In its latest swing at transforming into a pure play E&P, Consol Energy (NYSE: CNX) said Feb. 29 that it will sell its Buchanan mine and other assets in southwestern Virginia but hang on to its coalbed methane rights.

In a $420 million deal, private-equity backed Coronado IV LLC agreed to purchase 400 million tons of metallurgical coal and reserves, including $398 million cash payable at closing.

Consol will likely pay down part of its $952 million debt with the sale’s proceeds, but it parts with “the premiere U.S. met coal asset,” Jefferies LLC analyst Jonathan D. Wolff said.

Metallurgical or met coal is less-abundant coal chiefly used in the production of coke, and is primarily sold to steel mills, according to Grande Cache Coal’s website.

Wolff said that the Buchanan mine, with 88 million tons of proved coal reserves, was likely to drag on free cash flow in 2016.

The transaction continues Consol on its strategic path while further aligning the balance sheet, said Nicholas J. DeIuliis, president and CEO. Consol also said it was suspending its penny dividend.

Consol made its first substantial foray into the Appalachian Basin in March 2010 when it spent $3.5 billion to acquire 1.46 million Marcellus acres from Dominion Resources Inc.

"The Buchanan mine fits into Coronado’s portfolio as a pure play metallurgical coal producer, and, in the end, this transaction bolsters the strategic position of both companies,” he said.

The Buchanan deal includes Consol’s closed Amonate mine in West Virginia, the Russell County, Va., coal reserves and the Pangburn-Shaner-Fallowfield coal reserves in southwest Pennsylvania.

The transaction does not include any gas rights, and Consol retained rights to extract and sell gas at the mines and other properties. Wolff said the future gas development plan at Buchanan involves areas where the coal has already been mined out.

Consol will also receive a 20% royalty on coal sold outside the U.S. and Canada during the five years following closing. Consol will get 20% of any excess on the gross sale sales price.

Deutsche Bank was Consol’s financial adviser to Consol Energy. Buchanan Ingersoll & Rooney PC and Steptoe & Johnson PLLC were legal counsel.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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