Arch ends 2018 with strong quarter

By Greg Johnson

Gillette News Record

Via Wyoming News Exchange

GILLETTE — Arch Coal Inc. finished off 2018 with a strong fourth quarter, reporting a net income of $86.1 million on revenues of $651 million.

One of the nation’s largest coal producers, Arch sold 19.5 million tons of Powder River Basin coal in the quarter, the company said Thursday morning in its 2018 year-end earnings report. That was “significantly higher than anticipated” as the Black Thunder mine near Wright was able to pick up some of the production slack seen at other mines that struggled with the effects of unusually wet weather last spring, the report said.

Arch “once again stepped up in an aggressive way … to capitalize on spot sales,” said John W. Eaves, the company’s chief executive officer.

Arch saw “strong spot sales and healthy overall shipment levels associated with the persistent impact of heavy rains elsewhere in the basin during the year’s second half,” according to the report.

The company also finalized a previously announced revision to its Black Thunder reclamation plan that saved Arch $96 million and accelerates reclamation without an expected increase to operating costs.

Arch also announced Thursday it will develop a new coking coal mine in northern West Virginia, called Leer South. Coking coal is used to make steel.

When running, the mine will operate on the same 200-million-ton base as the company’s Leer mine and will produce an estimated 3 million tons of coking coal, Eaves said. The new mine is expected to cost up to $390 million to build, of which $90 million is allocated to be spent in 2019.

For the year, Arch recorded a net income of $312.6 million, he said, adding that the company “capitalized on continued strength in global coking coal markets and resurgent demand for Powder River Basin coal.”

While Eaves was upbeat about the performance of Arch’s Black Thunder and Coal Creek mines in the PRB, Thursday’s earnings report shows a dramatic drop in the cash per ton realized in the fourth quarter of 2018.

The mines produced nearly 20 million tons that sold for an average of $11.88 per ton, but costs were up significantly to $10.66 per ton for the quarter, an increase from the $9.76 in the third quarter. The $1.22 per ton Arch realized in profit was nearly $1 less than the $2.26 per ton it got in the third quarter last hear.

For the year, Arch produced 79.1 million tons of coal in the Powder River Basin, including 71.1 tons from the Black Thunder mine, consistently the world’s second largest producing mine behind Peabody’s nearby North Antelope Rochelle mine. While that held in line with the 70.5 million tons the mine produced in 2017, it’s nearly 29 percent less than the 101 million tons mined in 2014.

Looking ahead, Arch reports thermal coal demand in the United States has picked up in recent months as power plant stockpiles are burned down and more recent cold weather snaps that prompted more power use. Thursday’s report estimates Black Thunder production to be about the same in 2019 in the range of 70-80 million tons.

Black Thunder’s over 8,400 Btu coal “continues to attract a premium,” the report said, but lesser quality coal is suffering from weak pricing. That has prompted the company to reduce its 2019 output from the Coal Creek mine.

Since emerging from Chapter 11 bankruptcy protection nearly two years ago, Arch has bought back 7.2 million shares of stock for $584 million over the last seven quarters, Eaves said. That includes 1 million shares bought back in the fourth quarter of 2018 for $89 million.

He called the last quarter “a highly successful conclusion” to the year.