(Bloomberg) December 9, 2010 – Drummond Co. is considering selling a minority stake in its Colombian coal mining operations as an alternative to selling the whole unit to a mining company, according to three people with knowledge of the matter.
Closely held Drummond has held preliminary talks with private-equity firms First Reserve Corp. and Riverstone Holdings LLC about a stake sale, while it continues to weigh a deal for the entire Colombian business, said the people, who declined to be identified because the talks are private. The Colombian unit may be worth more than $6 billion, the people said. Drummond may make a decision in the next few weeks, according to one person.Swiss mining company Xstrata Plc and Glencore International AG are both interested in acquiring the Colombian assets, two people said. Brazil’s Vale SA had also shown interest and is no longer involved in the process, according to the people.
Drummond, based in Birmingham, Alabama, and controlled by the family of the same name, said in July it may take on a partner to improve access to capital as it seeks to expand output and port capacity. It hired Bank of America Corp. to evaluate possible partners for projects including an eight-fold expansion to annual capacity of its El Descanso mine to 25 million metric tons within three years, it said at the time.
Spokesmen for Drummond, First Reserve and Riverstone declined to comment. Xstrata, Glencore and Vale also declined to comment.
Xstrata, Glencore
Xstrata, the world’s largest exporter of coal used by power stations, owns a third of the Cerrejon mine on Colombia’s northern coast alongside Melbourne-based BHP Billiton Ltd. and Anglo American Plc. The mine this year began shipping coal 10,000 miles to China as demand in Asia jumped.
Xstrata in March had to sell another Colombian coal unit, Prodeco, back to its major shareholder Glencore after the world’s largest commodities trader exercised an option to repurchase the unit for $2.25 billion, plus profits accrued and cash invested by Xstrata in the year it owned the asset.
First Reserve of the U.S. was among investors who bought $2.2 billion in Glencore convertible bonds that will convert into equity upon an initial public offering or “other pre- determined qualifying events.” New York-based Riverstone, which manages $17 billion in energy and power investments, has committed more than $11.5 billion to 59 investments in North America, Latin America, Europe and Asia, Bloomberg data show.
Drummond’s Colombian operations include an open-pit mine near La Loma, a deep-water port on the Caribbean Sea near Santa Marta and coal transportation and handling facilities, according to the company’s website. Drummond acquired the mining rights to La Loma in northern Colombia in the 1980s and production has increased from 1 million metric tons in 1995 to 21.7 million tons last year, according to the website.
Colombia is South America’s largest producer of coal and the world’s fourth-largest coal exporter from mines, according to the U.S. Energy Information Administration. China overtook the U.S. as the world’s biggest energy user last year, according to the International Energy Agency.
By Brett Foley, Jeffrey McCracken and Zachary R. Mider