Arch Coal lost about 41 cents per ton of coal it mined in its Appalachian region in the first quarter, the company announced in its earnings report today.
Appalachia was the only one of the three regions in which Arch reported a loss. The operating margin per ton in Appalachia was higher than the Western and Powder River Basin regions, but other costs such as depreciation, depletion and amortization pushed the region into a loss.
Costs in Appalachia were affected by the temporary longwall idling of Mountain Laurel as well as incremental severance and mine closure costs, Arch reported.
For the quarter, Arch reported net income of $1.2 million compared with $55.6 million a year ago.
"The severe weakness in U.S. thermal coal markets impacted our first quarter results and, consequently, we are resetting our 2012 expectations," said John W. Eaves, Arch's president and chief executive officer. "Based on an unprecedented build in power generator coal stockpiles year to date, the continued erosion in natural gas prices and relatively soft global metallurgical demand, we are further curtailing our production in 2012."
In the Appalachian region, Arch has closed five thermal operations and further curtailed production at other thermal mines. Since the market downturn, Arch subsidiaries have eliminated about 500 positions, according to the earnings report.
Arch sold 35.5 million tons in the first quarter, down from 36.2 million tons in the first quarter of last year and down from 42.5 million tons in the fourth quarter of 2011. Most of the company's production – 27.2 million tons – was in the Powder River Basin, with 4.5 million in Appalachia and 3.3 million in its Western Bituminous Region.
The company's new guidance for 2012 reflects the reduction of nearly all unsold thermal volumes, lower expectations for met coal sales and the predicted impact of lower volumes on per-ton costs.
Arch also said it is reducing its discretionary capital expenditures by $45 million and now expects to spend a total of $410 million to $440 million this year. The company also is evaluating capital spending plans for future years, including the potential delay of thermal coal replacement and expansion projects.
In West Virginia, Arch continues to advance the development of the Leer mine, with the low-cost, longwall metallurgical coal mine expected to begin operations in mid-2013.
Arch is also considering selling off non-core assets or reserves.
"The U.S. coal industry is in the midst of a restructuring that will cause some players to exit the market and others, like Arch, to pare back operations until market conditions improve," Eaves said. "Such change creates opportunities for our company, which is well-equipped to move tons offshore to serve global coal demand. The export market provides attractive growth potential for Arch given our low-cost mines and access to port capacity."
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