Arch takes razor to output, spending

ARCH Coal has announced further cuts to its 2009 US coal production and capital spending.
Arch takes razor to output, spending Arch takes razor to output, spending Arch takes razor to output, spending Arch takes razor to output, spending Arch takes razor to output, spending

Arch Coal's Skyline propoerty.

Angie Tomlinson

Despite already announcing cuts to its capital outlay and production, Arch said it would further reduce spending to $US195-215 million for capital programs and $140-160 million for land and reserve additions for 2009.

Sales volumes for 2009 are expected to be slashed to 116-120 million tons, with the cuts to come on a pro rata basis by region.

Arch chief executive officer Steven Leer said the production cuts eliminated virtually all the company’s unsold tonnage for 2009.

“We are trimming Arch's previously announced capital spending levels by more than $80 million in 2009 in response to current market conditions and to preserve our liquidity," Arch chief financial officer John Drexler said.

"While we have a positive long-term outlook for US coal markets, our projected capital expenditures reflect our reduced planned volume levels and our expectation for soft near-term demand."

During the March quarter, sales volumes declined 10.8% and revenues fell 2.6% compared to a year ago.

Arch posted a $30.6 million income for the 2009 March quarter, down from $81.1 million in the 2008 March quarter.

First quarter income was affected by a $3.4 million expense towards the $761 million pending acquisition of Rio Tinto’s Jacobs Ranch mine in the Powder River Basin, Wyoming.

“While recognising the recessionary environment of 2009, we are also positioning ourselves for an inevitable market rebound," Leer said. "We are executing on our long-term growth strategy, as evidenced by the recently announced Jacobs Ranch transaction.”

Arch chief operating officer John Eaves said operations during the first quarter performed to target.

"Our Central Appalachian operations ran well, although price realisations declined due to lower metallurgical coal sales. Our western operations achieved higher price realisations, but lower volume levels and higher hedged diesel prices impacted unit costs,” Eaves said.

“As predicted, our Western Bituminous region was adversely affected by difficult geologic conditions encountered during West Elk's transition to the E-seam.

"As we progress through 2009, we anticipate our cost structure will continue to be impacted by lower volume levels at our operations driven by reduced coal demand as well as higher hedged diesel costs.

"However, we do expect to offset some cost pressures with cost control and mitigation efforts implemented at our mines."

During the quarter, sales volumes from the company’s western operations declined by 3.6Mt, while the Western Bituminous region took a 700,000t fall, reflecting the impact of operational challenges at West Elk and reduced volume levels.

"West Elk has absorbed its start-up issues and is managing the situation increasingly well," Eaves said.

"Going forward, we are continuing efforts to improve coal quality through better segregation procedures and blending efforts. We also expect mining conditions and coal quality to improve as the longwall progresses in the current panel."

In Central Appalachia, volumes decreased by 200,000t due to falling metallurgical coal sales and falling prices in the March quarter.

Looking ahead, Arch said it expected US coal consumption to decline by more than 100Mt in 2009.

“Arch believes that coal production and capital spending levels industry-wide are in the process of significant rationalisation, setting the stage for the next market upswing when global economies begin to improve,” the company said.

Arch anticipated the June quarter would be affected by reduced sales volume levels across the company's operating platform, some remaining coal quality issues at West Elk and four longwall moves – three in Utah and one in West Virginia – scheduled in the quarter.

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