Arch Coal Starts Longwall in Leer - Analyst Blog

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Coal producer Arch Coal Inc. ( ACI ) introduced long wall mining techniques in its Tygart Valley's Leer mine in northern West Virginia. The company invested $400 million to develop this mine, which produces high quality metallurgical coal.

The heat content of metallurgical coal makes it an integral part of steel production. This high quality coal produced from Arch Coal mines will feed the demand of both domestic and international steel plants.

Arch Coal expects production from the Leer mine to gather steam in the first quarter of 2014. A recent report from World Steel Association indicated that steel demand in 2014 will increase 3.3% from 2013 levels to 1,523 megatons (Mt) globally.

The World Steel Association also noted that demand for steel in the Middle East North America (MENA) region will increase at a much faster pace than the global rate. Steel demand in MENA is expected jump 7.3% year over year to reach 69.0 Mt.

Given the favorable picture, the decision of the company to start long wall mining operation in its Leer mine seems quite justified. In Oct 2013, Arch Coal acquired additional metallurgical coal reserves, adjacent to its Leer mine, from Patriot Coal Corporation for $16 million. This strategic decision will enable Arch Coal to produce additional volumes from this Leer mining complex.  

Higher production using long wall techniques and nearness of the mine to the east coast port will make it easier for Arch Coal to tap the demand in international markets.

The coal producer is also active in improving its financial flexibility. This will allow the company to add to its existing 5 billion tons of high-quality metallurgical and thermal coal reserves when opportunities arise.

Not all operators in the coal sector are presently expanding their existing operation. Another coal operator CONSOL Energy Inc. ( CNX ) recently divested some of its coal assets. Given the increasing focus on natural gas usage for power production, CONSOL decided to hive it thermal coal mines and concentrate more on natural gas production.

Arch Coal presently carries a Zacks Rank #3 (Hold). However, some better-ranked coal stocks include Alpha Natural Resources, Inc. ( ANR ) and Suncoke Energy Partners, L.P. ( SXCP ). Both the stocks carry a Zacks Rank #2 (Buy).



ARCH COAL INC (ACI): Free Stock Analysis Report

ALPHA NATRL RES (ANR): Free Stock Analysis Report

CONSOL ENERGY (CNX): Free Stock Analysis Report

SUNCOKE ENERGY (SXCP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ACI , ANR , CNX , SXCP

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