Arch Resources is accelerating its efforts to divest itself of its Powder River Basin coal mines as it expects to produce about 27% less coal this year than in 2019 and plans to wind down its Wyoming operations by an additional 50% over the next two to three years.
The company lost more than $191 million in the third quarter of 2020, compared to being in the black about $106 million in the same quarter last year, Arch reported Thursday morning. Arch also took a write-down of its legacy thermal coal operations of about $163 million in the quarter, similar to the $1.42 billion write-down Peabody Energy took on its North Antelope Rochelle mine earlier this year.
Arch also announced that after the demise of a proposed joint venture with Peabody, which would have combined the companies’ Western coal assets under a single operator, it is steering away from thermal coal. That could include selling its Powder River Basin mines in Campbell County, Black Thunder and Coal Creek.
In the mean time, Chief Executive Officer Paul A. Lang said Arch is implementing a “systematic winding down” of its Western coal operations that will see the Wyoming mines produce significantly less coal in the next few years.
“We view this systematic winding down of our thermal operations — in a way that allows us to continue to harvest case and to fund long-term closure costs with ongoing operating cash flows — as the right business solution in the even we are unable to find an appropriate buyer,” Lang said.
Last year, Arch’s PRB mines produced nearly 75 million tons of coal, but are on track to produce only about 55 million tons this year, said Matthew Giljum, the company’s chief financial officer. The mines can expect to see production continue to decline by about another 50% over the next two to three years as Arch moves into its winding down phase.
What that means for the 1,142 workers at the company’s Wyoming mines is unknown, but Arch’s workforce represents nearly 28% of the Powder River Basin’s overall workforce of 4,090, as reported for the second quarter of this year by the federal Mine Health and Safety Administration.
Arch Resources is the second-largest coal employer in the basin, behind Peabody, which has 1,299 workers at three mines. Between them, they represent 60% of the PRB workforce.
“We have launched an accelerated effort to evaluate strategic alternatives for our thermal operations, including possible divestiture,” Lang said. “Simultaneously, we are finalizing plans to shrink the operational footprint at this operations, with a particular emphasis on our Powder River Basin assets.”
Those assets are on opposite ends of the spectrum with the Black Thunder mine one of the most productive in the world producing more than 72 million tons of coal last year and Coal Creek, which mined about 2.5 million tons.
While it’s not known if a viable buyer will emerge for the Wyoming mines, Lang said the company’s preparing either way. If it doesn’t sell the mines, it’s still facing up to $550 million worth of reclamation obligations, although the actual cost of reclamation will be much less, he said.
“We believe that a careful and well-communicated exit strategy is the most responsible way forward for a range of essential stakeholders, including our employees, the communities in which we operate, our longstanding customer base and the many consumers who continue to rely on coal-based electricity,” Lang said.
That Arch Resources is moving on from thermal coal doesn’t come as a shock for people in Campbell County, said Commissioner Rusty Bell.
“Is it good news? No, but is it anything that’s going to surprise us? I don’t think there’s anything that can surprise us in Campbell County anymore,” Bell said.
He also said that while the joint venture’s denial was disappointing, especially for Arch and Peabody, it also may mean more of a lifespan for the basin’s smaller mines.
While sad to see announcements like Thursday’s, Arch has been a good business partner in Campbell County and its communities, Bell said.
“They have been an incredible partner in Campbell County for a long, long time,” he said. “I hope they have a responsible transition, and I’m sure they will.
“They’ve got to do what’s best for them and hopefully their exit takes in mind we have been good partners.”
Bell also said he knows the change in focus for Arch can be unsettling for its employees, but he’s confident they won’t have to experience what former Blackjewel workers did when the company suddenly locked them out in July 2019.
“It’s better to hear this now, because I don’t want another Blackjewel,” he said. “I don’t want them to lock the gates suddenly on those employees.”
This is a developing story and will be updated.