Arch Resources, Inc. reported a net income of $198.1 million for Q1 2023, compared with a net income of $271.9 million in Q1 2022. Arch had adjusted EBITDA of $277.3 million in Q1 2023. This compares to $321 million of adjusted EBITDA in Q1 2022. Revenues totaled $869.9 million for Q1 2023, versus $867.9 million in Q1 2022.
Saying it had made significant progress on numerous strategic priorities and objectives, Arch highlighted another sequential step-down in cash cost per ton sold in its metallurgical segment. The company said it also deployed $125 million through its capital return program. It repurchased its remaining convertible securities and reduced its debt by $26.6 million, ending Q1 2023 with a positive net cash position of $71.2 million.
“Arch maintained its strong operational momentum in Q1, as the team capitalized on improved coking coal prices, drove further productivity gains in our core metallurgical segment, and achieved a more than 30% increase in coking coal margins on a sequential basis,” said Paul Lang, president and CEO, Arch Resources. “At the same time, we forged ahead with our efforts to simplify our capital structure and strengthen our balance sheet via the settlement of the remaining convertible debt and the repayment of incremental indebtedness. Perhaps most significantly, we continued to direct substantial amounts of capital — and 100% of our discretionary cash flow — to our value-driving capital return program.”
Arch has now deployed more than $1 billion under its capital return program since its relaunch.
Arch sold 2.2 million tons of met coal during Q1 2023 at an average price of $204.25/ton, compared to 1.5 million tons at $255.52/ton in Q1 2022. “Arch’s core metallurgical segment executed at a world-class level in Q1, with each of the company’s four, large-scale coking coal mines achieving excellent productivity levels, strong cost control, and exceptional cash margins,” said John Drexler, COO, Arch Resources.
Cash costs for Arch’s met segment declined from $88.04/ton in Q1 2022 to $82.66/ton in Q1 2023. The company currently expects coking coal shipments to increase by around 10% in Q2 when compared to Q1, assuming continued solid rail and logistics performance, and it reiterated an annual sales volume guidance of 8.9 to 9.7 million tons for 2023.
Arch’s “legacy thermal” segment contributed adjusted EBITDA of $46.3 million in Q1, against capital spending of just $5.5 million. Thermal production amounted to 17 million tons with an average sales price of $18.49/ton for Q1 2023, compared to 18.2 million tons at $18.85/ton in Q1 2022. “Thermal segment margins were hampered by improved but still sub-optimal rail service at the Powder River Basin mines, as well as geologic challenges at the West Elk mine in Colorado that acted to constrain volumes and erode product quality at that operation,” Drexler said. Arch doesn’t expect things to get better at West Elk for the next two quarters, at which point the mine expects to transition to an area of more advantageous geology. Cash costs for the thermal segment increased from $13.43/ton in Q1 2022 to $15.70/ton in Q1 2023.
Despite supportive indicators, Arch said global coking coal prices have retracted significantly in recent weeks, principally due to macroeconomic concerns that are weighing on global steel demand. Global coking coal prices remain reasonably strong on an historical basis, with High-Vol A coal – Arch’s principal product – currently being assessed at $247 per metric ton on the U.S. East Coast.
Among the more supportive indicators, European steelmakers have now restarted the vast majority of the 25 million tons of blast furnace capacity they idled in 2022 in the face of a weakening economic outlook, and hot-rolled coil prices in major global steel markets have increased an average of 50% since their recent lows in November 2022.