Despite a strong quarter for its Powder River Basin operations, Arch Resources Inc., which owns the Black Thunder and Coal Creek mines in Campbell County, remains on track for an accelerated shutdown and reclamation of its Wyoming mines.
During the company’s third quarter conference call Thursday, company executives discussed the situation in the Powder River Basin, struggles with rail capacity and the company’s commitment to environment, social and governance operations, commonly referred to as ESG.
“I don’t think anything has really changed with the PRB,” said Arch CEO Paul Lang during the call.
Coal Prices Near $20 A Ton
Arch sold 18.4 million metric tons of coal in the third quarter of fiscal year 2022, which includes a small amount of coal from its West Elk mine in Colorado. This was down from the same quarter in 2021, when the company sold 19 million tons from the three mines, but it’s up considerably from the 15.1 million tons sold in the third quarter of fiscal year 2020.
Prior to the pandemic, the company sold 24.2 million tons in the third quarter of fiscal year 2019.
The per ton cash from the sales has risen over those three years.
This past quarter, the company sold its coal for an average of $19.94 per ton, with a cost per ton produced at $14.76, for a margin of $5.18. In the third quarter of 2019 and 2020, the margin was less than $2.40.
The strong performance this past quarter was not without challenges, Arch reports. Besides inflationary pressures driving up cost, John Drexler, the company’s chief operating officer, said that there were “persistent rail service challenges” at many of their mines, including those in the PRB.
Making Hay
The strong sales, however, don’t change the outlook on Wyoming coal for the company, Lang said.
“I look at it from a pretty pragmatic point of view. The last coal-fired power plant was built 10 years ago, and the average age is creeping up 47, 48 years,” Lang said.
The CEO said this trend will continue, with more slowdowns and retirements over the next two or three years. Arch can enjoy a “prosperous period of time” when the thermal coal from the PRB, which is primarily used in electricity generation, is in demand. But, he said the company won’t be able to change the trends for the future.
“This thing is heading toward a pretty fast decline,” Lang said.
Drexler cited the 1.1 billion tons of thermal coal consumption in the U.S. in 2008. Last year, though, that was 120 million tons.
About 15 gigawatts of coal-fired electrical generation has been granted extensions past original targeted shutdown dates, Drexler said, and Arch has about 5 million tons of PRB reserves that are permitted. The company intends to continue to produce at the levels seen in the third quarter of this year for the next several years — and generate a lot of cash from those sales.
That will come to an end, though, Drexler said. Until then, “We’re going to make a lot of hay while the sun shines.”
ESG Update
The company also provided an update on its Environment, Social and Governance (ESG) score’s performance. The ESG movement has aggressively sought to encourage divestment from fossil fuel companies and remains highly influential in the world of investing.
While fossil fuel companies rate very low on the environment component of ESG, a fossil fuel company can do well on the social component, which rates companies on their relationships with employees and communities, and governance, which rates companies on executive pay and board diversity, among other things.
In its earnings statement, the company touted its total low employee injury rate, which is 3.5 times better than the industry average. The company also had no environmental violations in the third quarter and no water quality problems in 31 months.
Reclamation work at the Coal Creek Mine was honored by the state of Wyoming with the 2022 Excellence in Mining Reclamation Award, and the company has completed about 75% of the reclamation work at the mine in the past 21 months.
“I want to thank the Arch workforce for their continued dedication to the highest environmental, social and governance principles,” Drexler said.
