NEW YORK (AP) -- Arch Coal Inc.'s plans to shutter a trio of mining complexes and cut production doesn't change near-term expectations for the company, analysts said Friday.
THE BACKGROUND: St. Louis-based Arch said Thursday that it would close three higher-cost mining complexes and associated preparation plants: two in Kentucky and one in West Virginia. It will temporarily idle another complex in Kentucky and curtail production at other facilities in those two states and Virginia.
The moves will result in the layoffs of 750 workers, with almost 600 of them coming in Kentucky.
Arch said the reductions would trim its thermal coal production by more than 3 million tons annually. It said it continues to expect thermal coal sales volume in the range of 128 million to 134 million tons for 2012. Meanwhile, the company said it's putting more emphasis on higher-margin metallurgical coal operations in the region.
Natural gas prices have plunged to record lows this year, prompting utilities to increasingly favor it over coal for generating electricity. The result has been steep drops in coal demand and prices, prompting coal companies like Arch to dramatically scale back production.
THE ANALYSIS: Citi analyst Brian Yu noted that in announcing the cuts Arch didn't change its thermal coal production guidance for the year. He said that 3 million-ton reduction probably represented coal that the company wasn't able to sell.
"Given weak demand and Arch's open position, our model already reflected thermal shipments at the low point of guidance for 2012," Yu wrote in a note to investors backing his "Buy" rating for the company. "In addition, at current spot prices, it is unlikely investors were giving much credit for these unsold tons."
Stifel Nicolaus analyst Paul Forward also backed his "Buy" rating for the company.
"We view most of the remaining Arch mine portfolio as having cost, scale, and or coal quality advantages that allow the mines to withstand an extended downturn in coal," Forward wrote in a note to investors.
THE SHARES: Down 7 cents to $6.14 in light afternoon trading. Over the past 52 weeks, the company's shares have traded between $5.62 and $28.76.
Since the beginning of this year, Arch shares have dropped 57 percent.
