Coal Sector Becoming a Hotbed of Acquisition Speculation

Growth in emerging markets has led to a boost in steel demand, which in turn has increased prices for the hot-burning metallurgical coal used to make steel. Analysts claim that quality met coal is in short supply, and argue that companies with ample steelmaking coal reserves are likely takeover targets. The Bedford Report examines the outlook for companies in the Coal Industry and provides research reports on Patriot Coal Corporation PCX and Arch Coal, Inc. ACI. Arch Coal recently started a tender offer to buy rival International Coal Group for $3.4 billion. Arch says the acquisition would create the nation's second-largest supplier of metallurgical coal. International Coal Group recently posted a net first quarter profit of $22 million, or 10 cents a share, compared with a net loss of $8.9 million, or 5 cents a share, last year. "Metallurgical coal demand improved throughout the quarter, with prices reaching near-record levels," International Coal Group Chief Executive Ben Hatfield said in a statement. Metallurgical coal commands a significant price premium over thermal coal used for power generation and has risen sharply on world markets because of strong global demand for steel. A research note from Brean Murray Carret & Co analyst Jeremy Sussman said that Patriot Coal looks ripe for a takeover, given its high-quality reserves of the steelmaking coal. Patriot recently said it would ship 3 million tons of metallurgical coal this year and in 2012 -- up from a previous guidance of 2 million tons -- and that it expects to sell that coal at $173 per ton, up significantly from a prior estimate of $135 per ton.