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Arch up on earnings, eyeing bright 2011

A SOLID performance for Arch Coal was somewhat offset by reduced shipments and lower production in the fourth quarter, but the Missouri producer is already looking at a strong 2011.

Donna Schmidt
Arch up on earnings, eyeing bright 2011

For the quarter ended December 31, Arch reported net income of $US47.8 million, compared to $1.5 million in the period a year earlier.

Fourth-quarter revenues were up 15% year-on-year on high sales volumes, and free cash flow of $147 million matched the record set in 2010’s third quarter.

"Arch's quarterly financial results reflect better coal market conditions than a year ago," company chairman and chief executive Steven Leer said.

"While our overall performance was solid, quarterly results were dampened by lower-than-expected shipment levels, poor Eastern rail service and lower-than-planned production at Mountain Laurel, as previously announced."

One highlight of Arch’s fourth quarter was the transaction for an increased equity interest, from 42% to 49%, in private Illinois Basin producer Knight Hawk Holdings in a $26.6 million deal.

KHC shipped 4 million tons from its operations in 2010 and is part of the company’s 300Mt portfolio of reserves in the region.

"Our growing investment in Knight Hawk, as well as the future development of Lost Prairie, grants Arch additional growth opportunities in its diverse portfolio of assets," Leer said.

Arch also discussed its recently announced equity interest acquisition for Millennium Bulk Terminals-Longview, owner of a bulk commodity terminal on the Columbia River near Longview, Washington.

Under the terms of that transaction, Arch will control 38% of the terminal's throughput and storage capacity, which will help facilitate export coal shipments from the western US coast.

Within days of that deal, Arch announced a five-year throughput agreement with Canadian Crown Corporation Ridley Terminals, owner of a bulk commodity marine terminal near Prince Rupert, British Columbia, which will aid it in the export of coal to the Pacific Rim markets.

Arch will be able to ship as much as 2 million metric tonnes through RTI this year and up to 2.5 million tonnes of coal annually from 2012 through 2015.

"The West Coast export facility announcements will help Arch to accomplish its strategic objective of expanding sales of Powder River Basin and Western Bituminous coals into the Asia-Pacific region, the world's largest and fastest-growing coal market," Leer said.

"Increasing our direct exposure to the growing seaborne thermal market should further unlock the value inherent in our western coal assets."

Arch president and chief operating officer John Eaves noted that the company’s focus would be on diligent management of controllable costs and matching production targets with market demand estimates.

To that end, Arch expects total sales volumes to be 155-160Mt for 2011. Sales volume guidance includes tonnage headed for metallurgical coal markets, and the producer estimates that its projects will reach at least 7Mt this year.

Though its idled Mountain Laurel longwall will have an impact on first-quarter financial performance, Leer said Arch expected to make up part of that delayed production over the course of the year.

"With our strong operating platform and assets already in place, we expect to deliver another record year in 2011," he said.

"We believe Arch is exceptionally well positioned to capitalize on the continuing recovery in US coal markets – and the coal market super-cycle that we believe is already underway globally."

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