Mountain Laurel longwall to put Arch back on track

DESPITE selling more coal, Arch Coal said its profits were down with reduced sales prices - but its outlook was positive with the early start-up of its Mountain Laurel complex.
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Courtesy Arch Coal

Donna Schmidt

Net profit was noticeably reduced over the same period last year, to $US27.2 million from $51 million in 2006. Revenue was on the same track, down slightly to $599.2 million from $610 million; the company cited operating cost increases and a decreased sales price for the results.

While tonnage sold in the quarter was actually on an upward trend, 34 million tons over 32Mt during the same quarter last year, prices were down from last year's $16.31 per ton to $16.02/t. Operating costs, the company added, were $14.15/t this quarter, up from $13.71/t in 2006's third quarter.

"Arch Coal continued to deliver solid operating results during the third quarter of 2007, despite weaker market conditions than in the year-ago period," said chairman Steven Leer.

He added that the highlight of its outlook was the recent opening of its Mountain Laurel complex in West Virginia's Central Appalachian region.

"[We] expect output from this mine to increase our participation in international and domestic metallurgical and pulverised coal injection markets in future periods," he said of the operation which kicked off production October 1.

Mountain Laurel is expected to add 900,000t to the company's total production during the final quarter of the year, also Arch's final fiscal period. When its longwall hits full production, it is expected to produce between 4Mt and 5Mt next year.

"The timing for the Mountain Laurel longwall start-up is extremely advantageous given booming world metallurgical markets and stronger export steam markets," said Leer.

"US coal exports are likely to grow in 2008 due to tight international supply conditions, as well as global infrastructure and transportation constraints.

"As a result, we expect international customers to increasingly view US coal supplies as an alternative and diversified supply source. Looking ahead, we expect our Mountain Laurel operation to deliver a very strong return on our investment given its superior geology and strategic access to export markets."

Ramp-up for its new operation, Arch officials noted, came earlier because the entire Mountain Laurel project remained ahead of schedule. Arch added that the start of its longwall was successful.

"The new operation will more than replace production from Arch's depleted longwall mine at the Mingo Logan Ben Creek complex, which contributed approximately 1 million tons during the first half of 2007 prior to being sold at the end of June," said the producer.

"[The mine's] low-cost reserve base is expected to benefit Arch's competitive cash cost structure in Central Appalachia in future periods."

Arch also discussed its 157Mt Illinois Basin reserve purchase, which was completed last month with International Coal Group in a deal worth $38.9 million. With the acquisition, Arch now holds more than 375Mt of reserves in the region, nearly 300Mt of which are a continuous block.

"This strategic acquisition further enhances Arch's substantial reserve position in Illinois, a market where Arch previously had a long and successful history," said Leer.

"Additionally, the transaction will allow Arch to build a low-cost platform for future growth in the region."

He added that the increasingly important role the area will play in the industry in the coming years - including new power generation technology - was important to the company and its strategic plans.

It appears that the industry in general will continue to move in a positive direction in the coming new year, according to Leer.

"US coal market fundamentals improved during the third quarter, and momentum appears to be increasing as we move through the fourth quarter due to positive trends in key demand and supply factors," he said.

"As a result, Arch is committed to following a market-driven strategy, which is in the best interest of our shareholders."

Arch president John Eaves said of the operator's outlook: "Looking ahead, we will continue to place an emphasis on production flexibility and cost control at our operations. These initiatives, coupled with improving market conditions, should help to drive even stronger future operational performance."