Arch Coal Inc.
) wrapped up the sale of its operating division, Canyon Fuel
Company, LLC, to Bowie Resources, LLC. The sale will fetch the
company approximately $423 million including working capital
adjustments. Besides the cash proceeds, Arch Coal will enjoy a
pre-tax gain of roughly $120 million in the third quarter of
The deal, announced in late Jun 2013, involves the divestiture
of Sufco and Skyline longwall mines along with the Dugout Canyon
mines. The list also comprises the sale of nearly 105
million tons of bituminous coal reserves. All of these properties
are situated in Utah.
However, the company will retain the ownership of its West Elk
mine in Colorado and maintain 300 million tons of bituminous coal
in the reserve basket in Western Bituminous Region. These consist
of the Saddleback Hills and Elk Mountain properties in
With the current softness in the coal market, major producers
like Arch Coal have been streamlining their operations through
cost control and disciplined capital expenditures. The Canyon
Fuel sale was a strategic step to address the company's long-term
goal of focusing more on its profitable business platforms like
the Appalachian mines rich in metallurgical (met) coal and
low-cost thermal mines.
Arch Coal intends to bolster production at these mines to
serve its domestic as well as foreign customers. The Utah
divestment is projected to contribute to capital and
administrative cost savings of above $200 million through the
period 2014 to 2017. Moreover, the company anticipates its
rearrangement measures to bring in an additional $10 million of
administrative cost savings annually.
The proceeds from the transaction will also strengthen Arch
Coal's liquidity. Its Appalachian business is poised to benefit
from the bullish global steel market fundamentals given the World
Steel Association's forecast of an approximate 3% rise in steel
demand in 2013 and 2014. In addition, coal demand is expected to
witness a 6.9% increase year over year in the second half of
However, persistent economic weakness in Europe (a prime
importer of coal from the U.S.) and the cutback in coal project
funding in the emerging countries by the World Bank will create
oversupply thereby affecting international coal prices.
Arch Coal presently holds a Zacks Rank #3 (Hold). Other
well-placed coal operators in the market are Zacks Ranked #1
Alliance Holdings GP, L.P.
Alliance Resource Partners L.P.
Oxford Resource Partners, L.P.
ARCH COAL INC (ACI): Free Stock Analysis
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