e8vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 18, 2008 (September 18, 2008)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware
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1-13105
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43-0921172 |
| (State or other jurisdiction of
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(Commission File Number)
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(I.R.S. Employer Identification No.) |
| incorporation) |
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CityPlace One
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (314) 994-2700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
TABLE OF CONTENTS
Item 7.01 Regulation FD Disclosure.
On September 18, 2008, several senior executive officers of Arch Coal, Inc. (the “Company”)
will be delivering presentations at the Company’s Analyst Day that will include written
communications comprised of slides. The slides from the presentations are attached hereto as
Exhibit 99.1 and are hereby incorporated by reference.
A copy of the slides will be available at http://investor.archcoal.com/events.cfm for
30 days.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are attached hereto and furnished herewith.
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Description |
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99.1
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Slides from the presentations at the Arch Coal, Inc. Analyst Day. |
1
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| Dated: September 18, 2008 |
Arch Coal, Inc.
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By: |
/s/ Robert G. Jones
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Robert G. Jones |
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Vice President-Law, General Counsel & Secretary |
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2
Exhibit Index
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| Exhibit |
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Description |
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99.1
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Slides from the presentations at the Arch Coal, Inc. Analyst Day. |
exv99w1
Exhibit 99.1
| Arch Coal Analyst Mine Tour Paul Lang Senior Vice President, Operations Black Thunder Mine
September 18, 2008 |
| not the from of as future, “intends,”
matters in regulations matters to address
changes and generate other related
“anticipates,” nature from we arise
legislation cash numerous their of events or
otherwise, except statements “expects,” by
from amount from that is, as uncertainties
and future industry; the — such statements
particular in businesses; information, words
generation us, fluctuations new contain
Forward-looking For electric acquired of
from of result often “will.” a and or
domestic factors; integration as |
| Forward-Looking Information “seeks,” by the whether |
| In this context, forward-looking statements often
address our expected future business performance, coal
future our weather-related from financial “believes,”
for relating to the Clean Air Act and other
environmental initiatives; from operational,
geological, permit, and operations; than those
expressed in our forward-looking statements. We do not
undertake to update our forward- statements, may be
required by law. For a description of some of the
risks and uncertainties that may affect our future
results, you should see the risk factors described
from time to time in the reports we file with This
presentation contains “forward-looking statements”
past, events. and “plans,” that are, to different
degrees, uncertain. demand labor national, regional
and global scale, including those of a political,
economic, business, competitive or regulatory nature.
These uncertainties may cause our actual future
results to be materially different looking the
Securities and Exchange Commission. |
| with in be from A in this not
of significant should flows
companies. presented end accordance
cash the are at in other that
measures operations, by measures
included performance items these
used from comparable been financial
exclude income measures has
Therefore, most of may net the
principles measures and results. to
similarly-titled to not principles
financial alternative to measures
accounting are our an as comparable
financial accepted accounting or
measures assessing be these
generally and isolation not of with
financial accepted in may This
presentation includes certain
non-GAAP financial measures,
including Adjusted EBITDA. These
non-GAAP generally understanding
considered operations, earnings per
fully-diluted share or other
measures of profitability, liquidity
or performance under generally
accepted accounting principles. You
should be aware that our
presentation of these measures
reconciliation accordance
presentation. |
| Arch is continuing to enhance our reputation as aresponsible energy company |
| coal mines citizens and good safest financial performance |
| Awarded MSHA’s Sentinels of Safety honor for operating the nation’s safest
underground coal mines Ranked first among coal industry peers for safety
responsible Inaugural 2007 social responsibility report elevates awareness
of Arch’s environmental programs recognized Arch as one of the 100 most in
2006 and 2007 performance last year Earned 3 National Good Neighbor Awards
in 4 years Forbes trustworthy U.S. companies of 2008 Expect 2008 to be a
record earnings year |
| Operating the world’s — — Acting as environmental stewards — — Achieving superior — - |
| Arch’s safety performance is the best among the largest public coal companies |
| Annual Lost-Time Safety Incident Rate (per 200,000 employee-hours worked) |
| Arch Five Year Average = 1.30 |
| Lost-Time Safety Incident Rate in 2007 (per 200,000 employee-hours worked) |
| Arch’s 2007 environmental performance rankedfirst among our coal peers 2007 SMCRA Violations |
| ) number of
violations compared
to coal peers |
| · in history we’ve best land and the national for decade, to responsible |
| · 10-year 50 stewardship culture environmental was past demonstrates a citizen than
awards as 2007 company’s the more state commitment unique Arch’s performance the During
won and environmental Our reclamation Arch’s dedication corporate |
| vacated during an
appeals process.
