Since reports first surfaced that Massey Energy Co. (NYSE: MEE) was considering a possible sale of the company as one of a number of strategic options, the company’s share price has risen more than 30%. Massey is expected to have something to say about its decision during next week’s board of directors meeting.  The Wall Street Journal reported this morning that Luxembourg-based steel giant ArcelorMittal SA (NYSE: MT) has “expressed interest” in buying Massey if the coal company decides that is the strategic direction it wants to follow. There is at least one other company interested in acquiring Massey — Alpha Natural Resources, Inc. (NYSE: ANR), which bought Foundation Coal last year for about $2 billion.

ArcelorMittal, with a market cap of more than $52 billion and $6 billion in cash at the end of 2009, would seem to be in a better position than Alpha, with a market cap of less than $6 billion and less than $500 million in cash, to complete a buyout of Massey on terms the miner would accept.

The problem is determining just what Massey is worth. The explosion at the company’s Upper Big Branch mine that killed 29 miners will surely have an impact on the price. Massey has about $1 billion in reserve to pay claims, but the company could face larger liabilities if it is found to have been negligent.

On the other side of the valuation coin are Massey’s reserves. The company controls 2.4 billion tons of recoverable reserves, of which about 1.3 billion tons is high-value metallurgical coal used in steel-making. That’s why ArcelorMittal is interested. Alpha would like to have Massey’s reserves to sell, but Arcelor needs the reserves either for its own use or to sell as an offset for the coal it buys.

Metallurgical coal sells for around $200/ton, compared with the thermal coal used in electricity generation which sells for about a third of that. Massey’s market cap is around $4.9 billion, and would be higher except for the company’s outstanding liabilities for the Upper Big Branch explosion.

It will be interesting to see if ArcelorMittal comes up with an offer that would interest Massey’s shareholders. The company’s management, led by CEO Don Blankenship, will play up the value of Massey’s reserves and play down the pending litigation from the mine explosion. But if the offer comes, and if it is reasonable, the board could support it whether management does or not. That is the interesting part.

Massey’s shares are up nearly 2% today, while both Alpha and ArcelorMittal are also up about 0.5% at around noon. The Market Vectors Coal ETF (NYSE:KOL) is up about 2% as well today, and up about 20% for the past 12 months.

Paul Ausick

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