Arch posts strong end to 2021 amid its PRB exit
Arch posts strong end to 2021 amid its PRB exit
By Jake Goodrick
Gillette News Record
Via Wyoming News Exchange
GILLETTE — The Powder River Basin coal mines of Arch Resources Inc. ended 2021 on a note similar to the other Campbell County thermal coal operations, capping off a better-than-expected year with one foot into a strong year ahead in 2022.
But the company remains mid-pivot in shifting its focus toward producing metallurgical, or coking, coal used for steel production, as opposed to the thermal coal pulled from Campbell County and used to generate energy.
As a result, Arch completed reclamation work on a “vast majority of disturbed area” at Coal Creek mine last year, preparing the PRB mine for its impending closure.
That transition also leaves the company one year further along in its exit strategy from the Powder River Basin.
“We’re still moving forward with other components of this transition of becoming a pure play coking coal producer as we harvest the remaining and still significant value of our legacy thermal assets, continue to shrink their operational footprint and drive forward with pre-funding of their final closure costs,” said Arch CEO and President Paul Lang during the fourth quarter conference call this week.
The company as a whole saw a significantly better end to 2021 than the year before. The fourth quarter of last year fetched $805.7 million in revenue, compared with $360.6 million of revenue in the three months ending 2020, according to its fourth quarter earnings report released this week.
For the year, Arch ended with an overall net income of $337.5 million, a spike from 2020, which the company ended with a $344.6 million loss.
The strong year for thermal coal helped Arch continue pushing the pedal on its mine reclamation plans while “harvesting cash” from those basin operations.
Arch generated $68.1 million from the Powder River Basin in the fourth quarter and since 2016, has brought in $904.7 million from the basin, opposed to a $110 million capital commitment during that time.
The three thermal coal mines owned by Arch, including Black Thunder and Coal Creek in Campbell County, combined to sell 18.8 million tons of coal in the last quarter of 2021, with the lion’s share coming from Black Thunder. That figure is on par with its third quarter production and 25% higher than the 14.4 million tons sold in the fourth quarter of 2020.
Arch executives did not give a clear timeline for when they expect Coal Creek Mine to fully close. But the increased demand and pricing for Powder River Basin coal may have bought some time for the relatively small mine.
“Coal Creek has been obviously a great story for us and (we’re) very proud of the team out in the Powder River Basin taking that operation, as we’ve talked about, and essentially preparing it for closure,” said John Drexler, Arch chief operating officer, during the conference call.
He said that a significant amount of the company’s reclamation work last year occurred at Coal Creek, as opposed to its significantly larger producer, Black Thunder. However, one Coal Creek mining pit remains open and is poised to remain so long as the market dictates.
Coal Creek had 76 employees and produced 2 million tons of coal in 2021 as of year-end, according to data from the Mine Safety and Health Administration.
“We’ll continue to run out of that pit. We continue to sell coal at attractive pricing that will earn money at Coal Creek, at least here in the near-term,” Drexler said. “Longer term, things continue to look likely the same longer term for Coal Creek, but we’re in a great position to have a very small incremental footprint that’s remaining that we can address when markets are no longer giving us the signal that that coal is needed.”
The cash margin for each of those tons sold increased from the third to fourth quarter too, reflected as a 33% increase in its average cash margin. The cash margin per ton of coal went up from $2.68 to $3.57 from the third to fourth quarter.
But that figure ballooned from a $0.98 profit margin in the fourth quarter of 2020. The profit margin is owed to a $0.68 dip in production cost paired with $1.91 spike in sale price per ton of coal in the year between this most recent fourth quarter compared to the end of 2020, according to the report.
Black Thunder and Coal Creek are positioned to up their coal production in 2022, due to the strong demand for thermal coal that came by surprise in 2021 continuing into this year.
Arch already sold 76 million tons of thermal coal from its two Powder River Basin operations in 2022, at an average of $16.30 per ton, with almost no remaining volume to sell this year.
The momentum is already reaching into next year. The coal company has “built a significant book of Powder River Basin business for 2023,” the report read.
While the bullish thermal coal market in 2021 helped the company’s cash harvesting aspirations that began in 2016, it also made headway toward its long-term plans of completing reclamation of its Powder River Basin mines.
Throughout the year, Arch paid down its asset retirement obligations in the Powder River Basin by more than 20%, equivalent to $40.6 million. That still leaves a remaining balance of $149.2 million, down from $189.8 million the year before, according to the report.
Arch also began a thermal mine reclamation fund, which the company said will go toward the long-term closure and reclamation obligations of its Powder River Basin mines.
The company put $20 million toward the new fund in the fourth quarter of 2021 and plans to keep adding to it, with the goal of funding a similar amount for the reclamation efforts as its ongoing asset retirement obligation.
This story was first published on Feb. 19, 2022.