Nerco deal takes RTZ into US

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The Independent Online
RTZ, the mining giant, is expanding its coal interests with an agreed deal to buy Nerco, the western American producer, for dollars 470m ( pounds 330m). The purchase is RTZ's first in America, although it has coal resources in Australia.

Nerco has substantial interests in three low-sulphur coal mines in the Powder River basin in Montana and Wyoming. In 1992 its production share was 16.6 million tons.

Bob Wilson, RTZ's chief executive, said the purchase meant that the group had added a seventh resource to its six existing core activities of copper, aluminium, gold, borax, titanium and iron ore.

As well as its coal mines, Nerco owns oil and gas interests and peripheral gold and silver holdings, all of which are likely to be sold. In 1992 Nerco lost dollars 551m, mainly from write-downs against the oil and gas assets, after which its year- end net assets were dollars 272m. RTZ said that this figure did not reflect the underlying value of the coal assets, however.

Mr Wilson said the US had been the preferred area for an acquisition because of its appetite for coal for power generation. 'Steam' coal accounts for more than 50 per cent of power generated and the market has been growing by about 2 per cent a year as nuclear power stagnates and oil suffers from its sensitivity to President Bill Clinton's energy tax.

The Powder River coal is also very low in sulphur. Although there is over-capacity in the American coal industry, environmental demands are likely to lead to the shutting of high-sulphur mines.

About 60 per cent of the coal from the mines, which has production costs of about dollars 4 a ton, is pre- sold under long-term, fixed-price power contracts. Current spot prices for coal of about dollars 5 a ton are considered depressed.

RTZ is buying Nerco through its US subsidiary Kennecott, for dollars 12 a share. Nerco's net debt at the end of last year was dollars 692m. Before taking account of disposal proceeds RTZ's gearing will rise to about 60 per cent. RTZ's share price slipped 5p to 646p.

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