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Forward View Consulting, located in Virginia, is not your typical investment research provider. We're never interested in hot stocks or Wall Street's darlings of the moment. Every research note and report we publish will be based on a long-term perspective and fundamental research methodologies.... More
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  • Christmas Came Early For WLB 0 comments
    Dec 26, 2013 4:34 PM | about stocks: WLB, SHERF, CBT

    On December 24th, Westmoreland Coal (NASDAQ:WLB) announced the acquisition of Sherritt International's (OTCPK:SHERF) seven Western Canadian coal mines, along with a Char production facility and a 50% equity stake in an activated carbon factory. (Cabot Corporation [CBT] owns the other 50%.) The deal included $293 million in cash and $142 million in capital lease assumptions. The transaction essentially doubles Westmoreland in every important way and will push Westmoreland's annual revenue to well over $1 billion. Thus, it's no wonder Westmoreland Executive Chairman Keith Alessi described the deal as a "transformational opportunity." Sherritt could frankly use the cash and was likely a motivated seller. Both firms will benefit from the transaction and the companies' shares climbed on strong volume.

    (click to enlarge)WLB 1-Year Chart

    Westmoreland paid just over $0.64 cents per ton of coal reserves. Since the reserves are tied to actively-producing mines, no massive injection of cash will be required to actually haul the coal out of the earth. Based on other coal transaction data I've analyzed, Westmoreland made a great deal. Other thermal reserve purchases have been nearer $1 a ton or even higher. If we assume that Westmoreland's coal can be sold for even $10-12 per ton, the economics are compelling. Combining these new operations with Westmoreland's recent push to sell coal further West (and now overseas) creates the potential to generate significant synergy. 2014 should be a good year for the company.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I'm a Research Associate covering the coal sector for Langenberg & Company.

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