Source: ACI and
State-by-state
reports. Totals do
not reflect any
NOVs that may have
been |
| Arch is building a solid earnings track record,anticipates record earnings in 2008 Earnings Per
Share |
| at end of presentation **EBITDA reconciliation is * Adjusted for stock split |
| Arch’s mine portfolio underscores value of diversity |
| 2007 ACI Coal Production (percent of total tons by region) |
| 2007 ACI Revenue (percent of total revenue by region) |
| 2007 ACI Income (percent of segment income by region) |
| Arch’s national operations serve a diversifiedcustomer base |
| coal-fueled 148
U.S. states and
customers in more
33 countries
worldwide Arch’s
national network of
mines services
dozen power plants
in than a |
| The Powder River Basin is the largest coal supply region in the United States Major Producers in
Powder River Basin |
| · in PRB of today tons of east the roughly 50% River of producers production of one
region million moves is Mississippi the Total region 480 Roughly coal Arch leading in |
| Source: ACI, Energy Velocity |
| Arch Coal is one of the top producersin the Powder River Basin |
| 5 draglines, 13 shovels 2 Sales*: 86.2 million tons in 2007 Coal
quality: 8800 Btu/lb, 0.50-0.75 lbs. SO 1,000+
employees Dragline, shovel operation Sales*: 10.2 million tons
in 2007 Coal quality: 8400 Btu/lb, 0.85 lbs. SO 130
employees |
| Black Thunder — - — - Coal Creek — - — - |
| *Excludes brokerage activity |
| Since 1990, demand for Powder River Basin coalhas grown at a faster pace than overall coal demand
Production Growth by Major U.S. Coal Basin |
| · a at 1990 a 1990 2007 the electric at coal from in in believe will grown since for
grown since U.S. grown 38% demand we share has rate rate of to shortfalls with increase
has has demand consumption share 1990 supply coupled plants, market to annual annual in
new PRB 6% Coal generation 2% PRB’s production 16% With East from PRB’s continue |
| However, U.S. coal mining productivity has been onthe decline since the start of this decade |
| U.S. Surface Mines U.S. Underground Mines |
| Over the long-term, we see the Powder River Basinmarket reach extending into Asia-Pacific |
| · will coal home can on coast exports coal demand at coal rapidly west major
Asia-Pacific coal PRB alternate the economies expansion for increase a the more that
viable Asian port to Gulf is trade domestic in keep believe a source U.S./Canadian
Potential the Indonesia Requires the via |
| · Indonesia exporter seaborne Growing likely in We become supply expanding - |
| Arch Coal is the leading coal producerin the Western Bituminous Region Major Producers in Western
Bituminous* Region |
| · in is the region coal power well largest its 77 in Midwest as tons the Bit Bit
production of to is expanding eastern overseas Total region million Arch producer Western
Western reach and producers as |
| Source: ACI, Energy Velocity |
| *Western Bituminous includes Utah, Colorado and southern Wyoming |
| Arch’s Western Bituminous operations are some ofthe most productive longwall mines in the nation |
| · with Basin coal-to-19.3 expand of and to Carbon future DKRW operations 2007 quality
Btu/lb, / of with in 800 /mmBtu site production coal 2 longwall tons of 11,700
SO opportunity Wyoming are project lbs. time of Four combined million workforce
Low-sulfur averages 0.80 Limited over Arch reserves liquids |
| Arch has maintained a meaningful positionin Central Appalachia |
| · in this more in App. 1997 226 tons production by million production of is has Central
60 since Total region million Production region fragmented Annual in region declined than
tons |
| Source: ACI, Energy Velocity |
| **Excludes pass-through activity *Patriot and Magnum tons combined |
| Arch remains a key producer of metallurgical andsteam coal in Central Appalachia |
| · million and in 2008; with tons equipment million in or 4 2009 a Virginia, 13-14
underground Virginia expand million in through West employees to 15 roughly markets tons
of produce operations in and direct to brownfield sell met to 2008 with to million in +
into 6 to Expect tons combination surface Operations Kentucky, 1,300 Opportunity
production 2009 investments Expect tons up |
| Arch is preparing for rebound in Illinois Basin demand Major Producers in Illinois Basin |
| · region equity online, will to Hawk Mexico in tons 33% come positioned of a Knight
Gulf production million owns in scrubbers opportunities well via Total 96 Arch interest
develop of As market Region export |
| Source: ACI, Energy Velocity |
| Arch has built an extensive and competitive reserve base in the Illinois Basin |
| · in in reservesmillion $39 of tonsroughly millionfor 157Illinois2007 AcquiredsouthernOctober |
| · 300-million-tonof block nearly areservecoal control Nowcontinuouschlorine |
| · a build tofacility option utilityplant,future the CTLon mine-mouth a conditions Arch
domesticor Giveslow-cost,themarket for dependingmarket |
| · Illinois inHoldings,in ownsinterestHawkproducer alsoequity 10 top ArchanKnighta |
| We continue to seek new and innovative ways tomanage our controllable costs at all of our mines |
| · efforts purchasing, practices improvementbest centralizedaffairs share processand
throughenvironmental continuoussolutions coordinationand ofinnovative safety culture
aencourage Increasingoperations, Buildingto • |
| savings per year in
2007 and 2006 - |
| · and downtime unplanned reduceslife maintenanceequipment extends |
| Est. $18 million
cost-savings in
2007, $11.5 |
| · diesel,product) as such(petroleum tires consumablesand majorgas) of(natural control
