Rio Tinto Gets US$761M For Jacobs Ranch Coal Mine

Rio Tinto’s (RTP-N, RIO-L) recent US$19-billion cash infusion from Chinese state-owned Aluminum Corp. of China (ACH-N) (Chinalco) hasn’t slowed the pace of the debt-laden major’s asset sales.

Rio Tinto is selling its Jacobs Ranch coal mine in Wyoming’s Powder River basin to U. S. coal giant Arch Coal (ACI-N) for US$761 million in cash. The Powder River basin is America’s biggest and fastest-growing coal source.

Last year, Rio Tinto produced 42.1 million tons of high-quality, sub-bituminous coal at Jacobs Ranch for sale to U. S. power generators, and earned pro forma earnings before interest, taxes, depreciation and amortization of about US$73 million.

Arch Coal notes that the deal includes 381 million tons of low-cost coal reserves that are contiguous to its Black Thunder mine. These reserves have an average heat content of more than 8,800 BTUs per lb., and a sulphur dioxide content of less than 1 lb. per million BTUs.

Other hard assets that will come into the Arch Coal fold are: a high-speed rail loadout; a new overland conveyor and near-pit crushing system; and a large fleet of mining equipment including a 120-cubic-yard dragline, eight large electric shovels, and more than 40 large haul trucks.

“The integration of Jacobs Ranch into the Black Thunder mine will create one of the world’s largest and most efficient mining complexes,” said Arch Coal chairman and CEO Steven Leer in a statement.

Upon integration, Arch says the combined Black Thunder complex will have three load-outs capable of loading four trains simultaneously, and 22 train landing spots — the most of any mine in the Powder River basin — which the company expects should significantly boost availability and efficiency.

Arch Coal underscores that almost all of Jacobs Ranch’s projected production for 2009 is committed and priced under existing sales contracts. Additionally, more than 75% of the mine’s projected 2010 production, and nearly half of its 2011 production, is committed and priced.

The current Jacobs Ranch workforce totals more than 600 people, and will be retained.

If the acquisition is completed, Arch Coal’s reserves in the Powder River basin would rise to 2.1 billion tons, and its total reserve base across all regions would increase to 3.2 billion tons.

Arch expects to pay for the acquisition using a combination of internally generated cash flow from operations, borrowings under the company’s US$800-million revolving credit line, and potentially, other debt instruments.