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UPDATE 1-Consol to sell 5 W.Va. mines as coal regulations increase

Ernest Scheyder
Monday, 28 Oct 2013 | 8:58 AM ET

Oct 28 (Reuters) - Consol Energy Inc said on Monday it will sell five West Virginia coal mines to privately held Murray Energy Corp amid regulatory uncertainty and as it focuses more on the growth of its natural gas operations.

The company, which was founded during the U.S. Civil War, is selling the mines for $850 million cash, as well as $184 million in future royalty payments for its coal reserves.

Murray will also assume $2.4 billion of Consol's liabilities, mostly for worker pensions and other benefits.

The five mines are some of Consol's oldest and most expensive. Consol said it will keep cheaper coal mines in Pennsylvania and Virginia. The deal is expected to close by the end of the year.

"We concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines," Consol CEO J. Brett Harvey said in a statement.

Consol primarily sells thermal coal, which is used to generate electricity, but also sells a small portion of higher-margin metallurgical coal, which is used to make steel.

With the U.S. shale gas revolution cutting the price of natural gas, U.S. power plants have been burning less coal, sharply denting demand and thermal coal prices. A glut of steel in China and other fast-growing regions has also eroded demand for metallurgical coal.

Additionally, the threat of U.S. regulation has discouraged coal generation.

The Obama administration last month announced regulations setting strict limits on the amount of carbon pollution that can be generated by any new U.S. power plant. The guidelines, which the coal industry has vowed to fight, would make it near impossible to build coal plants without using technology to capture carbon emissions that foes say is unproven and uneconomic.

Consol's shares fell 1.9 percent to $37.42 in premarket trading.

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