Mining company completes acquisitions

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Westmoreland Coal Co.’s wholly owned subsidiary, Westmoreland Mining LLC, completed its purchase of the Montana Power Co. for $138 million in cash. One of the coal operations Westmoreland acquired through the deal is Western Energy Co. in Colstrip, Mont. The company owns and operates the Rosebud Mine, which sold 10.4 million tons of coal in 2000. A second acquisition is Northwestern Resources Co., which owns and operates the Jewett Mine in Central, Texas. Jewett Mine produced and sold 8.2 million tons of lignite, a type of coal, last year.
In a separate transaction, Westmoreland Coal’s other wholly owned subsidiary, Westmoreland Power Inc., is soon to settle its acquisition of the coal assets of Knife River Corp., a division of Montana-Dakota Utilities Co., for about $28 million, which includes its mining operations in Montana and North Dakota.
“Because there are some housekeeping issues, both companies agree they should be completed before an announcement is made,” said Diane Jones, Westmoreland’s vice president of corporate relations and business development. Sources close to the deal expect it to close within three weeks.
Acquisition of the Knife River Corp. will allow Westmoreland Power and Montana-Dakota Utilities to seek a definitive joint-venture-development agreement for a 500-megawatt power project called Lignite Vision 21. Knife River’s inactive Gascoyne Mine is a possible site for the power project, and Westmoreland’s acquisition gives it certain rights to the mine. Lignite Vision is a partnership between the state of North Dakota and the Lignite Energy Council to encourage construction of a new baseload power plant, which includes up to $10 million in matching funds for such development. The Lignite Energy Council says it believes that Gascoyne is a particularly attractive site for a power project, and has expressed support for a cooperative agreement between Westmoreland Power and MDU.
For Westmoreland, it’s part of the business plan.
“We are implementing a strategic plan through acquisition and development in energy marketing,” said Jones. “And Vision 21 is an example of a very large and new power facility in North Dakota … once the Knife River acquisition is complete.”
As a result of the Knife River acquisition, Westmoreland will grow from one mining company into having five operations in Montana, Texas and North Dakota. Westmoreland also has power operations, but not active mining, in Virginia.
“We are looking at the entire energy marketplace,” said Jones. “We have North Carolina, Colorado and New York state power plants in operation.”
Industry researchers indicate that coal’s short-term future in the energy marketplace looks strong.
According to a report last year by the U.S. Energy Information Administration, coal production declined by 2.3 percent from 1999 but overall coal consumption increased. “The additional needs of the industry were answered by a substantial draw down in stocks of 40.7 million short tons – lowering year-end stock levels by 22 percent from 1999 levels,” the report stated. Reasons for the decline in coal production included a lack of excess production capacity at some mines and reluctance on the part of some producers to expand production.
EIA’s Annual Energy Outlook 2001, which includes projections to 2020, states that “coal-fired power plants are expected to remain the key source of electricity through 2020.”
“Coal is an abundant, relatively low-cost fuel, which is used to produce over 54 percent of the electrical power in this country,” said Jones. “At current usage rates, this country has sufficient coal reserves to last more than 250 years. We believe that coal will continue to play an important role in the country’s energy mix.”
Christopher Seglem, Westmoreland Coal Co.’s chairman, president and chief executive officer, said he is delighted to close the Montana Power deal, because he believes it will produce sustainable profits and highly attractive cash flows.