Poised For The Thermal Coal Markets Improvements
ST. LOUIS, MO - John W. Eaves, Arch Coal Inc.’s Chief Executive Officer said, "Our solid financial results underscore the strategic value of the company's two complementary lines of business and our highly competitive position in our key operating segments. During the first quarter, we capitalized on resurgent global metallurgical markets while remaining poised to take advantage of improving fundamentals in the thermal coal markets as the year progresses."
Based on the company's current expectations regarding the direction of metallurgical coal markets, Arch has raised its coking coal volume guidance for 2017. Arch now expects to sell between 6.7 and 7.1 million tons of coking coal, which excludes PCI coal. At the midpoint of its volume guidance level, Arch is over 85 percent committed on coking coal sales for the full year, with over 30 percent of that committed volume exposed to index-based pricing. At the midpoint of guidance, Arch's thermal sales are 88 percent committed for the full year.
"We are building upon our first-quarter results and expect our company to deliver an exceptional earnings performance in 2017," said Eaves. "Arch is strategically prepared to respond to evolving coal market dynamics, and we believe our strategic asset base, low-cost operational profile and strong balance sheet will enable Arch to deliver significant shareholder value."
"Despite modestly lower sales volumes, we are off to a strong start in 2017," said said Paul A. Lang, Arch's president and Chief Operating Officer. "Our mining complexes delivered strong performances during the quarter just ended. We were successful in achieving higher price realizations across all of our operating segments in the first quarter. In particular, our Metallurgical segment delivered a standout performance – attaining an average sales price 40 percent higher than the fourth quarter of 2016. At the same time, we continue to diligently focus on managing our controllable costs, driving process improvement initiatives and maximizing revenues from our strategic unpriced volume position, with the goal of enhancing margins at each of our operations."
The company’s first quarter 2017 net income was $51.7 million, compared with $33.4 million,in the fourth quarter of 2016. Revenues totaled $600.9 million for the three months ended March 31, 2017. The company decreased its total indebtedness and interest expense during the first quarter, bolstering its already strong financial position.
"We are extremely pleased with the further improvements to our capital structure," said John T. Drexler, Arch's Chief Financial Officer. "Looking ahead, we remain committed to maintaining a healthy level of liquidity and managing our balance sheet carefully while creating and enhancing returns for our shareholders."
Arch subsidiaries earned 14 safety and environmental awards in the three months ended March 31, 2017. Most notably, Arch's Sentinel and Coal-Mac complexes attained West Virginia's top safety awards among large underground and surface mines, while the West Elk mine was honored with both the top safety and environmental awards in Colorado. Furthermore, four of Arch's operations and facilities attained a Perfect Zero – a dual achievement of operating without a reportable safety incident or environmental violation – for the three months ended March 31, 2017. "We commend our employees for their outstanding safety and environmental accomplishments, and for their ongoing commitment to living our core values every day," said Lang. "We are constantly striving for improvement across our operating platform, with an ultimate goal of a Perfect Zero at all of our operations."
In the Metallurgical segment, first quarter 2017 cash margins increased nearly 165 percent versus the fourth quarter of 2016. Average sales price per ton rose $25.23 in the first quarter of 2017 when compared with the fourth quarter of 2016, benefiting primarily from the ongoing strength in metallurgical coal markets. Sales volumes declined 12 percent over the same time period, due primarily to two planned longwall moves and to restricted lake season delivery schedules. Notably, Arch shipped 1.5 million tons of coking coal at an average realized price of $105.51, a 40-percent increase over the average realized price achieved in the fourth quarter of 2016. Coking coal realizations benefited from significantly stronger pricing on index-based tons that shipped during the period as well as new sales. Higher per ton cash costs in the segment were driven by higher sales-sensitive costs, lower volume levels, and the impacts of the two longwall moves. In the Powder River Basin, first quarter 2017 sales volumes declined modestly compared with the fourth quarter of 2016. Average sales price per ton increased $0.16 in the first quarter when compared to the fourth quarter of 2016, benefiting from a favorable mix of customer shipments. Segment cash costs increased $0.45 per ton over the same time period, driven by the impact of lower volume levels, increased repair and maintenance expense and higher fuel prices. As previously indicated, the segment's fourth quarter cost performance was exceptionally strong. Arch is maintaining its cost guidance of $10.20 to $10.70 per ton for the full year.
In the Other Thermal segment, average sales price per ton increased $1.50 versus the fourth quarter, driven by stronger pricing on shipments of West Elk coal destined for the international marketplace. Volumes were modestly lower in the first quarter, due in part to reduced West Elk shipments to eastern U.S. power plants during a mild winter. While still below the guidance range, cash cost per ton increased when compared to the fourth quarter due to the impact of lower volume levels during the period. To reflect recent increased demand for West Elk coal, Arch is reducing the top end of its cost guidance for the segment. The company now anticipates costs to be in the range of $25.00 per ton to $29.00 per ton for 2017.