Arch Resources has announced its strategy to move away from the Powder River Basin in its third quarter earnings report. The second largest national coal producer announced it would be reducing Powder River Basin production by 50 percent in the next two to three years.
"We view this systematic winding down of our thermal operations - in a way that allows us to continue to harvest cash and to fund long-term closure costs with ongoing operating cash flows - as the right business solution in the event we are unable to find an appropriate buyer," said Arch CEO Paul Lang in the company's Q3 press release.
The "winding down" will result in lower production, sales volumes, compressed volume, and a shorter mine life, according to Arch Chief Financial Officer Matt Giljum, particularly if the company cannot find a suitable buyer.
Arch has long pointed towards an exit from the PRB. A proposed joint venture with Peabody Energy would have allowed Arch to take a backseat in PRB operations with minority economic interest. A federal judge ruled against that possibility at the end of September. Last May, Arch changed its name and website to longer indicate a focus on thermal coal, but instead on steel-producing coal.
In its earnings report, Arch saw its earnings drop nearly 300 percent in its third quarter compared to last year with losses at nearly $200 million. Meanwhile, costs in the PRB remain significant. The company was required to post over $50 million in collateral and reclamation surety bonds.
On a broader scale, production in the PRB has been in decline since 2008. Arch officials said on an earnings call that it once saw 120 million tons come out of Black Thunder mine annually. Today, that's well under 60 million tons.
Chief Operating Officer John Drexler said its Wyoming mines, Black Thunder and Coal Creek, still generate revenue, but those funds will now be used to help close the mines itself and fund eastern operations.
Following a question about what defines an "appropriate buyer," CEO Lang said the entity would need to be able to replace the bonds, permits, and step into the lease.
"What we do not want to do... is to get into a situation where we lose control of the asset that has some potential future liabilities. We have seen that play out in the Powder River Basin and we are not going to do that," he said. "As you stand back and look at the basin, there have been some non-traditional players come in."
Most recently, Eagle Specialty Materials took over the bankrupt Blackjewel operations. Navajo Transitional Energy Company also took over mine operations for Cloud Peak Energy last year.
Benjamin Nelson, lead coal analyst at Moody's Investor Service, said Arch's announcement highlights the challenges facing the coal industry.