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Arch Coal Divests ADDCAR for $21M

Zacks Equity Research

Arch Coal Inc. (ACI) continues with its systematic asset divestment strategy. The company stated that it has sold its wholly-owned subsidiary, ADDCAR Systems, L.L.C. (“ADDCAR”), to an Australian firm UGM Holdings Pty. Ltd. for $21 million.

Per the agreement, the sale comprised all licenses, patents and technologies associated with the ADDCAR highwall mining system along with its manufacturing facility located in Ashland, Ky. In addition, the transaction included the sale of all existing contract mining and equipment lease agreements. UGM Holdings will pay in three installments over 2014.

We note that Arch Coal had obtained ownership of Kentucky-based ADDCAR since the acquisition of International Coal Group (“ICG”) in 2011. ADDCAR is engaged in the manufacture, service and operation of highwall mining equipment.

 We believe the current transaction is a strategic move to address the company’s long-term goal of focusing more on profitable ventures.

On Aug 19, 2013, Arch Coal completed the sale of its operating division, Canyon Fuel Company, LLC, to Bowie Resources, LLC. The transaction value was about $423 million including working capital adjustments. The deal included the divestiture of Sufco and Skyline longwall mines along with the Dugout Canyon mines.

The divestiture will enable Arch Coal to allocate its assets and reorganize the existing resources as per market conditions and priorities. Further, it will help the company to concentrate on its strategic preferences while identifying the drivers for future growth.

As per a World Steel Association report, the long-term prospects for metallurgical (“met”) coal remain bullish due to chances of improvement in demand in the Asian, European and the Middle East and North African markets in the coming years. This is primarily due to higher steel demand as a result of growth in the automotive, energy and residential construction sectors.

The proceeds from the transaction will strengthen Arch Coal’s liquidity. The company can utilize the funds to enhance its met coal reserves, thereby meeting future demand.

Arch Coal Inc. currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include Athlon Energy Inc. (ATHL), Cabot Oil & Gas Corporation (COG) and Clayton Williams Energy, Inc. (CWEI), each with a Zacks Rank #1 (Strong Buy).

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