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How Did Arch Coal’s Powder River Segment Stay Profitable in 2Q15?

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Revenues

Arch Coal (ACI) generated $342.5 million in revenues from its Powder River Basin (or PRB) segment in 2Q15, down from $358.3 million in 2Q14. The drop in revenues came in on lower shipments, although pricing improved, as we discussed in Part 5. The segment reported $733.7 million in revenues in 1H15 compared to $716.9 million in 1H14.

Overall (for all segments), Arch Coal (ACI) reported $644.5 million in revenues in 2Q15 compared to $713.8 million in 2Q14. Revenues for 1H15 stood at $1321.5 million compared to $1449.7 million in 1H14. The company expects to sell 120 million to 124 million tons of thermal coal (for all segments) and another 6.0 million to 6.8 million tons of metallurgical coal in 2015.

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Cost per ton

At $12.66 per ton, ACI’s PRB operating cost per ton came in marginally higher in 2Q15 compared to $12.61 in 2Q14. Costs remained in check despite lower shipments due to lower fuel and maintenance costs.

However, costs per ton came in at $0.14, higher than 1Q15’s $12.52 per ton. The company’s impressive cost performance in 1Q15 led to 1H15 costs coming in at $12.58 per ton—lower than 1H14’s $12.80 per ton.

All American coal (KOL) producers, including Peabody Energy (BTU), Cloud Peak Energy (CLD), and Consol Energy (CNX), are trying to push costs lower in order to stay afloat during the current industry downturn and avoid the fate of Alpha Natural Resources and Walter Energy.

Operating margin per ton

The PRB segment’s 2Q15 operating margins, at $0.58 per ton, improved substantially over 2Q14’s $0.18 per ton due to higher pricing. However, the segment’s margin per ton was lower than 1Q15’s $0.96 per ton, primarily due to lower pricing and higher costs. PRB margins for 1H15 stood at $0.79 per ton compared to an operating loss of $0.04 per ton in 1H14.

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