Arch Coal reduces loss, says cost-cutting is leading to improved EBITDA

St. Louis-based Arch Coal (NYSE: ACI) on April 21 reported a net loss of $113 million in the first quarter of 2015 compared with a net loss of $124 million in the first quarter of 2014.

Revenues totaled $677 million for the first quarter of this year and adjusted earnings before interest, taxes, depreciation, depletion and amortization (“adjusted EBITDA”) was $82 million, a three-fold increase as compared to the prior-year quarter.

“Our first quarter 2015 results reflect another strong operating performance with improved adjusted EBITDA generation over the prior-year period,” said John W. Eaves, Arch’s president and chief executive officer. “We continue to take proactive steps to reinforce our operational and financial flexibility. These actions are positioning us to maneuver through both near-term and long-term market challenges by optimizing our low-cost asset base, being market responsive, controlling costs and managing liquidity.”

As of March 31, Arch had available liquidity of $1.1 billion, including cash and short-term investments of $939 million and undrawn borrowings on its credit facilities. “We are focused on managing our available liquidity through these difficult conditions,” said John T. Drexler, Arch’s senior vice president and chief financial officer. “As part of an ongoing review of our costs, we again reduced our capital and administrative spending during the three months ended March 31, 2015, enabling us to lower spending expectations for full year 2015.”

The company said that despite lower shipment levels in the first quarter of 2015 when compared to the previous quarter, it increased cash margins by more than 20% in its Appalachian and Powder River Basin segments. The Appalachian region reported its lowest cost performance in four years.

The company sold 33.1 million tons of coal in the first quarter, up from 31.4 million tons in the year-ago quarter, but down from 35.2 million tons in the fourth quarter of 2014. The average sales price per ton in the first quarter was $19.18, down from $20.09 in the year-ago quarter.

Market Trends

“The global coal trade remains under significant pressure, as prevailing seaborne thermal and metallurgical prices have further softened and supply continues to outpace demand growth in the international thermal and metallurgical markets,” the company reported. “Global steel production has declined 1 percent since the start of the year, marked by weakness in Europe and Asia, and steel capacity factors in the United States fell below 69 percent in April from 77 percent at the end of 2014.

“Given recent market trends, Arch believes industry-wide coal exports from the United States will decline below 90 million tons in 2015 compared with 2014 export levels of nearly 100 million tons, with metallurgical exports accounting for most of the reduction. We expect seaborne coal markets to rebalance in time as demand grows, new global supply slows, and previously announced supply rationalizations take effect.

“Arch now expects U.S. coal consumption for power generation to decline by 80 million tons in 2015 as compared to 2014, due to the surplus of natural gas and the impact of new environmental regulations that took effect in April. As a result of these factors, utility stockpiles increased by an estimated 10 million tons during the first quarter and are expected to build further over the course of the year.

“Domestic coal supply reductions are counterbalancing demand declines to some extent. Mine Safety and Health Administration data suggests that total domestic production decreased by 13 million tons in the first quarter of 2015 versus the fourth quarter of 2014. Arch expects coal supply reductions to continue and accelerate as the year progresses.

Company Outlook

Arch said it now expects thermal sales volumes for 2015 to be in the range of 120 million to 130 million tons. It has lowered its metallurgical coal sales guidance, and now expects to ship between 6.0 million and 6.8 million tons for 2015. Using this revised volume guidance, Arch is more than 95% committed on thermal sales and 75% committed on met coal sales for the full year.

Arch has also reduced its annual cash cost-per-ton guidance range for its Appalachian segment, while maintaining its cost outlook for the Powder River Basin. The company has raised the 2015 cash cost-per-ton guidance range for the company’s Bituminous Thermal region to reflect the impact of lower production levels.  

“We started the year with a solid sales foundation, and we are building on that position by proactively adjusting our sales expectations and managing our exposure by layering in sales as appropriate to run our mines efficiently,” said Eaves. “Looking ahead, we believe our diversified, low-cost asset portfolio and our continued focus on controlling the factors we can will enable us to effectively manage the business through market headwinds.”

Arch Coal is one of the world’s top coal producers for the global steel and power generation industries, serving customers on five continents. Its network of mining complexes is the most diversified in the United States, spanning every major coal basin in the nation. The company controls more than 5 billion tons of high-quality metallurgical and thermal coal reserves, with access to all major railroads, inland waterways and a growing number of seaborne trade channels. Its biggest mine is the Black Thunder surface job in the Wyoming end of the Powder River Basin.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.