Weak prices, output leave Arch sagging

ARCH Coal may have started the year on a down note, reporting a year-on-year loss in its first quarter on dragging coal sales volumes but it is looking ahead with optimism for a strong Q2 in its domestic thermal business.
Weak prices, output leave Arch sagging Weak prices, output leave Arch sagging Weak prices, output leave Arch sagging Weak prices, output leave Arch sagging Weak prices, output leave Arch sagging

John Eaves

Donna Schmidt

For the period ended March 31, the Missouri-based producer reported a net loss of $70 million.

Its adjusted net loss is $72 million after excluding non-cash accretion of acquired coal supply agreements. Its ANL in the first period of 2012 was $8 million.

Revenues also declined, falling to $826 million from $1.04 billion on lower sales volumes.

Arch said its Q1 results included a pre-tax charge of $10.5 million from minimum throughput fees required under its existing port and logistics agreements.

It earned $3.64 per ton in consolidated cash margin, down from $4.77/t in Q4 2012.

Officials said the decline was attributable to the impact of lower realized prices across its operating regions.

In the Powder River Basin, its Q1 cash margin was up 32% to $2.03/t versus last year’s Q4.

Q1 2013 sales price per ton decreased 3% on lower pricing for contracted, market-based and export tonnage.

The realized pricing decline was more than offset by an 8% drop in cash cost per ton.

In Appalachia, Arch’s cash margin was $7.60/t, compared with $13.27/t in the final 2012 quarter.

Sales volumes declined by 800,000t over the sequential quarter due to lower thermal and metallurgical coal shipments following a longwall move at the Arch Mountain Laurel operation.

Average sales price per ton in the region fell 10% over the same time period, mostly because of lower met shipment prices.

Cash cost per ton declined by 4% versus the final 2012 period, even though its met volumes represented more than half of the regional volume mix.

In the Western Bituminous Region, Arch recorded a cash margin of $11.41/t in Q1, down notably from $18.68/t in Q4 2012.

“First quarter 2013 sales volumes declined as the longwall at Dugout Canyon was idled in the prior-quarter period,” officials said, noting that the average sales price per ton declined modestly over the same time period due to lower pricing on export sales.

“Despite the global coal market headwinds that have prevailed over the last 18 months, we are delivering strong cost control, exercising capital restraint and minimizing cash outflows in the trough of the market cycle, while maintaining our commitment to safety and environmental excellence," president and chief executive officer John Eaves said.

“As the market cycle turns, we are confident that our low-cost operations will generate strong cash flows and value for our shareholders."

Eaves said positive catalysts including normalized weather and higher competing fuel prices were brightening the domestic thermal outlook – Arch’s largest by volume.

“We expect these trends to continue to reduce customer coal stockpiles throughout 2013 and to create a more balanced US coal market thereafter,” he said.

“Globally, we believe metallurgical and thermal coal markets are in the process of stabilizing and we anticipate gradual improvement as we progress through the remainder of the year."

Over the course of this year, Arch’s focus will be on improving cash flows while the market remains weak.

It will also be working to prepare itself to capitalize on coal market recovery.

“Our plan includes three key areas: capital spending reductions, cost containment and working capital and financial management,” Eaves said.

Arch has sliced its forecast capital expenditures by about $30 million for the year and projects spending between $300 million and $330 million whole-year, including the completion of the Leer metallurgical mine in Appalachia and its previously committed land obligations.

Additionally, it will spend on maintenance and efficiency projects that have benefited from the redeployment of equipment from idled mines into active operations.

Looking ahead, Eaves said Arch had a strong plan.

“We continue to execute our strategy of layering in some thermal sales to run our mines efficiently, manage our costs and meet our sales plans for 2013, despite operating at reduced volume levels,” he said.

“We have also booked 6.5 million tons of our metallurgical coal for 2013 and see significant opportunity to place additional tons.

“Looking ahead, we will continue to focus on managing through the market downturn with the liquidity that we have in place.

“We also expect a stronger second half in 2013, driven by improving domestic coal market fundamentals, a recovering metallurgical market and the start-up of Arch's Leer longwall mine.”

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