Itochu Corp. (8001.TO, ITOCY) has agreed to pay $1.52 billion to buy a 20% stake in a Drummond Colombian coal mining operation

Privately held U.S. coal company Drummond Co. Inc. said Thursday that Japanese trading house Itochu Corp. (8001.TO, ITOCY) has agreed to pay $1.52 billion to buy a 20% stake in a Drummond Colombian coal mining operation with proven and probable reserves of approximately 2 billion net tons.

In a statement, Birmingham, Alabama-based Drummond, the largest merchant coke producer in the U.S., said the deal will help finance an investment program designed to boost exports from the South American country. Current production is approximately 27 million net tons per year.

Projected investment in Colombia over the next five years will be over $1.3 billion, Drummond said, in line with moves mandated by a Colombian government decree which will increase export capacity to 40-45 million net tons per year in the future.

Under the terms of the deal, Drummond will own 80% and Itochu 20% of a new joint venture company, Drummond International, LLC. Drummond International will own and operate Colombian coal mining operations and transportation infrastructure currently owned 100% by Drummond, and Itochu will obtain rights to market coal produced by the Colombian operations into Japan.

Drummond commenced coal production in Colombia in 1995, exporting all of its production there as thermal coal. The company said its reserves in Colombia have high calorific value, low sulfur and low ash.

Drummond said in its statement that it has links with Itochu dating back to the 1960s, when Drummond exported U.S. metallurgical coal to Japan. The U.S. coal company said it will continue to seek opportunities for unspecified "joint investments and other strategic alliances" with Itochu.