A coal power plant. Flickr Image.
Arch Resources (NYSE:ARCH) is another mining company benefiting greatly from the recent commodity boom.
As seen in the following snapshot, Arch Resources’ stock price was traded at around $68 USD per share as of Aug 2021, an all-time high in the last 52 weeks.
ARCH’s stock price. Source: StockCharts.com
Within just 1 year, ARCH stock price has more than doubled, generating a return on investment of more than 100% to investors.
The good news is that the commodity boom may have just begun.
If this is the case, there will certainly be more upside to ARCH stock price in the future.
That said, in this article, we are taking a look at Arch Resources coal sales volume by segment to find out which coal segment makes up the biggest portion of the company’s coal shipment volume.
In addition, we will look at Arch Resources coal margin to find out the coal profitability by segment.
Lastly, a discussion of Arch Resources coal sales volume will be incomplete without including the 2021 outlook.
Therefore, we will dive into Arch Resources’s guided FY2021 outlook to see what the company is expecting in terms of future sales volume.
So, just sit tight and read on!
Arch Resources’ Coal Sales Topics
1. Coal Sales Breakdown By Segment
2. Metallurgical Coal Sales By Year
3. Thermal Coal Sales By Year
4. Metallurgical Coal Sales By TTM
5. Thermal Coal Sales By TTM
6. Metallurgical Coal Cash Margin Per Ton
7. Thermal Coal Cash Margin Per Ton
8. Summary
Arch Resources’ Coal Sales Breakdown By Segment
Arch Resources sells 2 types of coals, namely:
1) Metallurgical Coal, and
2) Thermal Coal.
The company’s metallurgical coal comes primarily from the mining complexes located in West Virginia whereas its thermal coal comes primarily from Powder River Basis (PRB) located in Wyoming.
While Arch Resources produces 2 types of coals, its primary focus has been on metallurgical coal.
For thermal coal, the company is currently winding down its mining operations in several mine complexes that produce thermal coal, including the Coal Creek, West Elk and Viper.
The reason for the closure of several thermal mines is that Arch Resources is transitioning towards steel and metallurgical markets which are reportedly more profitable.
In addition, the steel and metallurgical markets command a much brighter outlook due to the world’s transitioning from fossil fuel to green energy.
Arch Resources’ Metallurgical Coal Sales By Year
Arch Resources’ met coal sales by year
Let’s first look at Arch Resources’ metallurgical coal sales volume by year as shown in the chart above.
According to the chart, Arch Resources’ met coal sales dived significantly to only 7.0 million tons in fiscal 2020 compared to 2019, representing a year-on-year decrease of 10%.
The decline in coal sales in fiscal 2020 was primarily driven by the lower energy consumption across the world triggered by the COVID-19 pandemic.
While Arch Resources had reportedly shipped less metallurgical coal in fiscal 2020, it expects the sales volume to recover significantly in fiscal 2021.
On average, Arch Resources expects the sales volume to be around 7.8 million tons in fiscal 2021, an 11% increase from fiscal 2020, driven primarily by the production ramp in Leer South longwall.
Arch Resources’ Thermal Coal Sales By Year
Arch Resources’ thermal coal sales by year
While Arch Resources has been trimming its legacy thermal coal operations, its thermal sales volume is still considerably higher than its metallurgical sales volume, notably at more than 8X the amount sold in 2020.
As seen in the chart, Arch Resources sold 56 million tons of thermal coal in fiscal 2020 and expects to sell slightly more in fiscal 2021 at 57 million tons on average.
However, since fiscal 2018, Arch Resources’ thermal coal sales volume has indeed been on a decline.
In 2018, Arch Resources sold nearly 90 million tons of thermal coal but this number has dwindled to only 56 million tons in 2020, almost 60% less within a period of only 2 years.
Arch Resources’ Metallurgical Coal Sales By TTM
Arch Resources’ met coal sales by TTM
The TTM plot in the chart above is best used to display the trend of Arch Resources’ metallurgical coal sales.
According to the chart, a downtrend was initially playing out for Arch Resources’ metallurgical coal sales volume since fiscal 2019.
However, the downtrend reversed in 2Q 2021 after reaching the bottom at 7.0 million tons in 1Q 2021.
As of 2Q 2021, Arch Resources’ metallurgical coal sales reached 7.5 million tons, the first sequential growth seen in over a year.
Arch Resources’ Thermal Coal Sales By TTM
Arch Resources’ thermal coal sales by TTM
Similarly, Arch Resources’ thermal coal sales volume also has been on a decline from a TTM perspective and reached only 53 million tons in 1Q 2021.
However, the downtrend seems to have bottomed out in 1Q 2021 and reversed to a higher figure in 2Q 2021 at 56.7 million tons, also the first sequential uptrend seen in more than a year.
While Arch Resources’ thermal coal sales volume has ticked higher in the latest quarter on a sequential basis, its year-on-year growth rate was still in the red, indicating that the uptrend was not as strong as the one seen in metallurgical coal sales.
Arch Resources’ Metallurgical Coal Cash Margin Per Ton
Arch Resources’ met coal cash margin per ton
The cash margin per ton illustrates the profitability of the coal sold.
A higher margin means higher profitability for the coal sales on a per ton basis.
All told, according to the chart, Arch Resources’ metallurgical coal cash margin per ton can vary by a large percentage.
For example, in early fiscal 2019, Arch Resources’ metallurgical coal cash margin per ton clocked in at a whopping 45%, but the figure has been declining since then and reached only 10% in fiscal 4Q 2020.
However, the met coal cash margin per ton has rebounded in subsequent quarters and reached nearly 35% as of 2Q 2021.
On average, Arch Resources’ metallurgical coal cash margin per ton measures at 28% between 2019 and 2021.
Arch Resources’ Thermal Coal Cash Margin Per Ton
Arch Resources’ thermal coal cash margin per ton
On the other hand, Arch Resources’ thermal coal cash margin per ton is significantly lower than that of metallurgical coal.
According to the chart above, Arch Resources’ thermal coal cash margin per ton used to be in the red but has got back to the positive figures in recent quarters.
As of 2Q 2021, Arch Resources’ thermal coal cash margin per ton measured at nearly 20%, a record high for the company.
On average, Arch Resources’ thermal coal cash margin clocked in at around 5% between 2020 and 2021.
In short, Arch Resources’ profitability is much lower for thermal coal compared to metallurgical coal.
In fact, metallurgical coal is nearly double the profitability of thermal coal in 2Q 2021.
Summary
Arch Resources’ coal sales volume still comes primarily from thermal coal in fiscal 2021 despite the commitment of the company to wind down its thermal coal mining operations.
As of 2Q 2021, Arch Resources’ thermal coal sales volume was nearly 8X higher than that of metallurgical coal sales volume on a TTM basis.
Similarly, in 2020, Arch Resources sold 56 million tons of thermal coal compared to only 7 million tons of metallurgical coal, a difference of nearly 8X.
While thermal coal makes up the bulk of Arch Resources’ coal shipment volume, it is considerably less profitable compared to metallurgical coal, notably at only half the cash margin per ton of that of metallurgical coal.
In terms of outlook, Arch Resources guided for a higher coal sales volume in fiscal 2021, especially for metallurgical coal.
The company expects to ship 7.8 million tons of metallurgical coal in 2021, an 11% increase compared to the figure in 2020, while shipment for thermal coal is expected to be flat in 2021.
References and Credits
1. Financial figures discussed in this article were obtained and referenced from Arch Resources’ financial statements which can be obtained from the following links:
2. Featured images in this article are used under Creative Common Licenses and obtained from Muddy Coal Mine Tipple and Road to the power.
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