NYSE-listed coal miner Arch Resources (Arch) has reported a net loss of $49.3-million, or $3.26 a diluted share, for the three months ended June 30, compared with net income of $62.8-million, or $3.53 a diluted share, in the corresponding period.
Arch reported negative adjusted earnings before interest, taxes, depreciation, depletion, amortisation (Ebitda), accretion on asset retirement obligations, and non-operating expenses of $10.7-million in the second quarter. This compares to $105.6-million of adjusted Ebitda recorded in the second quarter of 2019.
Revenues fell sharply to $319.5-million, from $570.2-million in the prior-year quarter.
Moody’s VP and lead coal analyst Benjamin Nelson says weak conditions in the global steel industry and depressed metallurgical coal prices “obliterated” Arch’s earnings in the quarter under review.
“While the company’s liquidity position remains solid, a slow expected recovery for the steel industry combined with continued spending on the Leer South project set the stage for a very challenging second half of 2020.”
Arch president and CEO Paul Lang comments that during the quarter, the company’s coking coal franchise maintained its strong operational momentum, achieving highly competitive unit costs despite lower-than-anticipated volume levels associated with customer deferrals. “At the same time, we continued to make excellent progress on the build-out of the world-class Leer South mine, where we are laying the foundation for future value creation and growth. We view our ability to drive forward with this transformational project – even in the current macro environment – as a powerful differentiator in the marketplace.”
Shortly after quarter ended, Arch completed a $53.1-million bond offering in the US tax-exempt market through the West Virginia Economic Development Authority. The transaction was more than 10 times oversubscribed, resulting in a highly competitive fixed interest rate of 5%.
In keeping with the requirements of the tax-exempt issuance, proceeds from the offering will be used to fund the construction of the mine's preparation plant and other facilities associated with waste management. Arch received about $30-million in cash upon closing, reflecting the amount of qualified expenditures already completed, and will receive the remainder over the next several quarters as work continues.
In terms of the effect Covid-19 had on the miner, Lang says the Arch team executed at a high level in the second quarter, quickly adjusting to rapidly changing market conditions while taking extensive steps to protect the safety and health of their communities, their co-workers and themselves.
Arch implemented rigorous social distancing and hygiene-focused protocols and policies across the organisation to reduce virus-related risks to its employees. While the pandemic has pressured commodity markets and precipitated indirect issues for the organisation, including customer deferrals, Arch has incurred relatively modest direct impacts on its employee base so far. To date, Arch and its subsidiary operations have had a total of 14 employees test positive for Covid-19, with 10 of the 14 having returned to work and the others scheduled to do so shortly.
During the second quarter, Arch’s core metallurgical segment – led by its flagship Leer mine – again showcased its first-quartile cost structure, even as the miner worked to address customer deferrals totalling more than 300 000 t, according to Arch COO John Drexler.
He adds that Arch will continue to work closely with its customer base to preserve the value of its contract book, and expects to make up the majority of the deferred tons during the remainder of the year. “As a result, we anticipate a significant step-up in coking coal shipments in the year's second half, along with strong operational execution and a continuation of our best-in-class cost performance.”
During the quarter, Arch conducted voluntary separation programmes at each of its thermal operations, resulting in the elimination of about 200 positions, thereby bringing the number of corporate and thermal subsidiary positions eliminated to date during 2020 to more than 250. This streamlining process is expected to result in cost savings of more than $40-million a year.
“With our low-cost metallurgical assets, skilled workforce, high-quality product slate, solid book of coking coal business and best-in-class metallurgical growth project, we believe Arch is poised to excel as the global economy recovers and the world returns to expansion mode,” Lang concludes.