Russian steelmaker to buy Pa. coal company
Severstal will buy PBS Coals for $1.3 billion cash. The deal is the second U.S. acquisition by a Russian steel company in 10 days and the 13th by a Russian company in 12 months.
Russian steelmaker OAO Severstal yesterday said it is buying a Western Pennsylvania coal company for $1.3 billion in cash, adding to the surge of Russian money into the United States.
The deal for PBS Coals Group, which has 48,000 acres and 12 operating mines in Somerset County, is the second U.S. acquisition by a Russian steel company in 10 days and the 13th overall by Russian companies in the last 12 months.
PBS is known as the owner of the Quecreek Mine that collapsed in 2002, trapping nine miners in a drama that played out on national TV. It also owned land where Flight 93 crashed on Sept. 11, 2001.
Moscow-based Severstal entered the U.S. market with the 2004 purchase of the former Ford Motor Co. steel plant in Dearborn, Mich., for $285 million. This year, flush with cash from high steel prices, it has spent $2.4 billion on U.S. steel operations, including $810 million for the former Bethlehem Steel plant at Sparrow's Point in Baltimore.
The goal of buying PBS, which specializes in coal that is processed into a fuel - known as coke - for steel blast furnaces, is to combat soaring costs.
"Securing the supply of raw materials is a critical piece to maximizing the full potential of our U.S. businesses," said Gregory Mason, chief operating officer of Severstal, which is the fourth-largest steel manufacturer in North America.
From 1998 through 2005, Mason was senior consultant for Metal Strategies Inc., an international consulting firm in West Chester.
Christopher Plummer, managing director at Metal Strategies, said steel manufacturers have changed their attitude toward metallurgical coal - which is processed into coke - in recent years.
"Because of the surge in prices all over the world," Plummer said, "people are now going back aggressively to acquire these coal assets that they couldn't get rid of fast enough a decade ago."
Ten years ago, metallurgical coal cost $50 or less per metric ton, Plummer said. "Now it is $300 per metric ton." A ton is about 10 percent less than a metric ton.
Plummer estimated Severstal's potential savings from owning and mining the coal at $150 or more per ton for every ton it would otherwise buy on the open market.
If the deal gets regulatory approval and closes as expected by mid-October, PBS will supply about 50 percent of Severstal's metallurgical coal needs in the United States.
Severstal's $1.25 billion purchase of steelmaker Wheeling Pittsburgh Corp. included a coke plant in West Virginia. Most metallurgical coal in the United States comes from West Virginia and eastern Kentucky.
PBS produced about 2.7 million tons of coal during the year ended March 31, most of it metallurgical coal.
PBS is no stranger to foreign ownership. It was owned by a British company before a management buyout in the late 1990s. In June, PBS agreed to a buyout by a Canadian company, Penfold Capital Acquisition Corp. The Severstal deal is contingent upon its completion. It is only the Western Pennsylvania assets that Severstal is purchasing.
Severstal said it is interested in more coal purchases in the U.S., potentially boosting Russia's presence here even more.
In the last 12 months, Russian companies have made 13 U.S. purchases worth $8 billion, up from seven deals worth $2.3 billion in the prior 12 months, according to Thomson Reuters.
Among the deals in the last year was the $570 million purchase of Claymont Steel Holdings in Claymont, Del., by Evraz Group, one of the four largest Russian steel firms.