India's Essar Group has bought West Virginia-based coal producer Trinity Coal Partners from private-equity firm Denham Capital Management for $600 million.
Trinity is a top 10 coal producer in the US, operating six mining complexes with a total of 10 surface mines, three underground mines and six highwall miner units in Kentucky and West Virginia. It employs around 650 people. Trinity has a proven reserve base of 200 million tonnes of coal split between metallurgical and steam coal, which it sells to electric utilities, steel manufacturers, coal brokers and other buyers primarily in the eastern United States. It currently produces 7 million tonnes of coal annually and has plans to ramp up production to 10 million tonnes.
Essar will fund the deal through a mix of accruals and debt, said sources, although the exact split between the two was not disclosed. The deal is further indication that banks are once again willing to lend to Indian companies for cross-border M&A, after a near-hiatus in 2009.
The deal is subject to relevant approvals and is expected to close by the end of this month. It has been signed between Essar Group subsidiary Essar Minerals and Denham Capital.
The Essar Group is a Mumbai-based conglomerate with businesses in steel, energy, power, communications, shipping ports and logistics, construction, and mining and minerals. Essar said the deal is part of its strategy to continue to achieve backward integration and to secure raw material needs for its global steel and power operations.
Essar has an annual steelmaking capacity of 14 million tonnes and iron ore reserves of over 1.4 billion tonnes in Minneapolis. Coal from the Trinity mines is expected to be supplied to Algoma Steel, the Canadian steel producer that Essar bought in 2007 for $1.58 billion. Essar has also bought other assets outside India, but this is the first time it has acquired coal mines overseas. The deal follows close on the heels of Essar selling its telecom towers business to American Towers for $450 million.
Denham Capital is a US-based private equity firm. It targets investments in the range of $50 million to $250 million in the commodities and energy sectors. Denham acquired Trinity in January 2005 and since then has more than doubled the reserves and increased the production capacity from approximately 1.7 million tonnes per year.