Massey Energy Company (MEE) has agreed to purchase Cumberland Resources Corporation and its affiliated companies for $960 million.

Cumberland is one of the largest privately held coal producers in the United States, with 2009 revenue of $550 million generated from the production and sale of 7.8 million tons of high quality Central Appalachian coal.

Approximately half of the 416 million tons of reserves of the company in Virginia and Kentucky can be used as metallurgical coal, a key ingredient in making steel. Massey will acquire Cumberland free of debt.

Massey expects Cumberland to be a good fit for its strategy of capitalizing on growing Asian demand for higher-priced metallurgical coal. The company’s strategy centers on high-value metallurgical coal and demand in Asia, and the resulting supply shortages in South America and Europe.

Massey looks forward to produce approximately 5.0 million tons of metallurgical quality coal annually with the existing Cumberland assets. The company does not expect any additional development capital would be required to reach this production target.

Massey believes it will achieve operating synergies when this transaction and the integration of the Cumberland operations are complete. These synergies are expected to result from an increased global marketing of metallurgical quality coal through Massey’s established sales network, sharing of operational best practices, purchasing synergies and working capital optimization. Massey expects to be able to utilize coal produced from the acquired operations to increase metallurgical coal sales by up to 5 million tons annually over the next couple of years.

On a pro forma basis, after adding the Cumberland reserves, Massey expects to have an estimated total reserve base of 2.9 billion tons. An estimated 1.3 billion tons of Massey’s total coal reserves are of metallurgical quality.

Terms of the deal call for Massey to pay $640 million in cash and $320 million in stock. Massey ended 2009 with $665.8 million in cash and was recently able to withdraw a $72 million bond posted in a West Virginia lawsuit. The acquisition is expected to close in the second quarter of 2010.

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