Financial Data and Key Metrics Changes - Arch Resources reported a gross margin of $118 million in the metallurgical segment, nearly a 100% increase from the prior period [7] - The legacy thermal segment generated approximately $58 million in gross margin, a 43% improvement from the prior quarter [8] - Unrestricted cash at the end of Q3 was $210 million, with total liquidity at $254 million, both slightly higher than June 30 levels [31] Business Line Data and Key Metrics Changes - The metallurgical segment commenced longwall production at the Leer South mine, contributing to strong shipping performance despite a planned outage [7][19] - Thermal shipments increased by 25% sequentially in Q3, with expectations for sustainability into Q4 [25] - The company committed more than 70 million tons of Powder River Basin (PRB) coal for delivery in 2022 at an average price of approximately $16 per ton [26][40] Market Data and Key Metrics Changes - Global steel production was up more than 6% compared to the pre-pandemic year of 2019, driving strong demand for coking coal [13] - The prompt price of High-Vol A coal reached $390 per metric ton FOB the vessel, reflecting significant upward pressure due to supply-demand mismatches [14] - The company expects 75% of its metallurgical output to be exported, with a significant portion directed to Asian markets [23] Company Strategy and Development Direction - Arch Resources is strategically pivoting towards steel and coking coal markets while winding down thermal coal operations [10] - The company plans to prioritize debt reduction and cash building to restore its balance sheet to pre-2020 levels [9] - A quarterly dividend of $0.25 per share has been initiated, with plans for more robust capital return mechanisms in the future [10][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation of the metallurgical franchise and the robust outlook for global coking coal markets [29] - The company anticipates significant improvement in cash flows and operating performance in Q4 and 2022, driven by favorable market conditions [33] - Management acknowledged inflationary pressures but believes they can manage costs effectively while ramping up production at Leer South [67] Other Important Information - Arch Resources has committed to reducing its asset retirement obligation (ARO) for the Powder River Basin mine by about 15% during 2021 [10] - The company has established a sinking fund to prefund closure obligations for its thermal mines, with planned contributions of $15 million in Q4 and $30 million in the following year [35] Q&A Session Summary Question: Clarification on thermal coal commitments and pricing - The company confirmed 70 million tons of PRB coal committed at $16 per ton for 2022, with 4 million tons expected from West Elk, split between domestic and export markets [40] Question: Future guidance on thermal coal production - Management indicated that while they will continue to manage the thermal segment responsively, they will not provide specific guidance for years beyond 2022 [42] Question: Expected pricing for export tons in Q4 - Management expects substantial increases in pricing for export tons, with current pricing for High-Vol A coal at $390 per metric ton [60]

Financial Data and Key Metrics Changes - The company reported a nearly 50% increase in gross margin, generating more than $61 million in the metallurgical segment [6] - In the thermal segment, the gross margin was nearly $40 million, with a nearly 25% increase in sales volumes [7][13] - Operating cash flows totaled $20 million, with a significant build in working capital due to increased accounts receivable [28] Business Line Data and Key Metrics Changes - The metallurgical segment achieved a 20% increase in sales volume and a 25% increase in per ton margin [6][18] - The thermal segment expanded its sales commitments by approximately 7.6 million tons and increased per ton cash margin nearly threefold from $0.98 to $2.62 [7][23] Market Data and Key Metrics Changes - Global steel output is on pace to return to or exceed 2019 levels, driving strong demand for coking coal [14] - Thermal coal demand and pricing have strengthened due to natural gas prices trading above $4 and a robust global economic expansion [15] Company Strategy and Development Direction - The company is focused on a strategic pivot towards steel and coking coal markets while implementing a harvest strategy for legacy thermal assets [11][12] - The Leer South project is expected to enhance cash-generating capabilities and solidify the company's position as a low-cost coking coal supplier [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a strong second half of the year, driven by improved market dynamics in both coking and thermal coal markets [8][14] - The company anticipates strong cash generation for the remainder of the year, supported by current market conditions and reduced capital spending [33] Other Important Information - The company became the first U.S. metallurgical coal producer to join ResponsibleSteel, an ESG-driven standard and certification initiative [26] - The company is exploring strategic alternatives for its thermal assets to maximize cash flows while managing long-term closure obligations [12] Q&A Session Summary Question: Can you comment on the incremental pricing on the metallurgical side? - Management noted that market price movements significantly influenced pricing, and they expect significant improvement in market pricing in the second half of the year [36][39] Question: What is the outlook for direct sales into China? - The company has seen growing opportunities to export volumes into China, with several vessels expected to be shipped in Q3 and Q4 [41][45] Question: What is the expected maintenance CapEx moving forward? - The expected maintenance CapEx is around $100 million annually, with the company generating substantial cash flow to cover this [46][52] Question: What is the current status of the thermal asset retirement obligation (ARO)? - The ARO is approximately $200 million, with expectations to reduce it to around $160 million by year-end through ongoing reclamation efforts [55][57] Question: How does the company plan to utilize free cash flow? - The company plans to fortify its balance sheet, reduce debt, and potentially initiate a capital return program, including share buybacks or dividends [47][48]

Arch Resources, Inc. (NYSE:ARCH) Q1 2021 Earnings Conference Call April 22, 2021 10:00 AM ET Company Participants Deck Slone - Senior Vice President of Strategy Paul Lang - Chief Executive Officer and President John Drexler - Senior Vice President and Chief Operating Officer Matt Giljum - Senior Vice President and Chief Financial Officer Conference Call Participants Matt Key - B. Riley Securities Nathan Martin - The Benchmark Company Lucas Pipes - B. Riley Securities Operator Good day, everyone. Welcome to ...

Financial Data and Key Metrics Changes - The company achieved cash costs of $61.13 per ton for the year, slightly above the midpoint of guidance despite a nearly 1 million ton reduction in coking coal shipments due to the pandemic [18] - Fourth quarter operating cash flows were $5 million, weaker than the third quarter, reflecting the semi-annual payment of production taxes [31] - Total liquidity at year-end was $315 million, with unrestricted cash of $284 million [32] Business Line Data and Key Metrics Changes - The company maintained a first quartile cost structure in its core coking coal segment despite significant market-driven volume reductions [7] - The Leer South growth project is expected to significantly improve cash-generating capabilities, with startup anticipated in about six months [18][20] - The company plans to produce around 2 million tons from Coal Creek in 2021, the final full year of operation before reclamation begins in 2022 [11] Market Data and Key Metrics Changes - Global steel production was up nearly 6% in December 2020 compared to December 2019, indicating a strong recovery in the steel market [13] - The price of hot rolled coil is trading at levels 50% to 150% above last year's pandemic-driven lows [14] - The US East Coast High-Vol A price assessment is up nearly 50% compared to last summer's lows, reflecting strong demand and reduced supply [15] Company Strategy and Development Direction - The company is strategically pivoting to focus on metallurgical coal, aiming to become a premier producer of metallurgical coal in the US [10] - Plans include reducing the operating footprint of thermal assets and optimizing cash generation for future reclamation [24] - The company is committed to environmental, social, and governance (ESG) leadership, achieving a loss time incident rate of 0.93, nearly three times better than the industry average [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the ongoing impacts of COVID-19, with expectations for modest sequential increases in coking coal shipments in Q1 2021 [27] - The company is optimistic about the post-pandemic recovery, anticipating increased demand for metallurgical coal as economies stimulate growth [69] - Management highlighted the importance of operational excellence and continuous improvement across the enterprise [27] Other Important Information - The company reduced corporate staffing levels by 25% and cut overhead costs by $10 million per year through a voluntary separation program [8] - The divestiture of the Viper thermal mine reduced long-term undiscounted mine closure obligations by about $21 million [10] - The company plans to target a reduction of $40 million in Asset Retirement Obligation (ARO) at Coal Creek over the next 18 months [25] Q&A Session Summary Question: Can you provide a breakdown of growth CapEx with Leer versus maintenance sustaining capital in 2021? - Management indicated that they are trending towards the upper end of the $360 million to $390 million range for Leer South, with maintenance CapEx expected to run around $100 million post-startup [38][39] Question: What should we expect for thermal guidance and costs? - The thermal guidance is primarily influenced by PRB operations, with costs expected to be between $11.50 and $12 per ton [44] Question: What is the coking coal volume outlook for 2021? - Management expects flat shipment levels for Q1, with an increase anticipated in the second half of the year as Leer South comes online [48]

