Assessing Arch Coal's 2Q14 earnings and cost-saving measures (Part 4 of 6)
In the current weak environment, coal producers—especially companies in the metallurgical coal business—have a tough decision to make. They must decide whether to compromise on revenues in order to curtail losses.
Arch Coal (ACI) has opted for cost competitiveness by adopting various measures, including closing mines, focusing on cash margins by concentrating production in the lowest-cost mines, and adopting process improvement initiatives.
The company recently closed its Cumberland River complex mine, which produced 290,000 tons of metallurgical coal in the first half of the year. While the company has revised its guidance for metallurgical coal production to 6.3 million–6.9 million tons due to the closure, the cash costs in Appalachia are expected to fall $1.00 per ton to $62.50–$64.50 per ton, as the company has shifted its focus on low-cost mines by idling high-cost mines like the Cumberland River Complex.
Higher utilization of low-cost mines
As you saw earlier in this series, the company has sought to run the West Elk mine at a higher utilization. This leads to economies of scale. This move, in turn, is expected to bring the costs per ton in the Western segment down.
Other measures include the Managed Rebuild Program, which aims at driving down the cost of rebuilding underground mines. To learn more about Arch Coal and the mines it operates, read the Market Realist series Company overview: Arch Coal Inc .
Other coal producers (KOL)—like Alpha Natural Resources (ANR), Peabody Energy (BTU), and Walter Energy (WLT)—are also trying hosts of measures to sail through the difficult environment the industry’s mired in. We’ll cover these measures in greater detail in the companies’ respective earnings updates.
A shift in focus
Arch Coal shifted its focus to cost-cutting during the quarter. What impact did this move have on the company’s performance and financial position? Read on to the next part of this series to learn more.
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