Published: July 17, 2008 04:14 pm            

Coal and steel — Merger good news for coalfield economies

A steel-and-coal merger with international economic ramifications also brings renewed hope for the coalfields of southern West Virginia and Southwest Virginia.

The merger announced Wednesday between Midwest iron ore pellet-maker Cleveland-Cliffs and Southwest Virginia’s own coal-mining company Alpha Natural Resources reflects back to a trend of decades past — the practice of steel companies owning their own mines.

Long-time residents of southern West Virginia and Southwest Virginia can well remember the days of long ago when industry giants like U.S. Steel owned their own mines throughout the coalfields.

The reason for their interest in local mines was simple: We have the best coal in the world — and that’s not an exaggeration.

Steel companies need high-grade coal to make their product, and the metallurgical coal found in our seams is a global standard.

“West Virginia has the best reserves of high grade metallurgical (steel-making) coal in the world,” Bill Raney, president of the West Virginia Coal Association, told the Daily Telegraph. “The developments worldwide are making it all interesting.”

The acquisition of all the outstanding shares of Alpha stock by the Cleveland, Ohio, based Cleveland-Cliffs’ resulted in a stock transaction of about $10 billion, including about $1.7 billion in cash.

Cleveland-Cliffs’ acquisition of Alpha involved 57 mines and 11 coal preparation plants, which includes several local companies — Brooks Run Mining’s Cucumber Mine in McDowell County, Kepler Processing Plant, Herndon Processing Plant and Riverside Energy.

Just last year Cleveland-Cliffs was also in the market for southern West Virginia coal. At that time the company acquired the three mines that made up PinnOak Resources — the Pinnacle Mine and Green Ridge Mines in Wyoming County, as well as the Oak Grove Mine in Birminghan, Ala. — for $450 million in cash and $160 million of PinnOak’s debt.

Interestingly, the Pinnacle Mine in Wyoming County acquired by Cleveland-Cliffs was originally opened by U.S. Steel to supply its operation, according to Raney.

Wednesday’s acquisition generated a buzz throughout the coalfields, as well as the world’s financial markets.

“This is a further demonstration of the excitement in the coal industry and the value of coal throughout the world,” Raney said. “It is very intriguing, seeing how the cycle of steel manufacturers like Mittal (based in Luxembourg) have gotten back into the coal industry like the steel makers were back when Andrew Carnegie and, later, J.P. Morgan, operated captive coal mines that supplied their steel manufacturing operations.”

The new combined company will have almost 9,000 employees and an expected 2009 revenue of $10 billion, according to an Associated Press Report, which noted Cliffs Natural Resources will have a reserve base of about 1 billion tons of iron ore and 1 billion tons of metallurgical and steam coal.

The renewed interest in metallurgical coal is good news for people across the two Virginias. An increase in coal jobs translates to an increase in jobs for associated industries — which, in turn, can generate positive economic growth throughout the region.

We share in the coal industry’s excitement over this recent merger and look forward to many more positive developments in the industry in the future.

        

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