Consol selling West Virginia coal mines to Murray Energy

Consol Energy Inc. said Monday it is selling all five of its longwall coal mines in West Virginia to a subsidiary of Ohio-based Murray Energy for a deal that includes $850 million US in cash.

Chairman and chief executive officer J. Brett Harvey said the sale of the Consolidation Coal Co. subsidiary was a difficult decision but is good for the company's long-term growth and allows Consol to focus more on natural gas exploration and development.

Consol is selling the McElroy, Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines, which produced a combined 28.5 million tons of thermal coal last year. The transaction also includes river and dock operations with a fleet of 600 barges and 21 towboats.

The deal also gives Murray Energy about 1.1 billion tons of coal reserves.

Sale 'changes nothing' for workers, union says

Murray Energy is taking roughly $2.4 billion in liabilities off Consol's balance sheets, Harvey said, including $2.1 billion in post-retirement benefit plans, $105 million in workers' compensation payments, $61 million in contributions to the coal workers' pneumoconiosis, or black lung, fund, and $13 million in long-term disability costs.

Murray Energy is also absorbing $149 million in environmental costs and is taking on Consol's pension obligations with the United Mine Workers of America (UNWA). Harvey said that agreement requires contributions of about $33 million per year.

UMWA President Cecil Roberts said the sale "changes nothing" for the roughly 2,800 active hourly workers at the five mines.

"Our collective bargaining agreement does not go away with this transaction," he said, "and our members remain covered by its provisions. There will be no changes in pay, benefits, insurance, schedules, working conditions, safety provisions, grievance procedures or any other language in the contract."

About 23,000 retirees, dependants and surviving spouses are also affected by the sale, which Roberts said is just one of many in the nation's coalfields.

"It's not the first time coal mines have been sold to new owners, and it won't be the last," he said.

Consol keeping Pa. operations, flagship Va. mine

Harvey called the West Virginia employees "among the safest and most productive miners anywhere in the world."

"In the end," he said, "we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines."

Robert Murray, chairman of Murray Energy, said no company has developed a better relationship with its employees, customers and regulators than Consol.

"Murray Energy intends to preserve this well-earned legacy," he said.

Consol said it is keeping its flagship Buchanan Mine in Virginia, the Miller Creek Mining Complex in southern West Virginia and its low-cost Pennsylvania operations, the Bailey, Enlow Fork and soon-to-be-completed BMX mines.

Consol said it's also retaining royalties on some coal reserves, as well as water treatment payments and tolling fees at its Baltimore terminal. The company expects to record a pre-tax gain of $1.3 billion on its fourth-quarter results, assuming the deal closes by Dec. 31.

Will focus on gas, foreign coal sales

In a conference call with reporters, president Nick DeIuliis said Consol has invested $1 billion in the West Virginia mines over the past five years, and Murray Energy is inheriting solid operations with a highly trained, safety-conscious work force.

The sale is a strategic decision to focus on two areas of growth — natural gas and the overseas sale of coal — while leaving the traditional steam coal market. Demand for coal in power generation is stable, DeIuliis said, but lacks growth potential.

DeIuliis said the change is good for West Virginia and Pennsylvania, where Consol plans to invest $25 billion over the next decade in gas drilling and the remaining coal fleet.

Consol said the transaction lets it set production targets beyond 2014, and it's now projecting a 30 per cent increase in gas production in 2015 and 2016.

Murray owned mine where 9 people killed

Murray Energy owned the Crandall Canyon mine in Utah when it collapsed in 2007 and killed nine people, including three rescuers. Six miners remain permanently entombed. But Murray said his company "operates safe coal mines, with a particular emphasis on fire protection."

"This will help assure the protection of the health and safety of our new employees," he said.

Murray has deep ties to West Virginia. In 2009, he gave West Virginia University $1 million for research into mining methods and use of fossil fuels. Though he graduated from Ohio State, Murray sent three sons to WVU to earn degrees in mining engineering and geology and is considered a longtime friend and supporter of the school.

Murray Energy said the transaction will nearly double its coal production from 30.1 million tons to 58.6 million tons per year, and nearly triple its coal reserves from 859 million tons to almost 2.4 billion tons. The work force will more than double, from 3,300 to 7,100 employees.

Murray said his company will be able to better serve coal-fired power plants "with reliable and low-cost coal supplies."