Arch Resources(US:ARCH)2021-10-26 18:50Financial 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]