Arch Coal Exceeds Industry Performance in 2011 as Acquisition, Exports Keep Fires Burning

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Researched by Industrial Info Resources (Sugar Land, Texas)--Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri), a leading, diversified coal company, posted record annual sales for 2011 as prices strengthened and the company's performance defied weakening coal markets. Arch Coal also completed its $3.5 billion acquisition of International Coal Group (ICG) (Scott Depot, West Virginia) in June, making it the second-largest metallurgical coal producer in the U.S. and one of the 10 largest worldwide. Net income was reported to be $70.88 million for the quarter, a 48.23% increase from fourth-quarter 2010, and $141.68 million for the full year, a 10.81% decrease from 2010.

Total revenues stood at $1.23 billion for the quarter, a 47.09% increase from the same period in the previous year, and $4.29 billion for the full year, a 34.51% increase from 2010. Despite a lower sales volume and coal market conditions that weakened as the fourth quarter progressed, the 2011 revenues were an annual record for Arch Coal. The ICG acquisition broadened the company's low-cost metallurgical projects, and the Powder River Basin facilities recovered from flooding problems from early in the year. Arch Coal also strengthened its export potential by adding West Coast port capacity in Washington and British Columbia.

Industrial Info is tracking about $1 billion in active Arch Coal projects, including the $325 million construction of the Tygart No. 1 Valley Underground Metallurgical Coal Mine in Grafton, West Virginia. The project involves building a 3.5 million-ton-per-year underground mining complex and a 1,300-ton-per-hour prep plant. It is set to be completed in March 2014.

"Coal exports out of the U.S. have been and should continue to be a bright spot," said Steven F. Leer, the chairman and chief executive officer of Arch Coal, in a conference call. "In 2011, the industry hit a record 108 million tons of export. In 2012, we expect that total to grow by another 5 million to 10 million tons, as U.S. thermal coal continues to push into Europe, even with lower ARA [Amsterdam, Rotterdam, Antwerp] prices, and as port capacity increases along our domestic coastline, facilitating the movement of additional tons to the Atlantic and the Asian-Pacific seaborne coal trade."

For the full year, Arch Coal sold 155.3 million tons, a 3.72% decrease from 2010, and had an operating margin of $3.66 per ton, a 40.23% increase. The decrease came from the Powder River Basin, which, along with the Western Bituminous Region, reported a stronger operating margin per ton:

• The Powder River Basin operations reported sales of 117.8 million tons, an 11.03% decrease from the previous year, and an operating margin of $1.67 per ton, a 22.79% increase.
• The Appalachian operations reported sales of 19.3 million tons, a 53.17% increase from 2010, and an operating margin of $13.15 per ton, an 11.27% decrease.
• The Western Bituminous Region operations reported sales of 17 million tons, a 4.29% increase from the previous year, and an operating margin of $6.95 per ton, compared with $3.32 per ton in 2010.

Arch Coal executives believe that market conditions will weaken in the short term and plan to produce fewer volumes in that time to stay in line with lower demand. However, the executives plan to expand the company's presence in the seaborne market and build out its metallurgical coal assets for the longer term. In 2012, the company is expected to spend between $450 million and $490 million, about half of which will be for metallurgical coal growth projects, including advanced planning for mines in West Virginia.

"The coal industry will face some headwinds in domestic thermal markets in 2012," Leer said in the conference call. "Power demand is down approximately 8% in the first week in February, a function of the exceptionally mild winter to date, and a tough comparison versus 2011. ... As a result, we're taking a conservative view of 2012, and expect U.S. coal consumption to decline by approximately 50 million tons or so from 2011 levels."

For more information, visit Industrial Info's North American Metals and Minerals Project Database.

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