costexplosives on Focusingelectricity, |
| · long-term hedging; vendors; major with alliancesarrangements Buildingsupply |
| Coal blending optimization allows Archto better monetize every Btu |
| models allocate provide Additional space at DTA terminal allows
international Models allow sales team to know real value in 100 Btu
increments for precision blending of shipments to generate the
greatest volume of our premium valued products |
| Blending optimizationmine production to sales contracts, thus maximizing margin — Dynamic coal
quality targetsmonthly rolling quality averages for eachcustomer so loading sources can adjust
blends and provide optimum coal recovery - |
| · Arch in million optimization,$10 2007 blendingadditionalin coalanrevenues Throughachievedcoal |
| We’re focused on creating shareholder valueas the energy industry expands |
| · to us helps organic to stewardshipworkforce allows for Arch spending trends
allowscoal investments for environmentalbest-in-class capital market marketplacemarket
future andattract judicious domestic evolvingexpand safetyhelps and considerenhancements
and andsupply/demand to an and in mine coal uscapital in control world coalexpertise
productivity cost offuture allowsand on of clean leadershiphigher focus timing
flexibilitygrowth oninnovative margins understanding strategic focusour Recognized
Rigorousexpand Strong clearleverage promotes anticipate Financialand A |
| EBITDA Reconciliation Chart Included in the accompanying presentation, we have presented certain
non-GAAP measures as defined by Regulation G. The following reconciles these items to net income as
reported under GAAP. |
| 4Q 07 81,373 67,824 147 — 142,904
(27,200) 20,760 |
| $$$ $
3Q 07 27,280 5,100 16,638 58,628 806 108,452 |
| $$$ $
2Q 07 37,552 (2,400) 18,280 57,990 418 111,840 2Q 08 112,997 37,700 18,253 71,953 — 240,903
$$$ $$ $ |
| 1Q 07 28,724 4,650 16,587 57,620 902 108,483 1Q 08 81,147 15,240 20,063 73,042 — 189,492
$$$ $$ $ |
| Net income Income tax (benefit) expense Net income Income tax (benefit) expense Interest expense, net Depreciation, depletion and amortization extinguishment and other non-operating Adjusted EBITDA
Interest expense, net Depreciation, depletion
and amortization extinguishment and other
non-operating Adjusted EBITDA |
| Arch Coal Analyst Mine Tour |
| John Eaves
President and Chief Operating Officer
Black Thunder Mine September 18, 2008 |
| Forward-Looking Information |
| This presentation contains “forward-looking statements” — that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, you should see the risk
factors described from time to time in the reports we file with the Securities and Exchange
Commission. |
| Asia’s industrial revolution is testing global energy supply infrastructure |
| Population Urbanization Electricity Usage per Capita |
| Note: bubble size reflects size of population |
| Source: United Nations’ Human Development Report 2007, 2006 World Development Indicators (World
Bank) Slide 3 |
| Around the globe, countries are embracing coal as a primary source for electricity |
| 2007 Global Europe (non-CIS) Coal Production: United States 33 GW online 6 billion metric tons
24 GW online by 2014 by 2015 CIS countries 9 GW online by 2015 |
| South America 216 GW online 6 GW online by 2013 by 2013
Mexico Other Asia 2 GW online 26 GW online by 2013 India by 2015 67 GW online by 2013 |
| “The demand for coal will increase sharply as coal-fired plant constructions are being carried out
at a break neck pace. By 2012, the world would need an estimated additional 1.1 billion short tons
of new coal supply.” |
| Source: ACI and Platts International — Friedman, Billings Ramsey (6/08)Slide 4
_Day_-_Market_Overview.pdf |
| LONG-TERM MACRO ENERGY FUNDAMENTALS U.S. COAL INDUSTRY DYNAMICS CLIMATE AND CLEAN-COAL TECHNOLOGIES ABOUT ARCH COAL |
| Growing worldwide steel production and blast furnace capacity additions are stoking met coal
demand |
| Projected Import Metallurgical Coal Demand Benchmark Pricing for Met Coal |
| (in million metric tons) ($/metric ton, FOB the port basis) |
| · Global import met coal demand expected • Met coal pricing has risen sharply since to grow
by ~40 million tons over next 3 years 2003; expect continued market tightness |
| · More than 75 percent of the expected • Arch is poised to capitalize on strong growth is
being driven by increased met and PCI coal trends with its Mountain consumption in Asia and
South America Laurel, Pardee and Lone Mountain mines |
| Source: McCloskey Metallurgical Coal Third Quarter 2008 Report, International Iron & Steel
Institute, AME Mineral Economics Pricing Slide 5 |
| Supply constraints in traditional coal export nations are shifting global seaborne coal flows |
| Key Trends in Asia-Pacific Coal Markets |
| · Australia: severe port and rail bottlenecks may mask underlying
labor and mine challenges; expanded capacity still may undershoot
growing Asian demand |
| · Indonesia: increasing domestic demand; export capacity dependent
on congested river system |
| · China: substantial growth in domestic demand will push country to a
net importer status of coal as early as 2008 |
| ·
Russia: production
challenges; growing |
| · Vietnam: growing domestic demand domestic coal consumption; exports expected to reduce export
supply increasingly shifting to Asia-Pacific market |
| · India: imported coal needs projected to • South Africa: domestic power shortage; rise
meaningfully; will pull available supply reserve degradation; exports increasingly from
Atlantic Basin markets shifting to Asia-Pacific market |
