Arch Coal posts $2 billion Q3 loss, needs ‘significant restructuring’ of debt

Arch Coal, the second-largest coal producer in the U.S., reported a net loss of $2 billion for the quarter ended Sept. 30, and the company’s executives projected continued debt service problems that will necessitate “significant restructuring of its balance sheet.”

The St. Louis-based mining company reported third-quarter revenues of $689 million, down $53 million from the same quarter last year. The company’s adjusted EBITDA was $135 million, an increase of $63 million over the prior-year quarter.

Arch Coal’s net loss translated to a loss of $93.91 per share. Adjusted for one-time items, the loss was $3.38 per share, which beat analysts’ expectations. The consensus analyst estimate reported by Yahoo Finance was a loss of $5.45 per share.

Despite what Arch Coal Chairman and CEO John Eaves called “exceptionally strong performance” from an operating perspective, the company is not generating sufficient funds to meet its debt obligations.

“Operations continue to generate a significant amount of cash; and we are maintaining sufficient liquidity to continue operating as normal,” said John Drexler, Arch Coal’s senior vice president and CFO. “Our cash flow, however, is not sufficient to service our debt sustainably in this operating environment. As a result, Arch will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long term.”

Drexler said the company is actively talking with creditors about restructuring.

Already this year, U.S. coal enterprises including Walter Energy, Alpha Natural Resources and Patriot Coal have filed for bankruptcy.

Arch Coal, like other companies across the industry, is suffering from lower demand for thermal coal, the variety used for generating power. That weak demand is being driven by the abundant supply and low price of natural gas, decreased demand for electric power and new environmental regulations and emission standards.

Arch Coal said it expects domestic thermal coal consumption to decrease by 95 million tons this year.

Meanwhile, demand for U.S. metallurgical coal, or the type that’s used to make steel, is also slumping. That demand is hurt by factors including a decreased global appetite for steel, strong metallurgical coal output from Australia and a strong U.S. dollar.

“We expect pricing for both metallurgical and thermal coal to remain under significant pressure throughout 2016,” said Paul Lang, Arch Coal’s president and chief operating officer.

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