluestone's coking coal holdings in West Virginia include up to an estimated 725 million mt of reserves and resources (JORC Guidelines, subject to confirmation during a planned drilling program). The vast majority is premium quality, low volatility hard coking coal suitable for sale to steel producers. According to the report carried out by specialists, total in-place reserves represent approximately 223.8 million mt, with proven reserves representing 49 percent of the total and probable reserves representing the remaining 51 percent. The current 22-year mine plan is supported by approximately 155 million mt of recoverable reserves and resources (261 million mt in-place). Bluestone has approximately 113 million mt of permitted reserves, with a further 82 million mt of reserves in the permitting process.
The closing of the transaction is subject to certain conditions and the parties intend to close the transaction no later than May 7, 2009.
Bluestone, which was established in 1971 and is headquartered in Beckley, West Virginia, currently employs approximately 520 people, and has more than 30 customers. In 2008, Bluestone sales of high quality hard coking coal amounted to 2.8 million mt, its total sales amounted to $327 million, while its mine level EBITDA was estimated at approximately $94 million (subject to audit). The transaction is expected to be accretive to Mechel's 2009 earnings.