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Positive 3Q17 results for Arch Coal

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World Coal,

For 3Q17, Arch Coal has reported a net income of US$68.4 million, or US$2.83 per diluted share. This is compared with a net income of US$37.2 million, or US$1.48 per diluted share, in 2Q17.

The company recorded revenues of US$613.5 million for the three months ended 30 September 2017. This represents a 12% sequential increase and reflects ongoing strength in metallurgical coal pricing as well as overall strong performances from the Powder River Basin and Other Thermal segments. John W. Eaves, CEO of Arch Coal said: "Arch turned in a solid financial performance during the third quarter, despite substandard rail service in July and August at our coking coal operations, coupled with adverse geologic conditions at our two longwall mines in West Virginia". "Even with these unexpected challenges, Arch moved forward aggressively with its share repurchase programme, took advantage of ongoing strength in global thermal markets and completed a number of strategic initiatives that strengthened our financial foundation and optimised our operating portfolio,’ Eaves added. "As indicated, we encountered operating challenges in our Metallurgical segment during the third quarter," said Paul A. Lang, Arch's president and Chief Operating Officer.

"We experienced tough geologic conditions at both the Mountain Laurel and Leer mining complexes, which contributed to lower-than-expected volumes and higher-than-expected costs. While challenges such as these are expected from time to time in our industry, it's unusual to confront issues at two mines simultaneously. Fortunately, strong performances from the other operations in the segment and from both of our thermal segments offset those operating issues to a large degree, and further highlight the importance and strength of Arch's balanced operating portfolio and complementary lines of business. Looking ahead, we believe the challenges experienced in the Metallurgical segment were confined to the third quarter,” Lang added.

Despite difficult mining conditions and rail service issues in the Metallurgical segment, Arch recorded cash margins of US$24.14 for 3Q17 compared to US$29.64 for the prior-quarter period. Average coking coal realisations continued to be supported by index-linked tonnes that priced during the period, but were partially offset by annual fixed-priced tonnes contracted prior to the start of 2017 and sequential decreases in the Platts East Coast assessments. 

In the Powder River Basin, the 3Q17 cash margin per tonne increased nearly 30% compared to the second quarter. This was driven by lower costs per tonne in the segment. Sales volumes increased 20% when compared with the prior-quarter period, reflecting typical seasonal demand trends, while the average sales price per tonne declined marginally.

In the Other Thermal segment, Arch earned a cash margin of US$9.03/t in the 3Q17 compared with US$11.35/t in 2Q17. Sales volumes were flat during the period, sustained by strong international demand for West Elk and Coal-Mac products and stable domestic demand for all three operations in the segment. Average sales price per tonne during the quarter increased by 5% due to a favorable mix of customer shipments and strong pricing on export sales. Cash cost per tonne increased by nearly US$4 when compared to the prior quarter, reflecting increased sales volume from the segment's higher-cost Coal-Mac mine and a longwall move at the West Elk operation. 

2017 outlook

Based on the company's current expectations regarding production levels at its coking coal operations, Arch has lowered its coking coal sales volume guidance for the year. Arch now expects to sell between 6.6 million t and 6.8 million t of coking coal in 2017. At the midpoint of its volume guidance level, Arch is now more than 98% committed on coking coal sales for the full year, with 10% of that committed volume exposed to index-based pricing. Furthermore, given strong demand fundamentals for U.S. thermal coal globally, Arch has raised its thermal coal sales guidance to reflect increased shipments from the company's Other Thermal segment. Arch now expects to sell between 90 million t and 96 million t of thermal coal in 2017. At the midpoint of guidance, Arch's thermal sales are 99% committed for the full year of 2017.

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