Arch Resources, Inc and CONSOL Energy Inc have officially entered into a definitive agreement to combine in an all-stock merger of equals, and therefore, create a new entity in Core Natural Resources, a premier North American natural resource company focused on global markets. According to certain reports, Core Natural Resources will be a leading producer and exporter of high-quality, low-cost coals, with offerings ranging from metallurgical to high calorific value thermal coals. Further boasting mining operations and terminal facilities across six states, the combined company will own 11 mines, including one of the largest, lowest cost, and highest calorific value thermal coal mining complexes in North America, and one of the largest, lowest cost, and highest quality metallurgical coal mine portfolios in the United States. To go along with that, this newly-formed organization will also have access to global markets via ownership interests in two export terminals i.e. Eastern seaboard, as well as ports on the West Coast and Gulf of Mexico. All in all, Core Natural Resources would have a market capitalization of approximately $5.2 billion as of August 19, 2024. Making the collaboration even more valuable is, of course, the fact that Arch and CONSOL have sold an aggregate of approximately 101 million tons of coal in 2023 to steelmaking, industrial, and power-generation customers. Pro forma, Talk about the benefits of this merger on a slightly deeper level, they begin from high-quality coal portfolio underpinned by eight low-cost, long-lived longwalls. You see, the merger will create a diversified coal producer with a broad portfolio of high-quality metallurgical and thermal coals focused on seaborne markets where the business is highly contracted. In fact, more than 35 Mtpa of this coal will be produced by a best-in-sector portfolio covering longwall operations at CONSOL’s Pennsylvania Mining Complex and Arch’s Leer, Leer South and West Elk mines.
Next up, the partnership will try and achieve greater diversification across multiple growth markets and geographies with little, if any, overlap. Here, Core Natural Resources’ ability to provide a range of coal qualities and blends will enable it to serve a more diverse customer base across multiple growth markets and geographies. An example relaying the same would include how metallurgical coal produced by the combined company can be a key input in the production of new steel from blast furnaces. Even for the future, metallurgical coal is expected to remain in strong demand for decades to come, as new steel will be essential in supporting the world’s growing population, ongoing economic development, continued urbanization, and the build-out of a low-carbon economy. On top of that, the high calorific value thermal coal mined by the combined company is increasingly sought after in industrial markets. On a pro forma basis in 2023, Core Natural Resources would have delivered more than 25 Mtpa to support key end-use applications, including cement production and other industrial uses, all while also serving resurgent power generation demand driven by AI, data centers, and EV expansion.
Another detail worth a mention here is rooted in the partnership’s pledge to realize significant value from anticipated cost savings and operational synergies. From a more concrete standpoint, the development is expected to generate $110 million to $140 million of annual cost and operational synergies within six to 18 months following the close of the transaction. This it will do primarily from logistics optimization, coal blending and related opportunities, as well as procurement and SG&A efficiencies. Almost like an extension of that, the partnership will also generate substantial cash flow and balance sheet gains, gains that are expected to include approximately $1.4 billion of free cash flow in 2023, and a net cash position of approximately $260 million as of June 30, 2024.
“This merger will join two proven leadership teams and best-in-sector operating platforms to establish a premier North American coal producer with worldwide reach and world-class mining and logistics capabilities,’ said Paul Lang, Chief Executive Officer of Arch Resources.
