FirstEnergy and Boich Companies Sell Partial Interest in Signal Peak Coal Mine to Gunvor Group

FirstEnergy Will Receive Nearly $260 Million

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Oct 18, 2011, 08:31 ET

AKRON, Ohio, Oct. 18, 2011 /PRNewswire/ -- The FirstEnergy Corp. (NYSE: FE) and Boich Companies subsidiaries that jointly own the Signal Peak coal mine in Montana announced that Pinesdale LLC, a fully owned subsidiary of the Gunvor Group, Ltd., one of the world's leading commodity traders, has purchased a one-third interest in the venture for $400 million.

As part of the transaction, FirstEnergy will receive nearly $260 million of the proceeds. Additionally, the transaction will reduce FirstEnergy debt by approximately $360 million due to deconsolidation and will result in an estimated gain for FirstEnergy of $390 million due to the revaluation of the asset.

FirstEnergy and Boich Companies, a privately held Columbus, Ohio-based coal company, originally purchased Signal Peak in 2008 as a joint venture, with FirstEnergy acquiring a 45 percent interest for $125 million. In 2009 FirstEnergy invested an additional $8.5 million, increasing its interest to 50 percent.

The current value of the Signal Peak operation is in excess of $1.5 billion, which includes existing debt. As part of the definitive purchase agreement, FirstEnergy and Boich Companies will transfer their interests in Signal Peak mine to Global Mining Holding Company, LLC (Global Holding), a new holding company that will include various Signal Peak entities. FirstEnergy Ventures, a FirstEnergy subsidiary, WMB Marketing, a Boich subsidiary, and Gunvor Group each will own a one-third interest in Global Holding.

"We evaluated multiple offers for Signal Peak, but the agreement with Gunvor Group enabled us to obtain a substantial return on our initial investment while at the same time creating a joint venture with one of the world's leading commodity trading organizations," said FirstEnergy President and Chief Executive Officer Anthony J. Alexander.

"This transaction will continue to maximize both the mine and rail investment we have made in Montana over the last three years and make our operation even stronger," said Wayne Boich, Jr., President and Chief Executive Officer, Boich Companies. "One of the key advantages that Gunvor Group brings to this venture is the ability to utilize their commodity trading relationships in such markets as Japan, China, Korea and Chile to sell more coal."

"We're very excited about entering the coal business with two leaders in the field like FirstEnergy and Boich Companies," said Timothy Legge, chairman of Gunvor S.A. "Signal Peak represents our first investment in a coal mine located in the U.S. It presents Gunvor with the opportunity to use the existing rail and port operations to market this high quality, low sulfur bituminous coal to expanding markets around the world, particularly in the Pacific and Asia markets through our arrangements with Westshore Terminals in Vancouver, the prime coal moving terminal on the West Coast. Because Westshore is a deep water port we can utilize large bulk carriers capable of holding up to 200,000 tons of coal."

As part of the new agreement, FirstEnergy Generation Corp., a subsidiary of FirstEnergy Corp., has revised its original coal purchase agreement with Signal Peak to reduce from 7.5 million short tons* annually to no more than 2 million each year of the mine's production. In addition, Gunvor also has a substantial coal purchase agreement with Signal Peak. Overall, the production forecast for Signal Peak, including future surface operations, is expected to rise to approximately 15 million clean tons per year from the current nine million tons, which can be sold to Gunvor as well as other domestic and international customers.

Compared to typical eastern coal, Signal Peak produces stable, high-quality bituminous coal with approximately 50 percent lower sulfur and ash content. In addition, it has lower mercury content and significantly higher heat value than sub-bituminous coal found in the nearby Powder River Basin (PRB), meaning higher kilowatt-hour production with significantly lower carbon dioxide emissions per megawatt.

Since 2008, operations at Signal Peak have been expanded, new equipment has been installed and a 35-mile rail spur to an existing Burlington Northern Santa Fe railway line was built.

