Peabody completes $387M purchase of Drummond coal mine

A St. Louis coal mining company has completed the purchase of an Alabama mine from a private coal producer.

Peabody (NYSE: BTU) has acquired the mine, preparation plant and logistical assets of Shoal Creek from Birmingham-based Drummond Company Inc. for $387 million. The sale of the seaborne metallurgical coal mine excludes legacy liabilities other than reclamation. The sale was announced in September. The mine employs 450 workers.

“This accretive Shoal Creek purchase represents a tremendous step in Peabody’s commitment to upgrade our seaborne metallurgical coal portfolio and target the highly attractive seaborne demand centers,” said Glenn Kellow, Peabody president and chief executive officer. “We believe the Shoal Creek acquisition clearly meets our strict investment filters, with expected high returns and rapid payback, a very attractive valuation, and tangible synergies.” 

Developed in 1994, Shoal Creek is located in Adger on the Black Warrior River in Jefferson, Tuscaloosa and Walker Counties. Its proximity to the river provides direct access to barge transportation to the McDuffie Terminal in Mobile where Panamax and Cape-sized vessels are loaded. Those ships transport the mine’s seaborne hard coking coal to Asian and European steel mills.

Shoal Creek produced 2.1 million tons of metallurgical coal in 2017 and sold 2.4 million tons, which generated $387 million in revenue.

Now that the deal has closed, a new collective bargaining agreement is in force, which provides for a 401(k) program. The prior multiemployer pension plan is no longer effective as well as related obligations. Drummond is retaining the prior retiree health care liabilities.

“We are very pleased to welcome the productive Shoal Creek workforce to the Peabody team,” said Kemal Williamson, Peabody President Americas. “Peabody looks forward to safely and quickly integrating the mine into our portfolio and benefitting from the experienced workforce and well-capitalized nature of the operation.”

Shoal Creek uses longwall mining technology to mine the Blue Creek and Mary Lee coal seams. The mine has 58 million tons of reserves.

Founded in 1883 in Chicago, Peabody serves power and steel customers in more than 25 countries on six continents.