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Is Arch Coal about to go bankrupt?

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World Coal,

US coal giant, Arch Coal, is teetering on the edge of bankruptcy after admitting that it would be unable to continue to service its debt in the current market.

“Arch will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long-term,” said its Chief Financial Officer, John Drexler, in its 3Q15 results. “We are currently in active dialogue with various creditors with respect to a restructuring of our balance sheet.”

Arch announced a quarterly loss of US$2 billion on the back of a US$2.1 billion asset impairment charge and US$149 million of losses related to the Patriot Coal bankruptcy.

The company is one of a number of US coal companies that racked up significant amounts of debt as prices for metallurgical coal soared in 2011, paying US 3.4 billion for International Coal Ventures. Since then, the price of metallurgical coal has crashed to less than half of its all-time high – and Arch believes it may have further to fall.

“We believe that announced production cuts and the continued lack of investment in new metallurgical production simply will not be enough to balance the market and that additional reductions will be necessary across our industry,” said Paul Lang, Arch’s President and Chief Operating Officer.

US metallurgical coal producers have also suffered from the often high-cost of production at metallurgical coal mines in Appalachia compared to rival producers in Australia, as well as the effects of a strong US dollar, which has hit the competitiveness of US coal exports.

Meanwhile on the thermal side, Arch Coal – along with other US producers – has been hit by a fall in utility demand for coal, which is expected will total some 95 million short t in 2015, on the back of low natural gas prices, weak electric power demand and multiple coal-fired power plant closures.

”As a result, we expect pricing for both metallurgical and thermal coal to remain under significant pressure throughout 2016,” Lang continued.

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