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Arch Coal earnings call approaches with production boosted in back half of 2016

Arch Coal Inc. will report earnings results Feb. 8 on the tailwinds of a long-sought improvement in coal prices and with the possibility that a new presidential administration could pave the way for a boost to coal's bottom line.

Since the company emerged from bankruptcy in October 2016, the company's stock performance has outperformed, though closely tracked, the broader SNL Coal index. Announcing Arch's return to the public stock exchange, CEO John Eaves touted the "beginning of a new era for Arch Coal." One analyst declared Arch the "New King Coal" in a note ahead of the company's emergence.

"Arch Coal's new equity is emerging from a balance sheet restructuring that has left its low-cost operating assets unchanged: high-quality met coal production in the East and [Powder River Basin] thermal coal exposure in the West," FBR & Co.'s Lucas Pipes wrote.

Through the restructuring, Arch shed about $5 billion in debt and reduced its interest expense by $329 million. With Alpha Natural Resources Inc. and its bankruptcy spinoff Contura Energy Inc. emerging as private companies, and Peabody Energy Corp. still finishing off the details of its bankruptcy reorganization, Arch is among just a few options for investing in a large public U.S. coal company.

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As restructuring was winding up, Arch reported a net loss of $51.4 million in the third quarter of 2016, compared to a $2.0 billion loss in the same quarter of 2015. Arch said a better representation of its ongoing financial position would be released in new disclosures that will include "fresh start accounting" in its results.

With an improved market, Arch could have good news to report to investors. On Oct. 20, 2016, Pipes estimated that U.S. thermal coal exports had again become economical from every major coal basin. In December 2016, Pipes recommended aggressively buying Arch stock.

"About two-thirds of Arch's unsold volume is expected to be sold into the international market," Pipes wrote in a note. "The remaining one-third is to be sold into the domestic market before the end of the year."

Preliminary data suggests that coal production across the U.S. has leveled off slightly since greatly increasing through the third quarter. Weekly coal production estimates from the U.S. Energy Information Administration, based on railroad cars loaded, suggest that U.S. coal production rose about 35.2% from the week that ended Dec. 31, 2016, to the week that ended Jan. 21.

Arch produced about 53.3 million tons of coal in the second half of 2016, an improvement of about 37.1% over production from the same mines in the first half of the year.

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An S&P Global Market Intelligence analysis of U.S. Mine Safety and Health Administration preliminary data showed that Arch's production was about 26.3 million tons in the last quarter of 2016. That is about 2.3% less production than the 27.0 million tons reported in the prior quarter, which had surged from 18.7 million tons in the second quarter of 2016.

Arch's largest operation, the Black Thunder coal mine in the Powder River Basin, produced about 18.9 million tons of coal in the fourth quarter, down about 5.6% compared to the prior quarter and down 15.9% from the fourth quarter a year before.

Overall, Arch's coal production is about 6.7% lower than it was in the fourth quarter of 2015.

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