Company overview: Arch Coal Inc. (Part 1 of 9)
Introduction to Arch Coal Inc.
Arch Coal Inc. (ACI) is one of the United States largest coal producers and marketers with over $4.12 billion in revenue through the sale of coal worldwide. It is also one of the most diversified American coal companies with surface and underground mining complexes across every major U.S. coal supply basin. In all, Arch Coal controls over 5 billion tons of coal reserves through its operations in 21 coal mines across the Unites States, ranking them 2 nd in the nation behind Peabody Energy (BTU). The company produces thermal and metallurgical coal sold to power plants, steel mills and industry facilities. Its entire production represents around 15% of America’s coal supply through its operations. Globally, Arch Coal supplies coal to customers in over 25 countries on five continents.
Basic overview of coal
Coal can be classified into 4 different categories or ranks (Anthracite, Bituminous, Subbituminous and Lignite), ranked in progressive order of heating capabilities. The ranking also depends on the amounts of carbon and the levels of heat energy it can produce (measured in BTUs).
The general rule of thumb is the higher the heat energy produced, the more valuable it is. Some of the other value measuring metric for coal are the moisture content, sulfur content and ash. All of which vary greatly by the type and location of where it was mined. Higher moisture content in the coal decreases its heating capabilities and is also more expensive to transport as it is heavier. The sulfur content in coal can affect the amount of emissions emitted as a result of combustion. This can potentially affect demand for certain types of coal as companies have to adhere to sulfur dioxide emission regulations set by the government. Lastly, ash is the residue that remains after the combustion of coal and the absence of ash is crucial to the process by which metallurgical coal is transformed into coke for use in steel production.
Out of all the four types of coal present, the two most commonly traded types of coal are Bituminous and Anthracite coal as they are of much higher quality with lower moisture content and higher heating capabilities. Such types of coal are more cost-effective to transport and produce for the companies.
Browse this series on Market Realist:
- Part 2 - Where does Arch Coal mine and what are the implications?
- Part 3 - How does Arch Coal earn revenue and free cash flow?
- Part 4 - Who are Arch Coal’s primary customers, and how the company monetize these relationships?
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