Drummond International will be owned 80% by Drummond and 20% by Itochu. The two will oversee Colombian mining operations and transportation infrastructure, both of which have been wholly owned by Drummond.
Itochu’s investment will be $US1.52 billion, subject to adjustments, and the company will obtain some marketing rights for the coal produced by the Colombian operations into Japan.
“[Itochu’s] investment in Drummond International will help finance Drummond's portion of its ongoing capital program in Colombia, which is focused on increasing coal exports in an environmentally sensitive manner,” Drummond officials said, noting that the transaction was tied to a capital program in Colombia that could reach $1.3 billion over the next five years.
“This capital program is expected to include the purchase of more efficient mining equipment along with approximately $375 to $400 million to be invested in the construction of a new direct-loading port facility, mandated by a decree of the Colombian government, which will increase export capacity to 40 to 45 million net tons per year in the future.”
Drummond believes the partnership will help to further open the Asian coal markets to exports from Colombia.
The Alabama company, which began production in Colombia in 1995, exports all production as thermal coal. It has concessions to mine a large reserve base totaling about 2 billion tons proven and probable.
Drummond’s production in Colombia totaled about 27 million tons annually, with the output being of high calorific value with low sulfur and low ash.
“The relationship between Drummond and Itochu dates back to the 1960s, when Drummond exported US metallurgical coal to Japan through Ataka, a trading firm that at one time owned an interest in a Drummond affiliate and which was subsequently bought by Itochu,” Drummond said.
“In the intervening time, Drummond and Itochu have continued to work together marketing coal internationally.”
Drummond will also continue to seek joint investment opportunities as well as other alliances with Itochu.