Part I Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company reported a significant net loss in Q3 2020, driven by declining revenues and a substantial asset impairment charge Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $382,261 | $619,467 | $1,107,014 | $1,744,872 | | **Income (loss) from operations** | $(187,680) | $106,481 | $(256,857) | $249,830 | | **Net income (loss)** | $(191,467) | $106,769 | $(266,090) | $242,350 | | **Diluted earnings (loss) per share** | $(12.64) | $6.34 | $(17.57) | $13.66 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $562,982 | $706,747 | | **Total assets** | $1,653,337 | $1,867,756 | | **Total liabilities** | $1,287,691 | $1,227,220 | | **Total stockholders' equity** | $365,646 | $640,536 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $55,914 | $334,053 | | **Cash used in investing activities** | $(111,945) | $(154,002) | | **Cash provided by (used in) financing activities** | $73,585 | $(269,560) | - During Q3 2020, the company recorded a significant asset impairment charge of **$163.1 million** related to its thermal coal segments and an equity investment, driven by reduced demand, low prices, and the termination of the proposed joint venture with Peabody[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=48&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes poor Q3 2020 results to weak coal markets and COVID-19, leading to strategic shifts including thermal asset divestiture and dividend suspension - The proposed joint venture with Peabody Energy was blocked by the U.S. District Court on September 29, 2020, leading Arch to terminate the joint venture and pursue strategic alternatives for its thermal assets, including potential divestiture, to focus on metallurgical products[136](index=136&type=chunk) - The COVID-19 pandemic significantly impacted domestic and global economies, leading to demand destruction for coal, with the company receiving force majeure notices and deferring over **three million tons** of Powder River Basin contractual obligations[131](index=131&type=chunk)[133](index=133&type=chunk) - As of September 30, 2020, total liquidity was approximately **$265 million**, and the company suspended its quarterly dividend and share repurchase program in April 2020 to preserve capital and fund the Leer South development[197](index=197&type=chunk)[196](index=196&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) Q3 2020 revenues declined **38.3%** to **$382.3 million** due to lower sales volumes and pricing, resulting in a significant operating loss and a nine-month net loss Coal Sales Performance (Q3 2020 vs Q3 2019) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | **Coal sales (in thousands)** | $382,261 | $619,467 | $(237,206) | | **Tons sold (in thousands)** | 17,128 | 26,257 | (9,129) | - The decrease in Q3 2020 coal sales was driven by an **$86.4 million** decline from Metallurgical operations, an **$89.1 million** decline from the Powder River Basin, and a **$61.6 million** decline from Other Thermal operations[138](index=138&type=chunk) - A major contributor to the operating loss in Q3 2020 was a **$163.1 million** asset impairment charge related to the Coal Creek, West Elk, and Viper thermal mines, and the Knight Hawk equity investment[139](index=139&type=chunk)[145](index=145&type=chunk) Coal Sales Performance (Nine Months 2020 vs 2019) | Metric | Nine Months 2020 | Nine Months 2019 | Change | | :--- | :--- | :--- | :--- | | **Coal sales (in thousands)** | $1,107,014 | $1,744,872 | $(637,858) | | **Tons sold (in thousands)** | 47,367 | 67,958 | (20,591) | [Operational Performance](index=61&type=section&id=Operational%20Performance) All operating segments experienced significant Adjusted EBITDA declines, with Metallurgical cash margin per ton collapsing due to lower pricing and Powder River Basin volumes decreasing Segment Performance (Three Months Ended September 30) | Segment | Metric | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Powder River Basin** | Adjusted EBITDA (in thousands) | $34,486 | $50,153 | | | Cash margin per ton sold | $2.38 | $2.25 | | **Metallurgical** | Adjusted EBITDA (in thousands) | $12,407 | $70,814 | | | Cash margin per ton sold | $6.26 | $34.00 | | **Other Thermal** | Adjusted EBITDA (in thousands) | $(2,870) | $16,659 | | | Cash margin per ton sold | $(2.96) | $8.36 | - The Metallurgical segment's performance was severely impacted by declining coking coal prices and lower shipment volumes due to COVID-19's