The Federal Trade Commission (FTC) recently granted antitrust clearance to Arch Coal (ACI) for its pending acquisition of Rio Tinto’s (RTP) Jacobs Ranch mine in the Powder River Basin of Wyoming. Arch expects to close the deal within six weeks.
Earlier in March, Arch announced its intention to buy the mine for $761 million. It will gain control of almost 381 million tons of high-grade, low-cost coal reserves adjacent to its Black Thunder mine. The company will also receive a high-speed rail load-out, an overland conveyor, a near-pit crushing system and an expansive fleet of highly efficient mining machinery. All these will provide Arch with several operating synergies that will create substantial value for it shareholders going forward.
Although the company’s sales and profits tumbled during the first half of the year, we remain optimistic about its long-term potential. Arch continues with its efforts to bring down operating costs and rationalize capex plans in order to enhance profitability and solidify liquidity positions amid the ongoing global economic downturn. It is well positioned to capitalize on the resurgence in coal demand once the economy starts recovering. We maintain our Outperform recommendation for the company.
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