Arch Coal commences development of longwall mine in West Virginia
Arch Coal announced that it has commenced development of a longwall mine in Barbour County, West Virginia, that will produce an estimated 3M tons of premium, High-Vol A coking coal annually for sale into an undersupplied global marketplace. The new mine, Leer South, will be similar in virtually every respect to Arch's existing Leer longwall mine, and will operate in the same 200M-ton reserve base as the Leer operation. The Leer mine is widely regarded as one of the lowest-cost, highest-quality and highest-margin coking coal mines in the U.S. coking coal industry. The company plans to sell the output from the Leer South complex principally into the 300-million-metric-ton-per-year seaborne coking coal market. Steel market consultants expect solid demand growth for seaborne coking coal over the next 10 years, driven by substantial steel sector growth in India and other rapidly emerging Asian economies. At the same time, we believe that global coking coal markets remain under-supplied following years of under-investment, with few large-scale projects - particularly in high-quality coking coal reserves - contemplated in coming years. Premium High-Vol A coals, such as those produced at the Leer complex, face a particularly tight supply outlook. With average seaborne coking coal demand growth projected at 1.5% per year, and assuming a modest annual depletion rate of 2% at existing mines, seaborne coking coal markets will require the installation of 10M tons of new mine capacity annually, or a total of more than 75M tons between now and 2025. Arch estimates that the global supply of High-Vol A or equivalent coals totals less than 25M tons per annum. Arch expects to invest approximately $360M-$390M over the next three years to develop the mine, with the longwall scheduled to start up in late 2021. Arch expects to produce between 6.6M-7M tons of coking coal in 2019 and to maintain a similar level of production through 2021. In 2022, Arch's total coking coal production is expected to approach 9M tons annually, with 75% of that total expected to be High-Vol A coal. With the start-up of the Leer South longwall, Arch expects the average, per-ton operating cost for its coking coal portfolio to decline meaningfully, which will drive higher margins in all market environments.