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Arch Coal reports strong Q3 results

World Coal,

Arch Coal Inc. has announced Q3 2010 net income of US$ 46.7 million, compared with net income of US$ 25.2 million in the corresponding period of last year. Excluding certain charges, Q3 2010 adjusted net income was US$ 57.4 million.

Q3 2010 revenues grew 42% compared to the prior-year quarter. Steven F. Leer, Arch's chairman and chief executive officer, said the results were driven by: “better margins in each of our operating regions compared with a year ago.” He continued: “The Powder River Basin (PRB) - which continues to benefit from the acquisition of Jacobs Ranch on 1 October 2009 and its subsequent integration into Black Thunder - realised higher volume levels, lower cash costs and significant margin expansion.


Arch's overall lost-time safety performance and environmental compliance for the first three quarters of 2010 are both on track to beat the previous company records set last year. Seven operations attained a Perfect Zero -  operating without a reportable safety incident or environmental compliance violation - during the quarter ended 30 September 2010.

Furthermore, on 16 October 2010, the Black Thunder mine in the PRB surpassed 7 million employee-hours (more than 30 months) without a lost-time incident.

Operational results

When compared with Q2 2010, the company’s consolidated operating margin increased 10% and its sales volume increased nearly 15% during Q3 2010 in response to improved domestic steam coal market conditions. Consolidated average sales price and operating costs/t declined modestly over the same time period, largely reflecting a higher percentage of PRB coal in the company's overall volume mix.

Coal market trends

Arch Coal expects the US coal markets to deliver a much improved performance in 2010 compared to 2009. The company forecasts that coal consumption for electric generation increased 6.5% vs the prior-year period and reports that coal supply in the southern PRB increased 2 million t, while production in Central Appalachia declined 12 million t year-to-date through 30 September.

Production and sales contract portfolio

Arch now expects sales volumes from company-controlled operations to be in the range of 155 million to 158 million t for full year 2010. Included in this volume guidance range are sales into met coal markets (coking and pulverized coal injection/PCI), which are now projected at around 6 million t in 2010.

Arch has uncommitted volumes of 30 million to 40 million t in 2011, and uncommitted volumes of 70 million to 80 million t in 2012. These uncommitted volumes include up to 5.5 million t of coking and PCI coal in 2011. In addition, the company has roughly 15 million t committed but not yet priced in both 2011 and 2012.

“With our unpriced sales position and strong operating platform, Arch is poised to deliver in this current coal market up-cycle," said Leer. "We're targeting record free cash flow in 2010, and given our relatively modest capital needs, we expect continued growth in this cash flow metric going forward. We're absolutely focused on leveraging our superior low-cost asset base to create substantial value for our shareholders over the long-term.”

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