Under the newly inked deal, ARLP will have an ownership stake in privately owned White Oak as well as the acquisition and leaseback of reserves and surface rights, a coal handling and services agreement and backstop equipment financing relating to the No. 1 thermal operation currently under construction in Hamilton County, Illinois.
The company’s investment plan began with an initial payment of $69.5 million made at closing.
"Strategically, Alliance's participation in this new, low-cost longwall operation further expands our investment in the growing Illinois Basin coal market," president and chief executive officer Joseph Craft III said.
"This venture allows ARLP to partner with the White Oak team in the development of this new mine and, if future market conditions warrant, the opportunity to participate in additional longwall mines within White Oak's extensive reserve base. Moreover, through the use of our MLP [master limited partnership] structure and strong balance sheet, we are able to generate attractive long-term recurring cash flows for Alliance."
White Oak’s Mine No. 1, which should begin production in 2014 pending slope construction and initial development timelines, is being developed to access approximately 200 million tons from the Herrin 6 coal seam.
Once the mine is in operation, White Oak is anticipating annual production of between 6 and 6.5 million tons to be marketed domestically as well as to the export market.
Alliance’s deal by the numbers
Of Alliance’s investment, $140 million has been committed for the acquisition and fund development of the mine’s reserves, about 100Mt of which was acquired at closing with the balance to be taken over in a series of follow-on transactions.
Alliance will them lease the reserves back to White Oak for a royalty income stream.
The company has also earmarked $110 million of its investment for the construction of coal handling facilities, a preparation plant and surface facilities as well as associated surface rights for the infrastructure.
“ARLP will operate these surface facilities and serve as the sole provider of coal preparation and handling services and will receive a throughput fee on all feedstock coal,” officials said/
Finally, $150 million to as much as $275 million has been committed for Alliance’s preferred equity investment, giving it the right to all cash until a specified internal rate of return on the invested equity capital has been returned. After that, Alliance’s ongoing equity will be 20% to 40%.
ARLP has also agreed to provide WOR with up to $100 million in a backstop equipment financing facility until the privately held White Oak can obtain third-party financing for equipment.
Alliance’s funding is anticipated to total $100 to $115 million in 2011, including the initial investment at closing. Due to the anticipated expenditure, the company adjusted its total capex guidance for this year to between $420 and $475 million.