Coal: the biggest gets bigger
Peabody Energy, the world's #1 publicly-held coal mining company by sales, announced that it will get even bigger. The US-based firm will acquire Australia's Excel Coal, paying around $1.6 billion, if shareholders agree.
Australia is the world's biggest exporter of coal, and Peabody already has substantial holding there, thanks to recent purchases. The deal will double Peabody's Australian production immediately. In addition, Excel is in the midst of expanding its operations, a move that might tripe or quadruple its current output. Other major coal miners in the Australian market are international mining giants BHP Billiton, Xstrata, and Rio Tinto. In fact, it is expected that Xstrata, at least, will offer a counterbid.
Much of the value of Australian coal is ready access to burgeoning Asian markets. Excel is a major supplier of high-priced metallurgical coal, needed for Indian and Chinese steel mills. According to online investment analyst Motley Fool, more consolidation is on the way in the US coal mining sector. An article ("Peabody Goes Down Under", 6/6/06):
Only time will tell whether this is the beginning of a consolidation move in the coal industry. After all, there have been rumors about James River and Foundation being acquisition targets, as well as some shareholder activism at both Massey Energy and CONSOL Energy.
