Arch reports loss, delays Leer longwall start-up

FALLING metallurgical coal prices have hit the second-largest US coal miner, Arch Coal, which reported a wider second-quarter adjusted net loss of $60.5 million Tuesday.
Arch reports loss, delays Leer longwall start-up Arch reports loss, delays Leer longwall start-up Arch reports loss, delays Leer longwall start-up Arch reports loss, delays Leer longwall start-up Arch reports loss, delays Leer longwall start-up

Courtesy Arch Coal

Staff Reporter

The Creve Coeur-based company posted net losses of $72.2m, or 34 cents per share, compared with $435.5m, or $2.05 per share, a year earlier following substantial cutbacks and streamlining.

Revenue fell 21% to $766.3m, reflective of “overall weakness in the metallurgical coal markets,” Arch said.

Adjusted earnings before interest, taxes, depreciation, depletion and amortization totaled $110.5m in Q2 2013, down 39% year-on-year and up 32% quarter-on-quarter. The adjusted EBITDA excluded an asset impairment charge of $20.5m during the period, relating to an investment in a clean coal power plant project that was cancelled.

"During the second quarter, we achieved a sequential improvement in our earnings as we continued to manage our business effectively in the face of weak coal market conditions," Arch president and CEO John Eaves said.

"Arch employed strong cost control, particularly in the Powder River Basin and in Appalachia, which positively impacted our per-ton margins. Our cost-reduction initiatives are generating results, and we will continue to pursue aggressive cost reductions across all of our operations during the second half of the year."

The consolidated cash margin per ton increased about 4% from the first quarter of 2013, benefiting from increased shipments and strong cost control in the company’s Powder River Basin and Appalachian segments. Arch sold 35 million tons of coal, an 11% increase on the 31.5 million tons sold in Q2 2012, at an average price of $22.34 per ton.

Arch said the outlook for the thermal coal market was improving, but it would continue to make cost reductions to offset the declining metallurgical coal market.

Arch expects thermal sales volumes, including volumes from Canyon Fuel, to be in the range of 130 million to 137 million tons for 2013. The company has lowered its metallurgical sales forecast and now expects to ship 7.7 million to 8.3 million tons into metallurgical coal markets during 2013.

"Given recent metallurgical market dynamics, we have idled two contract mines at Cumberland River during the second quarter and have elected to push back the longwall start-up at Leer until late in the fourth quarter," Eaves noted.

"These decisions have resulted in lowering our overall metallurgical coal sales expectations for 2013."

For full-year 2013, Arch has also reduced its annual cash-cost-per-ton guidance range in each of the company's operating regions. In addition, Arch has further reduced its forecasted capital expenditures by about $20m for the full year, and now expects to spend $280m to $310m for 2013.

"We will continue to focus on the things we can control during the downturn, while carefully positioning ourselves for the market rebound," Eaves said.

"We have significantly curtailed capital spending, diligently reduced costs and further streamlined our diversified asset portfolio. Moreover, since the market downturn began in late 2011, we have significantly increased our overall liquidity, with an ample cash position to use for future debt reduction as coal markets improve."

As well as idling the two Cumberland operations in June, Arch divested its Utah operations under its wholly owned subsidiary, Canyon Fuel Company, to Bowie Resources for $435m.

"We are taking the right steps to weather this downturn and emerge as an even stronger player when the market rebounds," Eaves commented.

"Beyond exercising cost and capital restraint, we are executing our strategy to divest non-core thermal assets, such as Canyon Fuel. This sale pulls forward multiple years of expected cash flows, reduces our future capital outlays and greatly enhances our financial flexibility.

"Even with a near-term cautious outlook on global metallurgical coal markets, we're confident that supply will decline and demand will rebound over time," Eaves added.

"Metallurgical coal output and capital spending levels industry-wide are in the process of significant rationalization, setting the stage for the next market upswing as global economies begin to improve."

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