Arch Coal To Acquire Rio Tinto's Jacobs Ranch Operation

ST. LOUIS, MO - Arch Coal, Inc. reported that it has agreed to purchase Rio Tinto's Jacobs Ranch mine in the Powder River Basin of Wyoming for $761 million. In 2008, Jacobs Ranch produced 42.1 million tons of high-quality sub-bituminous coal for sale to power generators located throughout the United States.
The transaction includes 381 million tons of low-cost coal reserves (as of Dec. 31, 2008) that are contiguous to Arch's Black Thunder mine, as well as a high-speed rail loadout; a recently added overland conveyor and near-pit crushing system; strong customer commitments; and an expansive fleet of highly efficient mining equipment.
"Once completed, we believe this transaction will create significant value for Arch Coal, its customers and its shareholders," said Steven F. Leer, Arch's chairman and chief executive officer. "Jacobs Ranch represents an excellent strategic fit with Arch's existing assets in the Powder River Basin. The integration of Jacobs Ranch into the Black Thunder mine will create one of the world's largest and most efficient mining complexes. Because Jacobs Ranch and Black Thunder share approximately six miles of property line, the combination is expected to create significant operating synergies."
Arch anticipates operating synergies from the transaction related to the optimization of the combined equipment fleet; increased utilization of an expanded coal handling system and a state-of-the-art loadout; greater flexibility in product blending and quality control; more efficient inventory management; reduced net capital expenditures; and purchasing efficiencies. Upon integration, the combined Black Thunder complex will have three loadouts (capable of loading four trains simultaneously) and 22 train landing spots - the most of any mine in the Powder River Basin - which should collectively enhance availability and efficiency for the mine and customers.
Jacobs Ranch earned pro forma EBITDA of approximately $73 million during 2008. On a pro forma basis, assuming an acquisition closing date of Dec. 31, 2008, Arch estimates that the addition of Jacobs Ranch would result in incremental EBITDA of between $145 million and $165 million for the company in 2009. Roughly two-thirds of the expected incremental EBITDA contribution derives from pricing on already committed tons. Additionally, based on past experience, Arch may identify further cost reduction opportunities as the two mines are fully integrated into one operating complex.
Nearly 100 percent of Jacobs Ranch's projected production for 2009 is committed and priced under existing sales contracts. Additionally, more than 75 percent of the mine's projected 2010 production - and nearly 50 percent of its 2011 production - is committed and priced.
Arch also views the Jacobs Ranch workforce, which totals more than 600 people, as a pivotal and value-creating component of the transaction. "We believe the men and women of Jacobs Ranch will be a tremendous addition to our company," said Leer. "These highly skilled employees share our core values of superior safety and environmental performance. The sharing of skills, knowledge and ideas between the two workforces represents yet another synergy that should enhance the competitive position of the combined operation."
Jacobs Ranch is served by the joint rail line in the Powder River Basin. Like Black Thunder, Jacobs Ranch can ship its output to a broad and geographically diverse customer base. Additionally, the equipment fleet at Jacobs Ranch includes a 120-cubic-yard dragline, eight large electric shovels, and more than 40 large haul trucks, all of which complement the existing equipment at Black Thunder. Jacobs Ranch also benefits from competitive mining costs due to the thickness of the region's coal seam and the proximity of the seam to the surface.
The company’s address is One CityPlace Dr., Suite 300?St. Louis, MO 63141??314.994.2700.