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Evaluating Arch Coal’s Bituminous Thermal Coal Costs in 3Q15

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Cost performance in 3Q15

Operating costs for Arch Coal’s (ACI) bituminous thermal segment dropped in 3Q15 on a quarter-over-quarter basis. The segment’s operating cost per ton came in at $24.63 in 3Q15—higher than the $24.16 it saw in 3Q14 but substantially lower than the $25.77 it saw in 2Q15.

Higher shipments, especially from the company’s low-cost West Elk mine in Colorado, helped the company lower costs in 3Q15 over 2Q15. But we should note that in 2Q15, the segment’s cost per ton came in higher due to lower shipments. (For a discussion of Arch Coal’s 3Q15 western bituminous shipment performance, see Part 7 of this series.)

As of 3Q15, other US coal (KOL) producers including Peabody Energy (BTU), Cloud Peak Energy (CLD), and Consol Energy (CNX) have been focusing on cost-saving measures in an effort to offset pricing pressures.

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Bituminous thermal operating margins

Operating margins for Arch Coal’s bituminous thermal coal segment came in at $5.57 a ton in 3Q15, which was down from $7.65 per ton in 3Q14. Reduced pricing in conjunction with slightly higher costs in 3Q15 caused the segment’s operating margins to contract during the quarter compared to the same quarter in 2014. Additionally, the segment’s cash margins, which exclude non-cash items such as depreciation and amortization, dropped by around $2 per ton.

However, the segment’s margins saw an uptick quarter-on-quarter. Its operating margins jumped to $5.57 a ton in 3Q15 compared to $4.60 a ton in 2Q15 as cost per ton dropped. The segment’s cash margins per ton came in at $10.35 in 3Q15 compared to $10.22 in 3Q14.

Continue to the next part of this series for a closer look at Arch Coal’s net losses and EBITDA in 3Q15.

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