Rio Tinto Sells Mine For $761 Million

Arch Coal on Monday said it has agreed to purchase Rio Tinto's Jacobs Ranch coal mine in Wyoming for $761 million.

ST. LOUIS (AP) -- Arch Coal Inc. on Monday said it has agreed to purchase Rio Tinto's Jacobs Ranch mine for $761 million.

Jacobs Ranch, which is located in the Powder River Basin of Wyoming, produced 42.1 million tons of high-quality sub-bituminous coal for sale to power generators in 2008.

The purchase includes 381 million tons of low-cost coal reserves. The company said that Jacobs Ranch's close proximity to and integration with Arch's Black Thunder mine will "create significant operating synergies."

Jacobs Ranch earned pro forma earnings before interest, taxes, depreciation and amortization of about $73 million during 2008. On a pro forma basis, assuming an acquisition closing date of Dec. 31, 2008, Arch estimates that the addition of Jacobs Ranch will result in incremental adjusted earnings between $145 million and $165 million in 2009.

Most of Jacobs Ranch's projected production is committed and priced under existing sales contracts, and more than 75 percent of its projected 2010 production is committed and priced.

Arch estimates its reserves in the Powder River Basin would increase 2.1 billion tons, assuming an acquisition closing date of Dec. 31, 2008.

The company plans to finance the transaction with a combination of cash flow from operations, borrowings under the company's $800 million revolving credit facility and possibly other debt instruments.

Rio Tinto said its coal mine operating unit Rio Tinto Energy America, which was identified for divestment in 2007, will continue its process of divestment following this transaction.

"Strategically, this makes sense since the mine is adjacent and Arch can absorb the mine very well into its Powder River Basin mix," said David Khani, an analyst with FBR Capital Markets, in a note to clients.

U.S.-traded shares of U.K.-based Rio Tinto fell $3.90, or 3.8 percent, to $98.55 in premarket activity Monday. The stock has ranged from $59.20 to $558.65 over the past year.

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