Sunoco Ancillary Buys Coal Company - Analyst Blog

Leading transportation fuel retailer Sunoco Inc. (SUN) announced that its subsidiary, SunCoke Energy, has acquired Virginia's Harold Keene Coal Co. along with its affiliated entities and related assets. Sunoco will pay approximately $40 million in cash, including working capital, for the acquisition.

The deal comprises two active underground mines and one active surface and high wall mine. Although the current output from the assets is about 250,000 to 300,000 tons of coal per year, the production capacity is expandable in the future. The assets are estimated to hold approximately 16 million tons of coal.

The manufacturer of high-quality metallurgical-grade coke, SunCoke Energy expects this acquisition to augment its coal reserves and value proposition.  With facilities spreading across Virginia, Indiana, Ohio and Illinois, SunCoke produces almost 3.67 million tons of metallurgical coke each year and supplies coal to major steel producers across the United States and Brazil.

The parent company Sunoco has plans to spin off SunCoke Energy in the first half of 2011. SunCoke is slated to begin operations in the second half of 2011 from the newly constructed plant in Middletown, Ohio, with an estimated annual production capacity of 550,000 tons of coke and 46 megawatts of electricity. SunCoke targets increasing production from its metallurgical coal mines to approximately 1.75 million tons from 1.25 million tons annually.

Philadelphia-based Sunoco, which enjoys a 31% interest in Sunoco Logistics Partners, L.P. (SXL), currently retains a Zacks #3 Rank (short-term Hold recommendation). We are also maintaining our long-term Neutral rating on the stock.

 
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