As much as I am a long-term bull on these coal names, the moves of late remind me of when companies announced a stock split or a new website launch in 1999 and speculators ran into the stock, driving it up 15% overnight. Right now, people are frothing at the mouth for anything coal, specifically metallurgical coal (which is the type of coal that goes into steel). [Mar 8, 2010: BHP Billiton Pushes Through 55% Price Increase in Coaking Coal Prices, Quarterly Pricing - Iron Ore Also Potentially Set to Soar] Massey Energy (MEE) announced a purchase ($1B) deal Tuesday evening and the stock is flying today.
Via AP:
- Coal producer Massey Energy Co. said Tuesday it has agreed to buy privately held rival Cumberland Resources Corp. for $960 million in cash and stock. Richmond, Va.-based Massey called Cumberland a good fit for its strategy of capitalizing on growing Asian demand for higher-priced metallurgical coal. Approximately half of Abingdon, Va.-based Cumberland's 416 million tons of reserves in Virginia and Kentucky can be used as metallurgical coal, a key ingredient in making steel.
- Massey recently announced its first shipment of 80,000 tons of metallurgical coal to China and expects to sell about 2 million tons of coal to India this year. Earlier this year, the company announced plans to invest $160 million this year in the first phase of a a mining complex capable of producing 2 million tons of metallurgical coal annually.
- Terms of the deal call for Massey to pay $640 million in cash and $320 million in stock.
Obviously, this is far more concrete than opening a new website, but the delirium around these announcement is striking. Cumberland Resources apparently has enough met coal to double Massey's sales in that sub-sector, and in today's market that is enough to create great joy. (Click to enlarge)
This is one of the sector's I had been looking to move into (along with iron ore) when I sold my Potash (POT) exposure, but I was waiting for the elusive pullback that seems like it will never appear. Chasing stocks has been the way to get into this now 5-week old non-stop rally.
- Mine operator Massey Energy says this week's $960 million acquisition of Cumberland Resources will advance its goal of doubling sales of higher-priced coal used to make steel by 2012. Massey, like other coal producers, has moved aggresively to capitalize on surging demand in Asia for metallurgical coal, with the U.S. and Europe still recovering from the recession.
- Massey told analysts Wednesday the company is pushing for 20 million tons of metallurgical sales. Virginia-based Massey plans to ship 10 million tons this year and says Cumberland should contribute 5 million more within two years. Cumberland shipped 800,000 tons of metallurgical coal last year.
So Massey thinks it can increase from 800K tons to 5 million in 2 years on the Cumberland assets? I am not a mining expert but, wow, that seems aggressive. Was Cumberland asleep at the wheel or something that they were not able to ramp up like that on their own? But the reality does not matter for what actually happens in 2 years; if it is promised today, speculators will salivate on their shirts and want in. If Massey can pull this off, it will position it along side Walter Energy (WLT) as one of the favorite's for the met coal crowd.
I'm actually fascinated by this sector's movements, considering the fact that China - which is sucking up the world's commodities while the rest of the largest developed economies are sucking wind - is making noises about slowing down its economy. Quite a dichotomy.
Disclosure: No position