| Asian demand pull is creating opportunities for the United States in seaborne coal export markets |
| Key Trends in Atlantic Basin Coal Markets • South America: port infrastructure constraints;
political instability; resource nationalism; growing regional coal burn |
| · USA: swing supplier to Atlantic basin market; available coal export capacity; imports into
country declining |
| · Europe: coal production declining; growing coal burn in eastern Europe; traditional import
supply avenues waning |
| abundant, secure and widely dispersed of oil equivalent |
| Based on current production levels and proven reserves, coal should outlast both gas
supplies and oil reserves by roughly 4 times |
| Source: ACI, Bank of America, BP Statistical Review 2007 and Blackwell Energy Research Slide 8 |
| Analyst_Day_-_Market_Overview.pdf |
| In U.S. coal markets, Arch expects above-average demand growth over the next three years |
| (in million tons) 2008 2009 2010 |
| Growth at Existing Coal Plants — +10 +10
New Coal Plant Demand 1/ 4 22 20
Increase in Gross Exports 24 10 10
Decline in Imports 2 — -
Incremental Demand Growth +30 +42 +40
Cumulative +72 +112 |
| 1/ Net of coal plant retirements. |
| - Average utilization increases of ~1% annually over the past 10 years (2008 projected
to be weaker economically) |
| - New coal plant build-out will expand coal consumption meaningfully |
| - U.S. is expected to become a more significant net exporter given shortage of coal
supply worldwide and available port capacity |
| Largest coal plant build-out since 1980 will meaningfully expand coal demand |
| Anticipated Supply Region for Coal Plants Under
Construction |
| ·
Build-out of
17.5 GW equates
to |
| 24 62 million tons of new annual coal demand over next four years |
| River Basin likely will service at least half of these plants |
| ·
More than 7 GW
— another 20 |
| 0 million tons — in advanced |
| 2008 2009 2010 2011+ permitting stages |
| Available U.S. port capacity and strong international demand will expand coal exports |
| · Available eastern export port capacity at Baltimore and Hampton
Roads |
| · Existing port capacity at southern ports of Mobile, New
Orleans, Charleston and Texas |
| · Limited port capacity on West Coast |
| 91 92 93 94 95 96 97 98 99 00 01 02 03
04 05 06 07 08E |
| Source: ACI and NMA Slide 11 |
| U.S. coal supply growth is not keeping pace with projected U.S. coal demand in 2008 |
| Increase in 1H08 U.S. Coal Production |
| (versus 1H07, in million tons, per MSHA) |
| · First half 2008 total U.S. coal production increased just 1.2
million tons vs. first half of 2007 |
| · Some Appalachian steam coal is Western Bit crossing over to met markets, further |
| reducing available steam coal supply |
| Source: MSHA, EIA and ACI |
| LONG-TERM MACRO ENERGY FUNDAMENTALS U.S. COAL INDUSTRY DYNAMICS CLIMATE AND CLEAN-COAL
TECHNOLOGIES ABOUT ARCH COAL |
| Total U.S. coal stockpile levels appear adequate -with eastern days-supply levels indicating
tightness |
| There is genuinely a tightness in the
market |
| driven by international fundamentals,
global demands. |
| We have blended in an increasing amount of Powder
River Basin coal, and we — while rebalancing the
portfolio — have remained within our dispatch
price targets by blending in cheaper coals. |
| July’07 July’08 — AEP (5/08) |
| We did have the risk of shortages a year and a half ago ... our 60 piles got pretty
dramatically low ... Coal conservation in our 48 instance affected our ability to sell some
[power] into the wholesale market. With this, it showed that we need to have more
inventory and we need to keep that stockpile. So, we certainly have increased our
[targets] ... |
| Pricing trends suggests that natural gas is still not competitive with coal; PRB has best upside |
| ($ per million Btu) • At current CAPP prices, we $14 could see modest switching in |
| Natural Gas Southeast, if generators mark |
| - Regulated utilities are generally $8 required to use a blended average $6 fuel cost,
which would be well CAPP NYMEX below current market |
| · If gas were to step in front of coal |
| $2 PRB 8800 as a baseload fuel — even at $0 relatively modest volumes — gas |
| Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 prices are likely
to respond |
| · The price of gas would have to fall below $4/mm Btu for gas to compete with PRB-sourced
plants |
| Source: ACI and Energy Velocity Slide 14 |
| In past cycles, PRB coal has gained market share in border states just east of the Mississippi
River |
| Border States Border States Border States East of Mississippi River East of Mississippi River East of Mississippi River |
| Burn by Coal Type circa 1990 Burn by Coal Type circa 1995 Burn by Coal Type circa 2007 |
| · Eastern border state • By 1995, power plants • Current 69 percent power plants in Wisconsin,
in these four states mix of PRB coal has Illinois, Tennessee and increased their mix of been
achieved with Mississippi historically PRB coal from 22 relatively modest burned a small mix
of percent to 42 percent capital investment PRB coal in just five years |
| We foresee increased PRB market expansion opportunities further east of the Mississippi River |
| Based on historical switching in the border states and the lower heat content of PRB coal, the
theoretical PRB switching opportunity in the East exceeds 300 million tons |
| In fact, PRB market expansion is underway |
| >1 million ton increase in
PRB coal burn <1 million ton
increase in PRB coal burn
Current test burns |
