Arch Resources, Inc and CONSOL Energy Inc have announced that they have entered into a definitive agreement to combine in an all-stock merger of equals to create Core Natural Resources, a premier North American natural resource company focused on global markets.
Core Natural Resources will be a leading producer and exporter of high-quality, low-cost coals with offerings ranging from metallurgical to high calorific value thermal coals. With mining operations and terminal facilities across six states, the combined company will own 11 mines, including one of the largest, lowest cost, and highest calorific value thermal coal mining complexes in North America and one of the largest, lowest cost, and highest quality metallurgical coal mine portfolios in the US.
In addition, the combined company will have access to global markets via ownership interests in two export terminals on the US Eastern seaboard, along with strategic connectivity to ports on the West Coast and Gulf of Mexico. Arch and CONSOL sold an aggregate of approximately 101 million tons of coal in 2023 to steelmaking, industrial, and power-generation customers.
Pro forma, Core Natural Resources would have a market capitalization of approximately $5.2 billion as of August 19, 2024, and on a pro forma basis for 2023, revenues were approximately $5.7 billion and adjusted EBITDA was approximately $1.8 billion, excluding expected synergies.
Jimmy Brock, Chairman and Chief Executive Officer of CONSOL, said: “We are excited to bring our companies together to create a new industry leader that is ideally positioned to meet the rising demand for critical resources and energy around the world. Our assets are highly complementary, resulting in increased diversification across coal types, end uses, and geographies. In addition, Core Natural Resources is expected to have a strong balance sheet, ample liquidity, and robust free cash flow to deliver industry-leading capital returns. We look forward to working closely together to continue meeting the world’s steel, infrastructure, and energy needs that are so critical to our everyday lives and to capture the significant benefits and long-term value we believe this merger will create for our stockholders, employees, customers, and the communities in which we live and operate.”
Paul Lang, Chief Executive Officer of Arch, said: “This merger will join two proven leadership teams and best-in-sector operating platforms to establish a premier North American coal producer with worldwide reach and world-class mining and logistics capabilities. Core Natural Resources will enjoy the benefits of CONSOL’s growing seaborne thermal business focused on industrial applications coupled with Arch’s significant exposure to attractive global metallurgical coal markets. Together, we expect to realise meaningful operating synergies through the optimisation of support functions, greatly enhanced marketing opportunities, and a significantly expanded logistics network, which will enhance our ability to deliver coal reliably and efficiently to our global customers. Importantly, both companies are driven by a deep commitment to safety, environmental and social stewardship and operating excellence, and we will continue to build around these commitments as we work to deliver superior value to stockholders.”
The merger will create a diversified coal producer with a broad portfolio of high-quality metallurgical and thermal coals focused on seaborne markets where the business is highly contracted. More than 35 Mt/y of this coal will be produced by a best-in-sector portfolio of longwall operations at CONSOL’s Pennsylvania Mining Complex and Arch’s Leer, Leer South and West Elk mines.
Greater diversification across multiple growth markets and geographies with little, if any, overlap. The ability of Core Natural Resources to provide a range of coal qualities and blends will enable it to serve a more diverse customer base across multiple growth markets and geographies. For example, metallurgical coal produced by the combined company is a key input in the production of new steel from blast furnaces. Blast furnace steel constitutes 70% of the world’s steel output.
Metallurgical coal is expected to remain in strong demand for decades to come, as new steel will be essential in supporting the world’s growing population, ongoing economic development, continued urbanisation, and the build-out of a low-carbon economy. Furthermore, the high calorific value thermal coal mined by the combined company is increasingly sought after in industrial markets. On a pro forma basis in 2023, Core Natural Resources would have delivered more than 25 Mt/y to support key end-use applications, including cement production and other industrial uses, as well as to serve resurgent power generation demand driven by AI, data centres, and EV expansion. In addition, CONSOL Innovations provides the ability to focus on developing and commercialising cutting edge technologies in carbon products and carbon management.
Core Natural Resources will have an ownership interest in approximately 25 Mt/y of export coal capacity across two marine export terminals on the US Eastern seaboard and have strategic connectivity to ports on the West Coast and Gulf of Mexico. The potential to optimise this expanded export capacity and logistics capabilities is expected to enhance reliable, efficient coal delivery to global customers.
The transaction is expected to be accretive to free cash flow for both Arch and CONSOL in the first full year following close. The combination is expected to generate $110 million to $140 million of annual cost and operational synergies within six to 18 months following the close of the transaction, primarily from logistics optimisation, coal blending and related opportunities, as well as procurement and SG&A efficiencies. Core Natural Resources will be headquartered in Canonsburg, Pennsylvania, leveraging its close proximity to the majority of its mining and export operations, and will maintain a presence in St. Louis.
