Massey Acquires Rival

Massey Energy Company (MEE - Snapshot Report), the fourth largest coal company in the US and the largest in Central Appalachia , has completed the acquisition of mining assets from its bankrupt rival, Appalachian Fuels LLC. 

At more than $5.1 million, the assets include 23 million tons of coal reserves, permitted deep and surface mines, a permitted preparation plant and some mining equipment. These assets are located in Fayette County , West Virginia , close to Massey's existing Mammoth and Nicholas Energy resource groups. 

Over half of the acquired reserves are metallurgical coal in the Powellton and Eagle Coal Seams. Massey plans to resume mining metallurgical coal in the Powellton Seam in the near term. However, it has no immediate plans to start the other idled deep and surface mines acquired in the transaction. The coal produced will be processed at Massey's Mammoth preparation plant. Massey expects the acquisition to be immediately accretive to earnings. 

The Richmond, Virginia-based company produces, processes and sells steam and metallurgical grade coal to utilities, industrial customers and steel manufacturers. Massey has increased its total coal reserves from 767 million tons in 1987 to more than 2.3 billion tons until date through acquisitions. Of the total current reserves, 1.0 billion tons have metallurgical qualities and characteristics that have made Massey the largest metallurgical coal reserves holder in the US.
 
However, lower coal shipments and prices lead a 15.4% year over year decline in Massey’s total revenues in the second quarter of fiscal 2009. The company produced 9.4 million tons of coal in the quarter versus 10.5 million tons in the same quarter of the previous year. 

Massey has significantly lowered its guidance for coal shipments for both 2009 and 2010 on the back of the ongoing economic turmoil and the uncertain regulatory environment. For fiscal 2009, the company expects produced coal shipments to be between 38.5 and 40.5 million tons, with average produced coal realization between $61.50 and $63.50 per ton. 

For fiscal 2010, it expects produced coal shipments to be in the range of 37.0 to 42.0 million tons, with an average sales price in the range of $60.00 to $65.00 per ton. 

We maintain our Neutral recommendation on the stock.