| · PRB has expanded its reach by more than 80 million tons in past 5 years |
| · In recent weeks, Arch has signed agreements with traditional and non-traditional PRB
customers to test — as well as increase burn of — PRB coal |
| · We expect this trend to continue, with a significant increase in demand as generators
complete test burns and assess needs for 2009 and beyond |
| Since 1970, coal has been used in increasingly clean ways in the United States |
| Higher efficiency rates and carbon capture technologies create opportunities for reducing carbon
intensity as well |
| Source: NMA, EPA NOx (Nitrogen Oxide), SO2 (Sulfur Dioxide), PM10 (Particulate Matter) Slide 18 |
| There is support for coal’s essential role in America’s energy future |
| "...we’ll need to invest more in the clean technology that will allow
us to burn more coal, our country’s most abundant fossil fuel.” |
| Senator Barack Obama (D-IL) |
| “We are sitting on the world’s largest supply of energy
in our coal reserves and that has to be one of the
fundamental components of energy independence.” |
| Senator John McCain (R-AZ) |
| Developed nations must adopt climate solutions and export them to developing nations |
| is likely to significantly |
| Arch Coal is well-positioned for the future |
| · One of the largest coal producers in the United States |
| · We supply roughly 12 percent of the U.S. coal supply |
| - Provide cleaner-burning, low-sulfur coal to fuel 6 percent of the
nation’s electricity |
| - Ship coal to domestic and international steel manufacturers as
well as international power producers |
| · Our talented workforce operates large, modern and efficient mines |
| · Industry leader in mine safety, productivity and reclamation |
| Our mine operations are equally distributed across all four major U.S. Class I railroads |
| ACI Western Shipments ACI Eastern Shipments |
| (percent of total) (percent of total) |
| Arch’s selective approach to signing new contracts retains future upside potential |
| Arch Unpriced Volume Steam Coal Price Comparison |
| (in millions of tons at 6/30/08) ($/short ton, as of 9/12/08) |
| Steam coalMetallurgical coal ACI 2Q08 Index coal price Index coal price price by region for 2009 delivery for 2010 delivery
Source: ACI, Argus Coal Daily’s Physical Market Assessment Slide 23 |
| Our strategy on coal contracting continues to evolve |
| · Terms and conditions near bilateral
— Embedded volume options all but gone |
| - Seller’s sourcing flexibility has become the norm |
| · Term agreements are making a comeback |
| - Typically have “market adjustment provisions” (i.e. indexed to third party
price plus an adder or cost recovery mechanisms) |
| · Arch open to creative approaches
- -Ensuring all-in cost plus risk adjusted returns
- -Guarantee price floors |
| · Many customers want security of supply |
| - A large, physical and reputable coal producer can extract best value |
| Arch expanded seaborne terminal capacity, estimates company’s met coal sales will double this year |
| Germany1,2 Ukraine1,2
France1,2 Czech1,2
Spain1,2
Hungary1,2 |
| Japan2 Morocco1 Turkey1,2 Mexico1 Dominion Terminal |
| 1 — Steam sales 2 — Met
sales |
| Day_-_Market_Overview.pdf |
| Over the long-term, Arch’s coal-to-liquids vision can help America address energy security concerns |
| | | | | | | | |
U.S. Energy Reserves U.S. Petroleum Supply U.S. Fuel Prices |
| | | | | | | | |
(in trillion Btu) (million barrels per day) ($/million Btu at 9/15/08, Q109 delivery) |
| Coal Natural Gas Oil Domestic OPEC Non-OPEC 8800 Gas &nbs
p; Oil |
| Arch owns an equity interest in DKRW Advanced Fuels |
| - Plan to build a 19,000 bpd coal-to-gasoline facility in southern Wyoming |
| -Plant would capture CO2 emissions to enhance recovery in domestic oil fields
EIA, Platts and NYMEX Slide 26 |
| Arch’s future growth story is compelling |
| · Expect record year in 2008 based on our three pillars -safety, environmental stewardship and
financial performance |
| · Experienced workforce and corporate culture committed to operating the safest, most efficient
and environmentally responsible mines in the nation |
| · Large-scale, diverse and low-cost operations that are flexible in response to market
demand |
| · Strategic reserve base well-positioned to meet America’s — and the world’s — growing energy
needs |
| · Strong balance sheet provides Arch with financial flexibility and strategic opportunities |
| · Focus on advancing clean-coal technologies to expand market for coal beyond electricity
generation |
| · Building a truly world-class energy company that can deliver substantial shareholder value
over the long-term |
| Arch Coal Analyst Mine Tour |
| John Eaves
President and Chief Operating Officer
Black Thunder Mine September 18, 2008 |
| Arch Coal Analyst Mine Tour |
| Keith Williams
Coal Creek Mine Manager
Black Thunder Mine September 18, 2008 |
| Forward-Looking Information |
| This presentation contains “forward-looking statements” — that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, you should see the risk
factors described from time to time in the reports we file with the Securities and Exchange
Commission. |
| Wyoming’s Powder River Basin |
| Powder River Basin Mines
2007 Production
Mine Tons (000) |
| Subtotal — Tier III 77,830 |
| Subtotal — Tier II 108,500 |
| North Antelope-Rochelle 91,500 |
| Subtotal — Tier I 250,300 |
| Black Thunder Mine Background |
| · First Coal Shipped: December 1977 |
| · Acquired by Arch Coal: June 1998 |
| · Current Lease Area: 28,400 acres |
| · Permitted Maximum Shipping Capacity: 135 million tpy |