FirstEnergy is a diversified energy company dedicated to safety, reliability and operational excellence. Its 10 electric distribution companies comprise the nation's largest investor-owned electric system. Its diverse generating fleet features non-emitting nuclear, scrubbed baseload coal, natural gas, and pumped-storage hydro and other renewables, and has a total generating capacity of approximately 23,000 megawatts.

* "Short ton" is a ton used in the U.S. which is 2,000 pounds. This differs from a metric ton which is equivalent to 2,204 pounds.

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Actual results may differ materially due to: the speed and nature of increased competition in the electric utility industry, the impact of the regulatory process on the pending matters in the various states in which we do business including, but not limited to, matters related to rates, the status of the PATH project in light of PJM's direction to suspend work on the project pending review of its planning process, its re-evaluation of the need for the project and the uncertainty of the timing and amounts of any related capital expenditures, business and regulatory impacts from ATSI's realignment into PJM Interconnection, L.L.C., economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices and availability, financial derivative reforms that could increase our liquidity needs and collateral costs, the continued ability of FirstEnergy's regulated utilities to collect transition and other costs, operation and maintenance costs being higher than anticipated, other legislative and regulatory changes, and revised environmental requirements, including possible GHG emission, water intake and coal combustion residual regulations, the potential impacts of any laws, rules or regulations that ultimately replace CAIR including the Cross-State Air Pollution Rule (CSAPR) and the effects of the EPA's recently released MACT proposal to establish certain mercury and other emission standards for electric generating units, the uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any NSR litigation or potential regulatory initiatives or rulemakings (including that such expenditures could result in our decision to shut down or idle certain generating units), adverse regulatory or legal decisions and outcomes with respect to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or operating permits by the NRC, including as a result of the incident at Japan's Fukushima Daiichi Nuclear Plant), issues that could arise as a result of the current outage at Davis-Besse for the installation of the new reactor vessel head, adverse legal decisions and outcomes related to Met-Ed's and Penelec's ability to recover certain transmission costs through their transmission service charge riders, the continuing availability of generating units and changes in their ability to operate at or near full capacity, replacement power costs being higher than anticipated or inadequately hedged, the ability to comply with applicable state and federal reliability standards and energy efficiency mandates, changes in customers' demand for power, including but not limited to, changes resulting from the implementation of state and federal energy efficiency mandates, the ability to accomplish or realize anticipated benefits from strategic goals, efforts, and our ability, to improve electric commodity margins and the impact of, among other factors, the increased cost of coal and coal transportation on such margins, the ability to experience growth in the distribution business, the changing market conditions that could affect the value of assets held in FirstEnergy's nuclear decommissioning trusts, pension trusts and other trust funds, and cause FirstEnergy to make additional contributions sooner, or in amounts that are larger than currently anticipated, the ability to access the public securities and other capital and credit markets in accordance with FirstEnergy's financing plan, the cost of such capital and overall condition of the capital and credit markets affecting FirstEnergy and its subsidiaries, changes in general economic conditions affecting FirstEnergy and its subsidiaries, interest rates and any actions taken by credit rating agencies that could negatively affect FirstEnergy's and its subsidiaries' access to financing or their costs and increase requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees, the continuing uncertainty of the national and regional economy and its impact on the major industrial and commercial customers of FirstEnergy's subsidiaries, issues concerning the soundness of financial institutions and counterparties with which FirstEnergy and its subsidiaries do business, issues arising from the recently completed merger of FirstEnergy and Allegheny Energy, Inc. and the ongoing coordination of their combined operations including FirstEnergy's ability to maintain relationships with customers, employees or suppliers, as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect, the risks and other factors discussed from time to time in FirstEnergy's and its applicable subsidiaries' SEC filings, and other similar factors. The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on FirstEnergy's business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy expressly disclaims any current intention to update any forward-looking statements contained herein as a result of new information, future events or otherwise.

SOURCE FirstEnergy Corp.