Future Looks Tough for Arch Coal, May Seek Bankruptcy

Researched by Industrial Info Resources (Sugar Land, Texas)--A potential bankruptcy filing by Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri) in the near future could impact $840 million in capital projects being tracked by Industrial Info. On Monday, the nation's second-largest coal-producing company voiced the possibility of filing for Chapter 11 bankruptcy protection. Arch reported a net loss of $2 billion in third-quarter 2015, compared with a loss of $97 million in the same period a year earlier. Industrial Info is tracking four Arch Coal projects, all of which are still in the planning phases, and 13 existing mining operations.

The largest project in terms of total investment value is the $400 million, grassroot Tygart Valley underground coal mine and preparation plant, located at Grafton, West Virginia. The operation at the Leer Mining Complex would produce 3 million to 4 million tons per year. The project is subject to market conditions, and no capital had been earmarked for the mine.

Industrial Info is tracking two other coal mine projects located at Grafton, with a combined investment value of $400 million. Both projects are subject to market conditions. In addition, Industrial Info is tracking a $40 million mine expansion at Arch's operations in Somerset, Colorado.

A regulatory filing by Arch Coal said the company is considering bankruptcy proceedings. Citing "extremely challenging current conditions," the company said it was in active talks with various creditors regarding restructuring its balance sheet.

"If an agreement is reached and we pursue a restructuring, it may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement this agreement," Arch reported in its filing with the Security and Exchange Commission (SEC). Arch added it may seek bankruptcy protection, even if it doesn't reach an agreement with its creditors.

The company said in its earnings release that it recorded a $2.1 billion asset impairment charge during the third quarter, of which $1.7 billion stemmed from its Appalachian business segment. Cash flows from two of its Appalachia operations have failed to exceed their long-term carrying value, the company reported. "Current [coal] prices and the significant capital outlay that would be required to develop these reserves indicate that the carrying value is not recoverable," the company said in the SEC filing.

Chief Executive Officer John Eaves said in the earnings statement that the company delivered a strong operational performance in the third quarter, with $135 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

"Our cash flow, however, is not sufficient to serve our debt sustainably in this operating environment," Eaves said.

The company blamed the market on abundant and cheap competing natural gas, as well as weak electric power demand and multiple coal-fired power plant closures stemming from environmental regulations, which have led to a sharp drop in coal-based power generation. The company said it expects thermal coal consumption in the U.S. to decline by 95 million tons this year.

In addition, U.S. metallurgical coal markets remain challenged, due to falling global steel demand, strong coal output from Australia, and unfavorable currency exchange rates due to the strong U.S. dollar.

Revenues for third-quarter 2015 totaled $688 million, compared with $742 million in the same period a year earlier. Capital expenditures for the first nine months of 2015 amounted to $109 million, compared with nearly $119 million for the same period of 2014.

For related information, see April 22, 2015, article - Market-Beleaguered Arch Coal Reduces Planned Sales, Capex for 2015.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.