Arch Coal, Inc. has reported first quarter 2017 net income of US$51.7 million, or US$2.03 per diluted share, compared with US$33.4 million, or US$1.31 per diluted share, in the fourth quarter of 2016. Excluding certain charges, adjusted diluted earnings per share (adjusted EPS) 1 was US$2.55 per share.
Board announces capital redeployment plan
Arch Coal, Inc. has reported first quarter 2017 net income of US$51.7 million, or US$2.03 per diluted share, compared with US$33.4 million, or US$1.31 per diluted share, in the fourth quarter of 2016. Excluding certain charges, adjusted diluted earnings per share (adjusted EPS) 1 was US$2.55 per share. The charges for the first quarter include non-cash sales contract amortisation, reorganisation fees and early debt extinguishment items and related tax impact. The company earned adjusted earnings before interest, taxes, depreciation, depletion, amortisation, reorganisation items and early debt extinguishment charges (adjusted EBITDAR)1 of US$120.5 million in the first quarter of 2017, a nearly 30% increase versus the previous quarter. Revenues totaled US$600.9 million for the three months ended 31 March, 2017.
"Arch executed a strong performance in the first quarter of 2017, with meaningful expansion in earnings per share and adjusted EBITDAR," said John W. Eaves, Arch's chief executive officer. "Our solid financial results underscore the strategic value of the company's two complementary lines of business and our highly competitive position in our key operating segments. During the first quarter, we capitalised on resurgent global metallurgical markets while remaining poised to take advantage of improving fundamentals in the thermal coal markets as the year progresses."
Key market developments
Metallurgical coal markets
- The lingering impact of Cyclone Debbie, which continues to disrupt the coking coal logistics chain in Queensland, Australia, is buoying global metallurgical markets. According to the principal Queensland rail carrier an estimated 20 million t of predominately coking coal supply was impacted due to the storm. The seaborne metallurgical market totals approximately 300 million t.
- Prior to the storm, metallurgical markets appeared to be in relatively healthy balance. Steel demand grew robustly in the first quarter; Chinese coking coal imports were up 50% year-over-year; and the expected seaborne coking coal supply response was largely confined to US producers, who moved an additional 2.4 million t of metallurgical coal into seaborne markets during the first quarter.
- In late March, before Cyclone Debbie made landfall, the Platts price assessment for vessels loaded off the U.S. East Coast was US$162.50 per metric ton for High-Vol A, Arch's primary metallurgical product. After the storm hit, High-Vol A prices peaked mid-month at US$295 and have since settled back to US$237 per metric ton. Low-Vol and High-Vol B products are currently being assessed at US$212 and US$185 per ton, respectively.
Thermal coal markets
- In thermal markets, still-inflated utility stockpiles continue to dampen domestic demand and pricing, but the situation is improving. Assuming normal summer weather, Arch believes stockpiles should approach target levels by year-end.
- Moreover, Arch is encouraged by the persistent strength in natural gas prices, which continue to hold up well despite an exceptionally mild winter and significant recent increases in drilling activity. Prompt month NYMEX is currently trading over US$3.20 per million Btus and the future strip for the remainder of 2017 averages US$3.39 per million Btus.
- At the natural gas pricing levels noted above, Arch expects the vast majority of Powder River Basin-served coal plants to dispatch in front of natural gas-fueled power plants. In fact, several large customers have re-entered the market in recent weeks to shore up their coal supplies in the face of improving coal consumption.
- International thermal pricing for prompt delivery in the Asia-Pacific region remains reasonably strong. Arch took advantage of the recent move higher to place additional West Elk tons into export markets.
Based on the company's current expectations regarding the direction of metallurgical coal markets, Arch has raised its coking coal volume guidance for 2017. Arch now expects to sell between 6.7 and 7.1 million t of coking coal, which excludes PCI coal. At the midpoint of its volume guidance level, Arch is over 85% committed on coking coal sales for the full year, with over 30% of that committed volume exposed to index-based pricing. At the midpoint of guidance, Arch's thermal sales are 88% committed for the full year.
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