Itochu buys Colombia coal stake for $1.5B

Japanese trading house Itochu Corp. said Thursday it has agreed to pay $1.52 billion to buy a 20% stake in a Colombian coal mining operation owned by U.S. coal company Drummond Co. Inc. with proven and probable reserves of about 2 billion net tons.

In a statement, Itochu said the investment in the operations, with production of about 25 million tons per year annually, is a “key step” in plans to more than double its equity share in global coal mining operations. Itochu is targeting access to more than 20 million metric tons of coal per year by 2015, compared with 8 million metric tons currently.

Under the terms of the deal, Drummond will own 80% and Itochu 20% of a new joint venture company, Drummond International, LLC. Drummond International will own and operate the mining operations and transportation infrastructure of which Drummond currently owns 100%.

Itochu will obtain the rights to market coal produced by the Colombian operations in Japan, and said it will “cooperate in the marketing of coal to electric power utilities and to other coal consumers in other Asian countries.”

The deal will “allow Itochu to diversify its coal assets to a new geographic region and grow its trading activities,” the Tokyo-based company said. Itochu will “continue its efforts to strengthen its natural resources portfolio,” the company said.

Birmingham, Alabama-based Drummond, the largest merchant coke producer in the U.S., said the deal will help it finance an investment program designed to boost exports from the South American country.

Projected investment in Colombia over the next five years will be over $1.3 billion, Drummond said, in line with moves mandated by a Colombian government decree that will increase export capacity to 40 million to 45 million net tons per year in the future.

Drummond began coal production in Colombia in 1995, exporting all of its production there as thermal coal.

Drummond said in its statement that it has links with Itochu dating back to the 1960s, when Drummond exported U.S. metallurgical coal to Japan. The U.S. coal company said it will continue to seek opportunities for unspecified “joint investments and other strategic alliances” with Itochu.

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