Arch Resources and CONSOL Energy Announce All-Stock Merger to Create Core Natural Resources

On August 21, 2024, Arch Resources, Inc. and CONSOL Energy Inc. revealed a definitive agreement to merge through an all-stock deal. This merger will create Core Natural Resources, a premier North American natural resource firm targeting global markets.

Core Natural Resources will become a leading producer and exporter of high-quality, low-cost coals, offering a range from metallurgical to high-calorific value thermal coals. The merged entity will manage 11 mines across six states, featuring one of North America's largest and most cost-effective thermal coal complexes, as well as one of the leading metallurgical coal portfolios in the U.S. Additionally, it will access global markets through ownership of two export terminals on the U.S. East Coast and strategic links to West Coast and Gulf of Mexico ports. In 2023, Arch and CONSOL delivered approximately 101 million tons of coal to sectors including steelmaking, industrial, and power generation. On a pro forma basis as of August 19, 2024, Core Natural Resources is projected to have a market capitalization of approximately $5.2 billion, with 2023 revenues around $5.7 billion and adjusted EBITDA of approximately $1.8 billion, excluding expected synergies.

Jimmy Brock, Chairman and CEO of CONSOL, stated, "We’re thrilled to combine our companies to form a new industry leader that is well-positioned to meet the growing global demand for essential resources and energy. Our assets complement each other perfectly, enhancing diversification across different coal types, uses, and regions. Core Natural Resources is projected to uphold a strong balance sheet, substantial liquidity, and healthy free cash flow, ensuring industry-leading returns. We’re eager to collaborate closely to address the world's needs for steel, infrastructure, and energy while capturing the significant benefits and long-term value this merger will bring to our shareholders, employees, customers, and the communities where we operate."

Paul Lang, CEO of Arch, commented, "This merger combines two strong leadership teams and top-tier operating platforms to create a leading North American coal producer with global reach and exceptional mining and logistics capabilities. Core Natural Resources will benefit from CONSOL’s expanding seaborne thermal coal business for industrial use, along with Arch’s substantial presence in lucrative global metallurgical coal markets. We anticipate significant operational synergies through streamlined support functions, enhanced marketing opportunities, and a greatly expanded logistics network, improving our ability to deliver coal efficiently and reliably to customers worldwide. Both companies share a strong commitment to safety, environmental and social stewardship, and operational excellence, and we will continue to focus on these values to provide superior returns to our shareholders."

The merger will form a leading coal producer with a diverse portfolio of high-quality metallurgical and thermal coals, leveraging eight cost-effective, long-lived longwalls. Core Natural Resources will leverage a strong portfolio with over 35 million tons per annum (Mtpa) of coal from CONSOL's Pennsylvania Mining Complex and Arch's Leer, Leer South, and West Elk mines, all of which are highly contracted and oriented towards seaborne markets.

With minimal overlap, the merger offers increased diversification across growth markets and geographies, enhancing the ability to serve a broader customer base. Metallurgical coal from the combined entity will play a crucial role in steel production, which constitutes 70% of global steel output, and is anticipated to remain in strong demand for decades due to urbanization and economic development. Additionally, the high-calorific value thermal coal will support key industrial applications and meet rising power generation needs, including those driven by AI, data centers, and electric vehicle growth. The merger also allows for advancements in carbon product technologies through CONSOL Innovations.

Core Natural Resources will expand its North American logistics and export capabilities, owning around 25 Mtpa of export coal capacity through two U.S. Eastern seaboard terminals and maintaining strategic links to West Coast and Gulf of Mexico ports. This expansion is expected to improve the efficiency and reliability of coal delivery to global markets.

Financially, the transaction is expected to increase free cash flow for both Arch and CONSOL in the first full year following the merger's completion. The merger is expected to realize $110 million to $140 million in annual cost savings and operational synergies within six to 18 months, driven by logistics optimization, coal blending, procurement, and SG&A efficiencies.

Pro forma, Core Natural Resources would have generated approximately $1.4 billion in free cash flow for 2023 and had a net cash position of about $260 million as of mid-2024. This strong cash flow and balance sheet will enable substantial capital returns and value-creating investments. Discretionary cash flow is anticipated to be returned to shareholders through share buybacks and a possible modest dividend.

Both Arch and CONSOL share a commitment to safety, environmental stewardship, and community support. The merger will uphold these values, maintaining a strong, diverse workforce and competitive compensation, while enhancing the company’s ability to attract and retain talent.