US coal assets attracting overseas buzz

World

Overseas metal and mining companies are eyeing a number of US coal companies as strong demand for steel around the world has resulted in higher prices and short supply for the coal used in steelmaking.

Indian and Russian firms in particular are looking to snap up assets in order to gain a foothold in the US metallurgical coal market. Metallurgical coal, also called met or coking coal, is used to make coke, the material used to fuel blast furnaces at steel mills.

“Metallurgical coal is used for steelmaking and it doesn't look like demand for steel is going away,” said Gordon Howald, analyst at Calyon Securities. “Coking coal is in relative short supply. Steelmakers are getting squeezed and they are just looking to add vertical integration to take care of their own coking coal needs.”

Two assets that could be on the market are privately-owned US coal producers United Coal and Bluestone, one source familiar with the matter said.

Virginia-based United Coal said it has engaged UBS as a financial advisor, but denied it has put the company up for sale.

UBS has been hired “as a strategic financial advisor and we've been examining a lot of options open to us in the new world of increased demand for commodities,” said Vice President Brian Sullivan. “Obviously there are commodity companies - mining companies and steel companies - all over the world looking at American assets because of the value of the dollar and so on,” he said.

Sullivan said a sale was neither out of the question nor a foregone conclusion for the company.

United Coal could be valued at less than $2 billion, said a second source. It is likely to have attracted interest from firms in India, Russia and the Ukraine, the first source said.

About two-thirds of United Coal's 6 million tons of production is met coal, and that ratio is expected to rise to around 75% in coming years.

Privately-owned Bluestone Coal Corp, is another coal firm that has been marketed, according to a source familiar with the situation. The source said the process was run by Goldman Sachs. It was unclear how far that has progressed or if it is continuing.

Goldman declined comment. Bluestone was not immediately available for comment.

Investment bankers say Indian firms are very active in the US market. India is short of coking coal and keen to acquire it wherever possible around the world.

“You only have to look at the steel deals and see that the Indians have been quite acquisitive,” said an investment banker focused on the resources sector. “The coal story is rather unique. They either want coking coal for steelmaking - and they have steelmaking facilities in the US and they're looking for coking coal to feed those plants - or thermal coal, which is a difficult market.”

Indian companies such as Vedanta, Essar and Tata Steel  have already made acquisition inroads into the United States.

One Asian investment banker said the Indians were taking advantage of Beijing's timidity about US acquisitions following the failure by Chinese oil firm CNOOC to take over Unocal in 2005. While Communist China had got hung up on political worries, buyers from democratic India had no such problems, this banker said.

“It's an interesting twist on the great emerging superpower rivalry that everyone's enjoying watching,” he said.

Most acquisitive of all is the world's top steel firm, ArcelorMittal.

The company is looking at Alpha Natural Resources Inc, which mines large amounts of met coal and has already agreed to be acquired by Cleveland-Cliffs.

“We will continue to look for opportunities to acquire because our existing capacities, even if they are expanded, cannot meet our full requirement,” ArcelorMittal chief executive Lakshmi Mittal told analysts on a conference call on July 30. (Reuters)

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