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Goldman Sachs Sells Colombian Coal Mines to Murray Energy

Goldman Sachs Group Inc. sold a Colombian mining operation to Murray Energy Corp. at a steep loss, marking the bank’s exit from the coal business and Murray’s international expansion.

Murray, the largest underground coal company in the U.S., closed the deal Thursday for less than $10 million, according to people familiar with the matter. The St. Clairsville, Ohio, company is venturing abroad for the first time because the industry is “under attack” in the U.S., the company’s chief executive Robert E. Murray said in a statement.

“We must look to international markets to ensure our survival,” he said.

Goldman Sachs spent more than $600 million on the operation, called Colombia Natural Resources. Faced with labor and environmental issues, Goldman struggled to turn a profit from the mining operation, which was the subject of a page-one Wall Street Journal article in May. A spokesman confirmed the sale, but declined to comment further.

For Goldman Sachs, the deal marks the end of its sideline as a producer of raw materials. U.S. lawmakers and regulators have been pushing banks to reduce their exposure to raw commodities, citing potential risks such as explosions and hidden financial exposure.

The deal includes two mines, more than 184 million tons of coal reserves, a coal port facility, a stake in a railroad, 11 locomotives, 530 railcars, and other assets.

Goldman bought its first Colombian coal mine, La Francia, in 2010 from Coalcorp Mining Inc. of Canada for about $151 million, plus $50 million in additional financial considerations. Revenue tripled to $200 million a year later. And in 2012, it bought another mine and a stake in a railroad for about $407 million.

Business quickly soured. The Colombian government ordered the firm and some competitors to relocate residents near the mines. In early 2013, a subcontractor running La Francia halted its contract. A few months later, women and children formed a human blockade in front of the neighboring mine, protesting on behalf of workers. The mine shut down for nine months.

Revenue sank to about $70 million in 2013. Demand softened and shipping problems cropped up. The mines essentially stopped producing coal.

Goldman offset its losses with other coal-market bets that generated gains of $246 million in two years, according to Goldman records. Still, the firm lost more than $200 million on the Colombian coal venture overall, according to people with knowledge of the matter.

Mr. Murray, 75 years old, is a third-generation coal miner who grew up in the Appalachian hills near the small Ohio town where his company built its first headquarters in 2012. His goal has been to position the company as a survivor as competitors go bankrupt. Coal prices have collapsed amid a supply glut, competition from natural gas and new environmental regulations.

Most of Murray’s coal now comes from northern Appalachia and the Illinois basin. It spent more than $4 billion during the past two years buying neighboring competition.

Earlier this year, the company joined with German utility E. ON to open Javelin Global Commodities Holdings LLP, a London-based trading house. It will market Murray coal abroad through river terminals and coastal ports Murray gained access to by buying Illinois basin miner Foresight Energy earlier this spring.

The Colombian coal is of an ideal quality for blending with Illinois and northern Appalachian coal for international sales, a Murray spokesman said.

source: http://www.wsj.com