Arch Coal Inc. (ACI): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report
Arch Coal witnessed another lackluster quarter with wider loss in the first quarter of 2014, primarily due to weakness in the global metallurgical market and rail congestion issues in the Powder River Basin. However, improvement in thermal coal demand in the U.S. will contribute to declining inventory thereby balancing U.S. coal market fundamentals. The ramp-up of longwall mining in the Leer mine will allow Arch Coal to enjoy higher production at lower cost. The company's cost-containment efforts are appreciable but the positive effects of the same are yet to be realized in all regions Arch Coal operates. The expected increase in steel demand led by rising infrastructure activities in the Asian markets will steadily increase the global met coal demand and present opportunity for coal export. However, stringent environment mandates and stiff competition from Australia and Indonesia are potential headwinds in its growth trajectory. Hence, we retain our Neutral recommendation on the stock.
St. Louis, Mo.-based Arch Coal Inc. (ACI) is one of the largest coal producers in the U.S., operating 22 mines across major coal basins of the country. The company serves customers in over 20 countries. Arch Coal sells coal to power plants, steel mills and industrial facilities under long-term contracts. The company also owns a 42% interest in Knight Hawk Holdings, a coal producer in the Illinois Basin.
Arch Coal primarily conducts its business through three operating segments: Powder River Basin (PRB), having operations in Wyoming Appalachia (APP), having operations in Kentucky, Maryland, Virginia and West Virginia and Other, having coal mining operations in Colorado and Illinois.
Coals mined from the PRB region have very low sulfur content and low heat value. Bituminous coals usually have a low sulfur content and varying heat value. Appalachia produces coals, which have low sulfur content and high heat value. Metallurgical (met) coal has low sulfur content, high heat content, low expansion pressure and several other chemical properties.
During 2013, Arch Coal sold 140.7 million tons of coal, including around 2.8 million tons of coal sourced from third parties. At year-end 2013, the company had roughly 5.3 billion tons of met and thermal coal reserves.
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