| · Cumulative Shipments (December 2007): 1.3 billion tons |
| · Average Seam Thickness: 68 feet |
| · Assigned Reserves: 1.3 billion tons |
| · No. of Employees: 1,100 |
| Historical Coal Shipments at Black Thunder Mine |
| Major Power Plants Served by Black Thunder |
| Coal Creek Mine Background |
| · Lease Acquisition Date: 1968 |
| · Construction Start: Spring 1979 |
| · First Coal Shipped: May 1982 |
| · Acquired by Arch Coal: June 1998 |
| · Permitted Maximum Capacity: 25 million tpy |
| · Cumulative Shipments (December 2007): 62.8 million tons |
| · Average Seam Thickness: |
| · Assigned Reserves: 214 million tons |
| Historical Coal Shipments at Coal Creek Mine |
| Major Power Plants Served by Coal Creek |
| Black Thunder is focused on continuous improvement in safety performance |
| Black Thunder Mine Total Incident Rate vs. Industry |
| (per 200,000 employee-hours worked) |
| Coal Creek achieved a ‘perfect zero’ in safety performance during 2007 |
| Coal Creek Mine Total Incident Rate vs. Industry |
| 7.00 (per 200,000 employee-hours worked) |
| Arch’s PRB operations take their commitment to environmental stewardship seriously |
| Arch’s PRB operations take their commitment to environmental stewardship seriously |
Black Thunder Mine -
Stripping & Loading Equipment |
| No. Make Model (Cubic Yard) (Cubic Meters) |
| 1 Bucyrus 2570WS Dragline 164 126 |
| 1 Bucyrus 2570W Dragline 106 82 |
| 1 Bucyrus 1570W Dragline 78 60 |
| 1 Marion 8750 Dragline 130 100 |
| 1 Bucyrus 1300W Dragline 44 34 |
| 3 P&H 2800 Shovels (Coal) 65 50 |
| 3 P&H 2800 Shovels (Overburden) 36 28 |
| 2 Bucyrus 495HR Shovel (Overburden) 84 64 |
| 1 Bucyrus 495B Shovel (Overburden) 53 41 |
| 1 Bucyrus 495B Shovel (Coal) 84 64 |
| 1 P&H 4100XPB Shovel (Overburden) 68 52 |
| 1 P&H 4100 Shovel (Overburden) 53 41 |
| 1 Marion 351M Shovel (Coal) 84 64 |
| Black Thunder Typical Mining Sequence |
| Black Thunder Mine — Truck/Shovel Overburden |
| Black Thunder Mine — Overburden Drill & Blast |
| Dual GPS antennas to determine
azimuth |
| · Diesel-powered drills — fleet of 5 drills |
| · Borehole diameter — 121/4-inch (311 mm) |
| · Angled holes — drilled at 60 degrees (highwall excavated on 55-degree
slope) |
| Black Thunder Mine — Cast Blasting |
| Electronic Detonators -sympathetic detonation eliminated |
| Black Thunder Mine — Dozers |
| Black Thunder Mine — Dragline Stripping |
| Bucyrus 1570W Dragline — 164-cu-yd Dragline 78-cu-yd |
| Marion 8750 Dragline
122-cu-yd |
| Bucyrus 2570W Dragline 106-cu-yd |
| Black Thunder Mine — Coal Mining |
| P&H 2800 Shovel &
Komatsu 930E |
| Komatsu 930E Bucyrus 495B |
| 320-Ton Shovel & Liebherr T262 240-Ton |
| Black Thunder Mine — Minestar Fleet Commander |
| · Real-time monitoring of: |
| - mobile equipment utilization |
| - material production & movement |
| · Real-time control & optimization of |
| haulage fleet — “Dispatch” |
| · Production plans prioritize |
| production by loading unit: |
| - coal shipments by loadout |
| · Dispatcher & Minestar software |
| manage production activities for |
| crews with >160 operators |
| · Data recorded for reporting & |
| Black Thunder Mine — Coal
Coal Storage Facilities Train Loading Facilities |
| · BT North Train Loadout - |
| · Two 17,500 ton silos 1.5-hr train loading time |
| · BT North Batch Loadout - |
| (completion Nov’08) 3.5-hr train loading time |
| · BT South Batch Loadout - |
| storage 2.5-hr train loading time |
| · BT West Train Loadout - |
| storage <1.5-hr train loading time |
| South Batch
Loadout & Slot Storage |
| Black Thunder Mine — Coal Processing Facilities |
| Truck Dumps — Crushing & Conveying Facilities Laboratory Analysis |
| · Near Pit/Overland Conveyor (2 Truck Hoppers) |
| · Primary (original) System (2 Truck Hoppers) (ASTM Laboratory) |
| · 5 West Crusher/Overland Conveyor (1 Truck Hopper) |
| · South Black Thunder Overland Conveyor (1 Truck Hopper) |
| · Thundercloud Crusher/Overland Conveyor (1 Truck Hopper) (under construction -
completion Nov’08) |
| Black Thunder Mine — Coal Processing Facilities |
| Black Thunder Mine
2007 As-Shipped Coal Quality
Parameter North South
Moisture (%) 26.88 26.98 |
| Black Thunder Mine — West Loadout Project |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| Coal Creek Mine — Major Equipment
No. Make Model Capacity
1 Bucyrus-Erie 1570W Dragline 85 Cubic Yard
1 Bucyrus-Erie 295B Shovel 40 Cubic Yard
1 Bucyrus-Erie 195B Shovel 24 Cubic Yard |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| Coal Creek Typical Mining Sequence |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| Coal Creek Mine — Coal Handling Facilities |
| · Storage Capacity — Two 12,500 ton silos |
| · Train Loadout — 2 Hour Facility |
| · Truck Dumps
— Primary System (Single Truck Belly Dump) |
| - Ramsey Primary Cutter
Coal Creek Mine
— Birtley Secondary and Tertiary Cutters 2007 As-Shipped Coal Quality |
| · Laboratory Analysis Ash (%) 5.77 |
| - On-Site Laboratory (ASTM Laboratory) Sulfur (%) 0.33 |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| We’re focused and ready to excel |
| MARKET & MINE OVERVIEW KEY PILLARS OPERATIONS OVERVIEW FUTURE SUCCESS |
| We’re focused and ready to excel |
| Arch Coal Analyst Mine Tour |
| Paul Lang
Senior Vice President, Operations
Black Thunder Mine September 18, 2008 |
| Forward-Looking Information |
This presentation contains “forward-looking statements” — that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, you should see the risk
factors described from time to time in the reports we file with the Securities and Exchange
Commission.
