Arch Coal sold 20.62 million st of coal in the first quarter of 2019, down 13.9% from 23.95 million st in Q4 2018 and 12.8% from 23.66 million st sold in the year-ago quarter, due to a sharp drop in Powder River Basin shipments, but were offset by record margins in its coking coal segment, the company said Tuesday.
The St. Louis-based producer said its Q1 sales in the PRB were at 17.1 million st, down from 19.5 million st in the prior quarter and 19.7 million st in the year-ago quarter.
"We were affected by widespread rail outages stemming from historic flooding in the Midwest in February and March," the company said in its quarterly earnings statement.
However, in the earnings call, CEO John Eaves said "buying activity [from solicitations] for Powder River Basin coal during the first quarter was the strongest we've seen in over five years."
President Paul Lang added: "The three-year utility stockpile correction appears to have finally brought inventories back to target levels. For another, low shipping volumes during the first quarter due to flooding in the Midwest have started to have an impact."
"We expect the ongoing flood-related rail disruptions to persist throughout much of the second quarter," Lang said. "As a result of this and the typical shoulder season impact on shipments, we anticipate volumes to be even lighter in Q2 than Q1, which is likely to pressure costs and lead to compressed margins in the coming quarter. However, we expect shipments to rebound significantly in the second half of the year."
The coal sales from the PRB sold at an average cost of $12.18/st, up from $11.88/st in the prior quarter and $12.15/st in the year-ago quarter.
However, cash costs per ton in the PRB was at $10.98/st, up from $10.66/st in the previous quarter and $10.77/st in the year-ago quarter. This resulted in a cash margin per ton of $1.20/st, down from $1.22/st in Q4 and $1.38/st in the year-ago quarter.
During the first quarter, Lang said the company "committed an additional 10.2 million tons for 2019 deliveries, increasing our committed thermal position by almost 95% for the year. In addition, we committed approximately 3.5 million tons for delivery in the out-years with prices beginning at levels above our average 2019 realization."
Total 2019 commitments are now at 67.3 million st for 2019 PRB deliveries at a fixed average price of $12.12/st and 1.4 million st committed but unpriced. Lang said on the call that they sold about 16 million st of PRB coal for 2022-23 deliveries.
OTHER THERMAL SEGMENT
The company's other thermal coal operations -- its West Elk mine in Colorado, Viper mine in Illinois and Coal-Mac mine in West Virginia -- saw Q1 sales fall to 1.69 million st, down from 2.34 million st in the prior quarter and 2.17 million st sold in the year-ago quarter, due to "lower shipments at West Elk related to timing issues and flood-related disruptions, as well as short-term geologic variability at Coal-Mac," the company statement said.
Total non-PRB thermal coal sales, including from the Viper mine, averaged $38.58/st, up from $34.89/st in Q4 and $35.59/st in the year-ago quarter. Cash costs were at $35.28/st, resulting in a cash margin of $3.30/st in Q1, compared with $28.76/st and $6.13/st in Q4, and $28.53/st and $7.06/st in the year-ago quarter, respectively.
To protect the margins at West Elk and Coal-Mac on export sales, Eaves said the company layered in about 1 million st financial hedges in 2019 and 200,000 st in 2020, resulting in netbacks at West Elk between $30-$32/st.
Exports are expected to be down about 1 million st from the 11 million-12 million st exported in 2018, mostly from the thermal side, Eaves said.
The company has committed 6.8 million st of non-PRB thermal coal shipments in 2019 priced at $40.28/st, while an additional 1 million st is committed but unpriced.
Arch's total thermal sales volumes are expected to be between 80 million and 85 million st in 2019, while an additional 6.6-7 million st of its sales will be coking coal.
RECORD MARGINS FOR METALLURGICAL COAL
Arch sold 1.79 million st of metallurgical coal in Q1, including 1.5 million st of coking coal, down from 2.09 million st in Q4 but up from 1.75 million st sold in the year-ago quarter.
The company's met coal sales per ton was at $118.22/st in the latest quarter, down from $121.53/st in Q4 but up from $115.97/st. Cash cost per ton sold was at $67.27/st, down from $74.84/st in the previous quarter and $68.33/st in the year-ago quarter, resulting in a record cash margin of $50.95/st, up from $46.69/st in Q4 and $47.64/st in the year-ago quarter.
Roughly 6.4 million st of the company's coking coal has been committed, including 600,000 st contracted in Q1. About 900,000 st of Arch's North American coking coal is priced at $123.94/st, while 1.6 million st of seaborne coke is locked in at $132.25/st.
During the quarter, the company said it completed initial slope work and produced its first development tons on the $360 million-$390 million Leer South mine, which is expected to produce 3 million st of high-vol A coking coal annually. Arch said it is on track to commence longwall mining at Leer South in Q4 2021, but will sell between 125,000 st-175,000 st in the remaining three quarters of 2019 and over 400,000 st/quarter in 2020.
In Q1, Arch generated $555.18 million in revenue and reported a net income of $72.74 million, compared with $575.29 million in revenue and net income of $59.99 million in the year-ago quarter.
The company ended the quarter with $490 million in liquidity, including $383 million in cash, and a net cash position of $65 million.