effect on the steelmaking supply chain[173](index=173&type=chunk) - The Powder River Basin segment's volume decline was driven by competitive natural gas pricing, growth in renewable energy, and reduced electricity demand from COVID-19 responses[171](index=171&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity decreased to **$265 million** by Q3 2020, leading to dividend suspension and new financing, while cash from operations plummeted due to poor results - Total liquidity as of September 30, 2020 was approximately **$265 million**, comprising **$220 million** in cash and investments and **$44.6 million** in availability under credit facilities[197](index=197&type=chunk)[198](index=198&type=chunk) - In 2020, the company entered into a **$53.6 million** equipment financing arrangement and arranged for **$53.1 million** in tax-exempt bonds to finance the Leer South development project[194](index=194&type=chunk)[195](index=195&type=chunk) - Cash from operations for the nine months ended Sep 30, 2020, was **$55.9 million**, a significant decrease from **$334.1 million** in the same period of 2019, due to deteriorating operational results[199](index=199&type=chunk)[200](index=200&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=76&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces commodity price risk, particularly in coal markets, and uses derivatives to manage diesel fuel price exposure, with specific sales commitments detailed Sales Commitments as of October 22, 2020 (Priced Tons) | Segment | 2020 Tons (millions) | 2020 Price/ton | 2021 Tons (millions) | 2021 Price/ton | | :--- | :--- | :--- | :--- | :--- | | **Metallurgical (Coking & Thermal)** | 6.1 | - | 2.0 | - | | **Powder River Basin** | 53.6 | $12.35 | 42.8 | $12.56 | | **Other Thermal** | 3.2 | $30.12 | 1.7 | $34.28 | - The company is exposed to price risk for diesel fuel and uses derivatives to manage it, having protected prices on approximately **4 million gallons** through swaps and options for the remainder of 2020[208](index=208&type=chunk) [Controls and Procedures](index=78&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal controls - Based on an evaluation as of September 30, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[210](index=210&type=chunk) Part II Other Information [Legal Proceedings](index=79&type=section&id=Item%201.%20Legal%20Proceedings) The U.S. District Court ruled in favor of the FTC on September 29, 2020, blocking the proposed joint venture with Peabody Energy, leading to its termination - On February 26, 2020, the FTC filed a complaint to block the proposed joint venture with Peabody Energy, alleging it would eliminate competition in the Southern Powder River Basin thermal coal market[215](index=215&type=chunk) - The U.S. District Court upheld the FTC's decision on September 29, 2020, after which the company and Peabody jointly terminated the joint venture[216](index=216&type=chunk) [Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors) The ongoing COVID-19 pandemic significantly impacts global economies, financial markets, and coal demand and prices, potentially exacerbating existing business risks - The COVID-19 pandemic has caused a widespread health crisis and economic downturn, which has negatively impacted and will continue to adversely affect the company's business, financial condition, and results of operations[218](index=218&type=chunk)[219](index=219&type=chunk) - The pandemic may heighten other risks, including those related to coal prices, market conditions, capital access, supply chain disruptions, and customer purchasing patterns[221](index=221&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase common stock in Q3 2020, with **$223 million** remaining under its **$1.05 billion** share repurchase authorization - No shares of common stock were repurchased during the quarter ended September 30, 2020[223](index=223&type=chunk) - As of September 30, 2020, approximately **$223 million** was remaining under the company's total **$1.05 billion** share repurchase authorization[224](index=224&type=chunk)[223](index=223&type=chunk) [Mine Safety Disclosures](index=81&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety violation information, as required by the Dodd-Frank Act, is provided in Exhibit 95 to this Quarterly Report on Form 10-Q - The statement concerning mine safety violations required by Section 1503(a) of the Dodd-Frank Act is included as Exhibit 95 to the Form 10-Q[225](index=225&type=chunk) [Exhibits](index=82&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including credit agreements, financing amendments, and CEO/CFO certifications - Lists various legal and financial documents filed as exhibits, including amendments to credit and receivables purchase agreements[227](index=227&type=chunk)[228](index=228&type=chunk) - Includes CEO and CFO certifications under Sarbanes-Oxley Sections 302 (Rule 13a-14(a)) and 906 (Section 1350)[233](index=233&type=chunk)