This presentation includes certain non-GAAP financial measures, including Adjusted EBITDA. These
non-GAAP financial measures are not measures of financial performance in accordance with generally
accepted accounting principles and may exclude items that are significant in understanding and
assessing our financial results. Therefore, these measures should not be considered in isolation or
as an alternative to net income from operations, cash flows from operations, earnings per
fully-diluted share or other measures of profitability, liquidity or performance under generally
accepted accounting principles. You should be aware that our presentation of these measures may not
be comparable to similarly-titled measures used by other companies. A reconciliation of these
financial measures to the most comparable measures presented in accordance with generally accepted
accounting principles has been included at the end of this presentation. |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch is continuing to enhance our reputation as a responsible energy company |
| Operating the world’s safest coal mines |
| - Awarded MSHA’s Sentinels of Safety honor for |
| operating the nation’s safest underground coal mines |
| - Ranked first among coal industry peers for safety |
| performance last year
Acting as responsible citizens and good
environmental stewards |
| - Inaugural 2007 social responsibility report elevates |
| awareness of Arch’s environmental programs |
| - Earned 3 National Good Neighbor Awards in 4 years
Achieving superior financial performance |
| - Forbes recognized Arch as one of the 100 most |
| trustworthy U.S. companies of 2008 |
| - Expect 2008 to be a record earnings year |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s safety performance is the best among the largest public coal companies |
| Annual Lost-Time Safety Incident Rate Lost-Time Safety Incident Rate in 2007 |
| (per 200,000 employee-hours worked) (per 200,000 employee-hours worked) |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s 2007 environmental performance ranked first among our coal peers |
| (number of violations compared to coal peers) • Arch’s 2007 environmental |
| performance was the best in the company’s 10-year history |
| · During the past decade, we’ve won more than 50 national and
state awards for environmental stewardship |
| · Our commitment to land reclamation demonstrates Arch’s
unique culture and dedication as a responsible corporate
citizen |
| been vacated during an appeals process. Slide 5 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch is building a solid earnings track record, anticipates record earnings in 2008 |
| (fully diluted, in US dollars) |
| Source: ACI * Adjusted for stock split **EBITDA reconciliation is at end of presentation Slide 6 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s national scope of operations and reserve base includes presence in four major U.S. coal
basins |
| 1. Mountain Laurel
2. Coal-Mac
3. Cumberland River
4. Lone Mountain |
| Source: ACI at 12/31/07 Slide 7 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s mine portfolio underscores value of diversity |
| 2007 ACI Coal Production 2007 ACI Revenue 2007 ACI Income |
| (percent of total tons by region)(percent of total revenue by region) (percent of segment income by region) |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s national operations serve a diversified customer base |
| 2007 ACI Coal Sales ACI Customer Mix |
| (percent of total sales volume) (by key supply basin) |
| Arch’s national network of mines services 148 coal-fueled power plants in 33 U.S. states and
customers in more than a dozen countries worldwide |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| The Powder River Basin is the largest coal supply region in the United States |
| Major Producers in Powder River Basin |
region of roughly
480 million tons |
| · Roughly 50% of PRB coal moves east of
Mississippi River today |
| · Arch is one of the leading producers in
the region |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch Coal is one of the top producers in the Powder River Basin |
| -5 draglines, 13 shovels
- -Sales*: 86.2 million tons in 2007
- -Coal quality: 8800 Btu/lb,
0.50-0.75 lbs. SO2/mmBtu
- -1,000+ employees
•Coal Creek
- -Dragline, shovel operation
- -Sales*: 10.2 million tons in 2007
- -Coal quality: 8400 Btu/lb,
0.85 lbs. SO2/mmBtu
- -130 employees
activity Slide 11 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Since 1990, demand for Powder River Basin coal has grown at a faster pace than overall coal demand |
| Production Growth by Major U.S. Coal Basin |
| · PRB demand has grown at a |
| 6% annual rate since 1990 |
| · Coal consumption for electric generation has grown at
a |
| 2% annual rate since 1990 |
| · PRB’s share of U.S. coal production has grown from
16% in 1990 to 38% in 2007 |
| · With supply shortfalls in the East coupled with
demand from new plants, we believe PRB’s market
share will continue to increase |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| However, U.S. coal mining productivity has been on the decline since the start of this decade |
| Source: ACI, MSHA Slide 13 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Over the long-term, we see the Powder River Basin market reach extending into Asia-Pacific |
| · Indonesia is a major coal exporter in the
Asia-Pacific seaborne trade |
| · Growing domestic demand will likely keep more coal
at home in Indonesia |
| · We believe that PRB coal can become a viable
alternate coal supply source for the rapidly expanding
Asian economies |
| - Requires port expansion on the
U.S./Canadian west coast |
| - Potential to increase exports via
the Gulf |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch Coal is the leading coal producer in the Western Bituminous Region |
| Major Producers in Western Bituminous* Region |
| (2007, in million tons) • Total production in |
| · Arch is the largest producer in the
Western Bit region |
| · Western Bit coal is expanding its
reach to Midwest and eastern power
producers as well as overseas |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch’s Western Bituminous operations are some of the most productive longwall mines in the nation |
| · Four longwall operations with combined production of 19.3
million tons in 2007 and workforce of 800 |
| · Low-sulfur coal quality averages 11,700 Btu/lb, |
| · Limited opportunity to expand over time |
| · Arch of Wyoming / Carbon Basin reserves are site of future
coal-to-liquids project with DKRW |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch has maintained a meaningful position in Central Appalachia |
| Major Producers in Central Appalachia • Total production in
(2007, in million tons) region of 226 |
| · Production in this region is
fragmented |
| · Annual production in Central App.
