ST. LOUIS — Arch Coal announced today it will idle several operations and reduce production at mining complexes in Kentucky, Virginia and West Virginia due to the unprecedented downturn in demand for coal-based electricity. Today’s actions, along with other recent changes in the Appalachian region, will result in a total workforce reduction of approximately 750 full-time employee positions.
“We deeply value our people, and the decision to reduce personnel was made only after exhaustively reviewing other options and exploring opportunities to avoid this measure,” said John W. Eaves, Arch’s president and chief executive officer.
Arch’s subsidiaries will close three higher-cost thermal mining complexes and associated preparation plants, temporarily idle the Hazard/Flint Ridge complex in Kentucky and curtail production at other operations in Kentucky, Virginia and West Virginia. The mine locations affected by the announced closings are the East Kentucky, Eastern and Knott County (KY) complexes. For full year 2012, Arch expects average cash costs in the region, excluding severance and related costs, to remain in the range of $68 per ton to $73 per ton.
Moreover, these actions will reduce Arch’s thermal coal production by more than 3 million tons annually. However, Arch continues to expect thermal coal sales volume in the range of 128 million to 134 million tons for 2012. The company also plans to realize savings on future capital spending due to the idling of several operations and the redeployment of equipment into other active operations. Arch estimates future reductions in annual capital expenditures in the range of $30 million to $40 million.
“Current market pressures and a challenging regulatory environment have pushed coal consumption in the United States to a 20-year low,” Eaves said.
Eaves reiterated that a strategic portfolio review is ongoing and may result in the future reduction of some of Arch’s noncore assets or reserves. “The continued aggressive steps we’re taking to optimize our portfolio will allow us to better manage through the current business cycle and to prosper in the inevitable market rebound,” added Eaves.
Arch expects to incur one-time, non-cash asset write-down charges of around $425 million in the second quarter, and severance and related costs totaling approximately $14 million to be recorded between the second and third quarters. Based on Arch’s recent level of stock market capitalization, and in accordance with accounting rules, the company also anticipates that it will incur a non-cash goodwill impairment charge for the three months ended June 30, 2012.
Arch will provide additional detail regarding the charges in its second quarter 2012 financial results, which the company expects to release in late July.
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