West Virginia Gov. Jim Justice signed two bills into law on March 27 that aim to help the state's coal sector, a move that could be particularly beneficial for Arch Coal Inc.
One law will incrementally decrease West Virginia's severance tax on thermal coal from 5% to 3% over the next three years, while the other establishes a 35% tax rebate on new coal mining machinery and equipment.
Justice, whose family owns coal companies in Appalachia, said in a March 27 release that the legislation will protect the state's coal mining jobs "for decades to come."
"Together, these bills will help us incentivize job creation by coal companies which puts more hardworking miners back to work," he said, "and they will help us protect the health, safety, and wellbeing of our miners and the brave men and women who serve on our mine rescue teams."
Seaport Global Securities LLC analysts Mark Levin and Nathan Martin wrote in a March 28 report that the governor's action could be a boon for Arch, which announced in February that it plans to invest between $360 million and $390 million over the next three years to begin developing its Leer South metallurgical coal project in the state. The longwall is expected to be operational in late 2021 and produce about 3 million tons of high-quality, high-vol A coking coal annually.
The 35% tax rebate could allow Arch to recoup at least $100 million of that investment over time, according to the report.
"The rate at which the company generates this rebate will be dictated by the met coal price as well as production levels," the analysts wrote. "The higher the met price and the more/faster Arch produces, the more quickly it will recover a portion of its investment."
Industry observers recently told S&P Global Market Intelligence that the tax cut could help the coal sector and potentially keep an operation or two open longer but may not be enough to overcome the large market forces plaguing the thermal sector. Energy Ventures Analysis President Seth Schwartz said the tax rebate could improve capital budgets and help spur investment into West Virginia's coal mines.