region has declined by more than 60
million tons since 1997 |
| -through activity Slide 17 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch remains a key producer of metallurgical and steam coal in Central Appalachia |
| · Expect to produce 13-14 million tons in 2008 through a combination
of underground and surface operations |
| · Operations in West Virginia, Kentucky, and Virginia with
1,300+ direct employees |
| · Opportunity to expand production to 15 million tons in 2009 with
brownfield or equipment investments |
| · Expect to sell roughly 4 million tons into met markets in
2008; up to 6 million tons in 2009 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch is preparing for rebound in Illinois Basin demand |
| Major Producers in Illinois Basin |
| · Arch owns a 33% equity interest in Knight Hawk |
| · As scrubbers come online, market opportunities will
develop |
| · Region well positioned to export via Gulf of Mexico |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Arch has built an extensive and competitive reserve base in the Illinois Basin |
| · Acquired 157 million tons |
| southern Illinois for roughly |
| · Now control a nearly 300- |
| continuous reserve block of |
| · Gives Arch the option to |
| low-cost, mine-mouth facility |
| a top 10 producer in Illinois |
| We continue to seek new and innovative ways to manage our controllable costs at all of our mines |
| · Increasing coordination through centralized purchasing, operations, safety and
environmental affairs |
| •Building a culture of continuous process improvement efforts to encourage innovative solutions and share best practices
- -Est. $18 million cost-savings per year in 2007 and 2006
•Predictive maintenance reduces unplanned downtime and overtime, extends equipment life
- -Est. $18 million cost-savings in 2007, $11.5 million in 2006
•Focusing on cost control of major consumables such as diesel, electricity, explosives (natural gas) and tires (petroleum product)
- -Building alliances with major vendors; hedging; long-term supply arrangements
Source: ACI Slide 21 |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| Coal blending optimization allows Arch to better monetize every Btu |
| · Blending optimization models allocate |
| mine production to sales contracts, thus |
| - Models allow sales team to know real |
| value in 100 Btu increments |
| · Dynamic coal quality targets provide |
| monthly rolling quality averages for each |
| customer so loading sources can adjust |
| blends and provide optimum coal |
| - Additional space at DTA terminal allows |
| for precision blending of international |
| shipments to generate the greatest |
| volume of our premium valued products |
| · Through coal blending optimization, Arch |
| achieved an additional $10 million in |
| OUR COMMITMENT OUR MINE PORTFOLIO OUR FOCUS OUR VALUE PROPOSITION |
| We’re focused on creating shareholder value as the energy industry expands |
| · Recognized leadership in mine safety and environmental stewardship promotes higher
productivity and helps attract best-in-class workforce |
| · Rigorous focus on cost control and judicious capital spending helps expand margins |
| · Strong understanding of world and domestic market trends allows us to anticipate
timing of future coal supply/demand |
| · Financial flexibility allows us to consider future investments for organic and
strategic growth and capital enhancements |
| · A clear focus on clean coal in an evolving marketplace allows Arch to leverage our
innovative expertise and expand market for coal |
| EBITDA Reconciliation Chart
Included in the accompanying presentation, we have presented certain non-GAAP measures as defined by Regulation G.
The following reconciles these items to net income as reported under GAAP.
Arch Coal, Inc.
Adjusted EBITDA
1Q 06 2Q 06 3Q 06 4Q 06 |
| Net income $ 60,687 $ 69,717 $ 50,927 $ 79,600 |
| Income tax (benefit) expense 17,900 13,000 12,100 (35,350) |
| Interest expense, net 14,157 15,323 15,602 15,557 |
| Depreciation, depletion and amortization 45,821 51,713 53,641 57,179 |
| extinguishment and other non-operating 1,393 1,808 3,572 674 |
| -
Adjusted EBITDA $139,958 $151,561 $135,842 $117,660 |
| Net income $ 28,724 $ 37,552 $ 27,280 $ 81,373 |
| Income tax (benefit) expense 4,650 (2,400) 5,100 (27,200) |
| Interest expense, net 16,587 18,280 16,638 20,760 |
| Depreciation, depletion and amortization 57,620 57,990 58,628 67,824 |
| extinguishment and other non-operating 902 418 806 147 |
| -
Adjusted EBITDA $108,483 $111,840 $108,452 $142,904 |
| Net income $ 81,147 $112,997 |
| Income tax (benefit) expense 15,240 37,700 |
| Interest expense, net 20,063 18,253 |
| Depreciation, depletion and amortization 73,042 71,953 |
| extinguishment and other non-operating — - |
| Adjusted EBITDA $189,492 $240,903 |
