Arch Coal on Track for Record Profits in 2008

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Researched by Industrial Info Resources (Sugar Land, Texas)--On October 27, Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri) reported its profits for the third quarter of 2008. Because of a large number of acquisitions made in 2007, the company's net income more than tripled year-over-year, from $27.3 million in 3Q07 to $97.8 million in 3Q08. "All operating regions contributed to this success," said Chairman and CEO Steven Leer, "particularly central Appalachia, whose per-ton operating margin expanded nearly nine-fold from the year-ago quarter."

The company has extensive reserves in the Powder River Basin (PRB) in Wyoming and Montana. Arch's Black Thunder mine in the PRB is one of the largest, most productive coal mines in the world. The company plans to begin test shipments of its PRB coal to Pacific Rim areas. "Expanding the PRB's scope internationally should help unlock additional value for this region," said Leer. "Arch will begin test shipments of its PRB coal off the West Coast in the fourth quarter. Our initial test shipments will be for use in Chinese power plants. The test shipments should lead to an additional volume commitment in the Pacific Rim with customers who value a secure and competitively priced supply. As this secondary market grows in scope, it should increase the competition both domestically and internationally for PRB and provide upside for future pricing."

Despite the substantial earnings, the company did lower its total earnings outlook for 2008, citing milder weather and a slowing economy for an estimated 1% decrease in the United States' electricity demand. "While our current near-term coal demand forecast is below our earlier expectations, driven by milder weather and economic concerns, we remain confident in the favorable long-term fundamentals of the coal industry," said Leer.

Industrial Info has been tracking Arch Coal's Saddleback Hills Mine Expansion Project since 2005. The estimated $80 million project will involve constructing a 3.2-million-ton-per-year underground longwall mine at the existing Elk Mountain Mine in Wyoming. The mine will support DKRW Energy's (Houston, Texas) grassroot coal liquefaction project in Medicine Bow, Wyoming.

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