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