TORONTO (miningweekly.com) – The second-largest US coal miner, Arch Coal, on Tuesday reported a wider second-quarter adjusted net loss of $60.5-million, or $0.29 per diluted share, as metallurgical coal prices, which had propped up operations during a slump in thermal coal prices, fell.

The quarterly loss compares with a net loss of $22.1-million, or $0.10 a share, in the second quarter of 2012.

Including special items, such as impairment charges, Arch's net June quarter loss was $72.2-million, or $0.34 a share, compared with a net loss of $435.5-million, or $2.05 a share, a year earlier, when it idled five coal mines and recorded a $526-million charge.

Arch reported second-quarter revenues of $766-million, down 21% year-on-year on $965.7-million, reflecting overall weakness in the metallurgical coal markets.

Adjusted earnings before interest, taxes, depreciation, depletion and amortisation (Ebitda) totalled $110.5-million, down 39% year-on-year and up 32% quarter-on-quarter. The adjusted Ebitda excluded an asset impairment charge of $20.5-million during the period, relating to an investment in a clean coal power plant project that was cancelled.

"Arch employed strong cost control, particularly in the Powder River basin and in Appalachia, which positively impacted our per-ton margins. Our cost reduction initiatives are generating results, and we will continue to pursue aggressive cost reductions across all of our operations during the second half of the year,” president and CEO John Eaves said.

The consolidated cash margin per ton increased by about 4% quarter-on-quarter, benefiting from increased shipments and strong cost control in the company’s Powder River basin and Appalachian segments. Arch sold 35-million tons of coal, up 11% on the 31.5-million tons sold in the same period of 2012.

On June 27, Arch signed a definitive agreement to sell its subsidiary Canyon Fuel to Bowie Resources for $435-million. The sale included the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation, as well as about 105-million tons of bituminous coal reserves in Utah.

"We are taking the right steps to weather this downturn and emerge as an even stronger player when the market rebounds. Beyond exercising cost and capital restraint, we are executing our strategy to divest noncore thermal assets, such as Canyon Fuel,” Eaves said.

At the end of the quarter, Arch had a total liquidity position of about $1.2-billion, with about $900-million of that liquidity in the form of cash and short-term investments. The company had no borrowings under its revolving credit facility, and had no long-term debt maturities until August 2016.

MARKET IMPROVEMENT

Arch said it believed the currently depressed metallurgical coal market trends were unsustainable over the long term, as global crude steel production was forecast to increase 35% between 2012 and 2020, reaching two-billion tonnes by the end of the decade. Increased use at existing steel plants and the expected build-out of new steel capacity would drive future metallurgical coal demand.

The company also noted that capital spending for future metallurgical coal supply projects was being curtailed and supply rationalisation at existing metallurgical coal operations were under way.

“Even with a near-term cautious outlook on global metallurgical coal markets, we’re confident that supply will decline and demand will rebound over time,” Eaves said.

Arch also believed the outlook for US thermal coal was improving, with domestic coal use for power generation increasing 10% year-on-year, from the start of the year to May. Thermal coal consumption in the US was expected to rise by 50-million tons on 2012 levels.

Arch cited data from the Mine Safety and Health Administration pointing to US coal production having declined more than 20-million tons in the year, until the end of June.

Arch’s outlook for global thermal coal markets remained positive despite the current price softness. US coal exports would remain above 100-million tons this year, but were not expected to keep pace with levels shipped in the first half of the year.

“We are seeing the beginnings of a rebound in domestic thermal coal markets. Higher coal consumption trends across Europe should be incrementally positive for US coal producers, with higher thermal coal imports projected in Germany and in the UK, in particular. These trends should continue to support US exports into the seaborne coal trade over time,” Eaves said.

Arch expected thermal sales volumes, including volumes from Canyon Fuel, to be in the range of 130-million to 137-million tons this year.

The company had lowered its metallurgical sales forecast, and now expected to ship between 7.7-million and 8.3-million tons into metallurgical coal markets.

“Given recent metallurgical market dynamics, we have idled two contract mines at Cumberland River during the second quarter and have elected to push back the longwall start-up at Leer until late in the fourth quarter,” Eaves said.

Arch had also reduced its forecast capital expenditures by about $20-million for the full year, and now expected to spend between $280-million and $310-million for 2013.