Sat. Jan 18th, 2020

Watch List: Arch Coal, Inc. (NYSE: ARCH)

30 min read

Arch Coal, Inc. (NYSE: ARCH) newly declared net income of $106.80M, or $6.340 for each diluted share, in the 3rd-quarter of 2k19, contrast with net income of $123.20M, or $6.100 for each diluted share, in the prior-year duration.  The company had adjusted earnings before interest, taxes, depreciation, depletion, amortization, accretion on asset retirement obligations, amortization of sales contracts, and non-operating costs (“adjusted EBITDA”)1 of $106.60M in the 3rd-quarter of 2k19, which includes a $1.50M non-cash mark-to-market loss associated with the company’s coal-hedging activities.

Not included in adjusted EBITDA is a $39.00M gain resulting from the settlement of a 1970s-era land dispute.  This compares to $124.90M of adjusted EBITDA recorded in the 3rd-quarter of 2k18, which included a $10.40M non-cash mark-to-market loss associated with the company’s coal-hedging activities.  Revenues totalled $619.50M for the three months finished September 30, 2k19, as compared to $633.20M in the prior-year quarter.

“During the quarter, Arch again exhibited operational excellence and generated strong cash flows across its operating platform despite a pull-back in coking coal prices,” said John W. Eaves, Arch’s chief executive officer.  “Our core Metallurgical segment turned in an excellent cost performance, overcoming elevated costs in the final longwall panel at the Mountain Laurel mine, and our legacy thermal segments generated five times more cash than they expended in capital.  In addition, we made noteworthyprogress on our ongoing capital return program, investing $91.40M to buy back nearly 1.20M shares, bringing total repurchases since May 2017 to nearly 10.00M shares, or about 40.00 percent of initial shares outstanding.”

During the 3rd-quarter, Arch returned a total of $98.40M to shareholders via buybacks and dividends, and has now returned $255.30M through the 1st-nine months of 2k19, which is 18 percent more than during the similar duration in 2k18.  All told, Arch has returned $894.80M to shareholders since launching its capital return program in May 2017.  At quarter-end, Arch had board authorization to expend an additional $233.10M on share buybacks, out of a total authorization of $1.050B.

Capital Allocation Progress and Liquidity Update

During the 3rd-quarter, Arch repurchased 1,170,000 shares of common stock – representing 4.70 percent of initial shares outstanding – for a total investment of $91.40M.  In the past 10 quarters, Arch has invested a total of $816.90M to buy back 10.00M shares.

In addition to the buybacks, Arch returned $7.00M to shareholders through its recurring quarterly dividend.  In the past 10 quarters, Arch has returned a total of $77.90M to shareholders via dividend payments.

Arch finished the quarter with about $465.90M in liquidity – counting $351.50M in cash – and a negative net debt (or net cash) position of $41.50M.

Arch is also announcing board approval of the next quarterly cash dividend payment of $0.450 for each common share, which is planned to be paid on December 13, 2k19 to stockholders of record at the close of business on November 29, 2k19.

Reserve Acquisition at Leer Mine

In September, Arch reached a definitive agreement to acquire 20.00M tons of low-cost, high-quality, High-Vol A coking coal reserves directly adjacent to its Leer mine for a purchase price of $52.50M.  This acquisition, which is expected to close in the 4th-quarter, will facilitate a boost of nearly 24.00M tons in the Leer mine plan.

In the Powder River Basin, sales volumes for the 3rd-quarter totalled 22.20M tons as compared to 17.10M tons in the 2nd-quarter of 2k19.  Per-unit cash costs declined to $9.770 for each ton contrast to $11.290 for each ton in the flood-influenced 2nd-quarter.  The segment’s per-ton cash margin raised markedly to $2.250 as compared to the 2nd-quarter of 2k19.

In the Other Thermal segment, the average cash margin raised more than 50.00 percent to $8.360 for each ton as compared to the 2nd-quarter of 2k19, due mainly to raised longwall production at the West Elk mine.

Arch is reiterating its per-ton cash cost guidance for the segment of $29.00 to $33.00 for full year 2k19.

Progress at Leer South

As indicated, Arch is making excellent headway in the development of Leer South.  The company continues to expect capex of between $360.00M and $390.00M to develop the new mine, with more than $100.00M of that total coming in 2k19.  During the 3rd-quarter, Arch invested about $26.40M on the build-out, bringing the year-to-date total to $62.60M.

New Coking Coal Commitments for 2k20

During the quarter, Arch reached agreements to supply 1.50M tons of coking coal to North American customers in 2k20, at a fixed price of about $110.00 for each ton.  In addition, Arch committed 1.60M tons into the seaborne market with an index-based pricing structure, bringing total commitments for 2k20 to 3.10M tons.


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