updated 2/16/2004 11:26:57 AM ET 2004-02-16T16:26:57

RAG, the German coal mining group, is close to selling the majority of its international coal operations to a US consortium in a deal valued at $1 billion.

On Friday, Jürgen W. Stadelhofer, head of RAG Coal International, signed a memorandum of understanding with a US consortium including AMCI - a U.S. coal mining group - and private equity firms Blackstone and First Reserve. The consortium will take over 12 coal mines in the U.S. for $1.05 billion, FT Deutschland has learned.

The deal would make AMCI one of the biggest coal producers in the world. AMCI has an annual coal production capacity of 30 million tons in the U.S. and about 10 million tons in Australia.

RAG's coal mining operations would give AMCI an additional production capacity of 70 million tons. RAG's supervisory board is expected to approve the deal before Easter. "The due diligence process will be finalised by June," said a person close to the deal.

The deal price is nearly double the expected sale price of $500 million and puts RAG in a good postion to cut its €2 billion ($2.5 billion) debt pile.

RAG, owned by energy companies Eon and RWE and engineering giant ThyssenKrupp, needs to raise cash to repay a €1.9 billion loan it took out to fund part of the purchase of Degussa, the world's largest speciality chemicals company, where it takes control this year.

RAG's planned disposal represents a major strategy shift that will see the Essen-based group focused on mining, real estate and chemicals.

RAG said on Sunday: "We don't comment on running negotiations."

Copyright The Financial Times Ltd. All rights reserved.


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