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Cost saving drives Arch Coal’s Appalachia margins up in 4Q14

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Mar. 17 2015, Updated 11:04 a.m. ET

Revenues

In the previous part, we looked at shipments and prices for Appalachian coal in 4Q14 and 2014. In all, Arch Coal, Inc. (ACI) generated revenues of $249.4 million from Appalachia in 4Q14, up from $243.4 million in 4Q13.

The revenues were positively impacted by higher shipments, particularly met (metallurgical) coal from Leer mine. The positive impact of higher shipments was largely offset by lower prices for both met and thermal coal.

Arch Coal generated $997.2 million in revenues from the segment in 2014, down from $1,037.6 million in 2013, primarily due to lower pricing.

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Cost per ton

Arch Coal (ACI) reported cash costs per ton of $59.4 in Appalachia in 4Q14. This was down from $67.4 in 4Q13 and $66.4 in 3Q14. The cost reduction was driven by cost saving measures, a scale-up in output at Leer mine, and improved performance at Mount Laurel.

Note that the spike in costs in 3Q14 was caused by equipment movement at Leer and Mount Laurel. The company’s cost performance during 4Q14 exceeded market expectations. The company reported cost per ton of $63.4 in 2014, down from $67.0 per ton in 2013.

Coal producers, including ACI, Peabody Energy (BTU), Alpha Natural Resources (ANR), and Cloud Peak Energy (CLD), have focused on cost saving amid pricing pressure. All major American coal producers are part of the iShares Russell 3000 ETF (IWV).

Margin per ton

Due to stellar cost management by the company, Arch Coal’s cash margin per ton expanded substantially to $9.90 in 4Q14. Cash margin per ton is the selling price per ton minus the cash cost per ton. The margins were $2.13 in 4Q13 and $2.35 in 3Q14.

However, the cash margin for 2014 came in at $5.38 per ton, lower than 2013’s $6.07 per ton. This was due primarily to lower pricing.

What about the Powder River Basin segment? Let’s take a look at that in the next two parts of this series.

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