Coal Age

APR 2019

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6 www.coalage.com April 2019 u.s. news Arch Coal Prof its from Tight Met Markets In its first-quarter earnings report, Arch Coal said it captured record margins from its coking coal portfolio and overcame flood-related rail ser- vice disruptions at its Powder River Basin (PRB) operations. "Arch is out of the gates in excel- lent fashion in 2019 with yet another strong operating performance, a ro- bust level of capital returned to share- holders, and significant progress in the development of our next world- class coking coal mine," said Arch CEO John W. Eaves. "Given our out- look for strong and continued free- cash generation through the balance of the year, Arch expects to be in an excellent position to drive ahead with our capital return program while si- multaneously laying a powerful foun- dation for future volume and earnings growth at the new Leer South mine." President and COO Paul A. Lang added, "Our coking coal operations performed exceptionally well during the quarter as we captured record per- ton realizations on coking coal sales, delivered a solid cost performance and achieved record margins, even with the anticipated, lower-than-rat- able shipments. This performance offset lower vol- umes in both their PRB and Colorado operations, which experienced wide- spread rail outages due to flooding in the Midwest in February and March, Lang said. As anticipated, the metallurgical segment turned in what Arch expects to be its lowest shipping quarter of the year due to an accelerated ship- ping schedule in the fourth quarter of 2018, the seasonal closure of Great Lakes shipping channels, and sched- uled longwall moves at both the Leer and Mountain Laurel mines. The average per-ton realization on coking coal sales increased 2% versus the levels achieved in the fourth quar- ter of 2018, while per-ton cash costs declined 10% to $67.27. While higher than the guidance range for the full year, coking coal costs were apprecia- bly lower than initially forecast due in part to higher-than-anticipated shipping levels, the company said. The segment's average cash margin increased 9% to a record $50.95/ton. Looking ahead, Arch said its sec- ond-quarter coking coal sales volumes are likely to be roughly 10% higher than those experienced in the first quarter, with moves once again scheduled at both of the segment's longwall mines. "We remain comfortable with our full-year guidance for both volume and costs, and expect a very strong performance from our metallurgi- cal segment in the second half of the year," Lang said. During the first quarter, Arch said it made progress in the development of its new Leer South mine, complet- ing initial slope work and producing first development tons. The compa- ny is on track to commence longwall mining at Leer South in the fourth quarter of 2021. "As previously noted, we expect Leer South to replicate the great success of our world-class Leer longwall mine, with an exceptional return on invest- ment and a rapid payback across a wide range of market scenarios," Lang said. With the addition of Leer South, Arch expects to expand its High-Vol A output by an incremental 3 million tons; enhance its already advanta- geous position on the U.S. cost curve; strengthen its coking coal profit mar- gins in virtually any market environ- ment; and cement its position as the leading supplier of High-Vol A coking coal globally. In addition to the work at Leer South, Arch continues to prove up ad- ditional longwall panels for the Leer mine on its 200-million-ton, High-Vol A reserve base. Leer's mine plan is ex- pected to support longwall mining into the early 2030s. Arch expects its High-Vol A output to climb to at least 7 million tons per year in 2022 and to remain at or above that level into the 2030s. In the PRB, sales volumes totaled 17.1 million tons, which was approx- imately 13% lower than the fourth quarter of 2018. Arch said it expects flood-related rail disruptions to persist for most of the second quarter, which is historically the lowest-volume quar- ter of the year. As a result, Arch expects second-quarter volumes to come in below first-quarter levels, which will also pressure operating costs. Despite these second-quarter impacts, Arch said it is comfortable with its full-year thermal coal volume guidance, as well as its cash cost guidance of $10.70/ton to $11.00/per ton in the PRB. Arch said it believes solicitations for PRB coal during the first quarter were the highest in five years, and it

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