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Revenues totaled $791.3 million in the third quarter of 2013 on modestly higher sales volumes than in the year-ago period. Arch generated adjusted earnings before interest, taxes, depreciation, depletion and amortization ("EBITDA") of $193.4 million in the third quarter of 2013 compared with $256.5 million in the prior-year period. Third quarter 2013 results include a $115.7 million pre-tax gain from the sale of the company's Canyon Fuel assets, and exclude non-cash, asset impairment charges of $200.4 million. In the third quarter of 2012, results included an $80 million benefit from the reversal of a previously recorded legal contingency.

"Arch is successfully navigating challenging global coal markets by controlling costs and capital spending and effectively managing liquidity," said John W. Eaves, Arch's president and chief executive officer.  "From an operational perspective, we are pleased to have delivered the best cost performance in the Powder River Basin since 2010. We also significantly enhanced our financial flexibility with the Canyon Fuel sale – and ended September with $1.4 billion in cash."

For the first nine months of 2013, Arch generated adjusted EBITDA of $387.6 million compared with $617.3 million in the prior-year period. Revenues declined to $2.3 billion for the nine months ended Sept. 30, 2013, largely due to lower metallurgical coal revenues versus the prior-year period. Year-to-date in 2013, Arch recorded a free cash outflow of $36.6 million, as cash from operations totaled $186.6 million and capital expenditures equaled $223.2 million.

As of Sept. 30, 2013, Arch had a total liquidity position of $1.6 billion, with roughly $1.4 billion of that total in the form of cash and short-term investments. The company had no borrowings under its revolving credit facility at the end of the third quarter, and has no debt maturities until August 2016.

"We are re-aligning our portfolio to focus on those core assets with the best long-term value and growth potential, particularly the Powder River Basin thermal franchise and the Appalachian metallurgical coal platform," said Eaves. "To that end, we're making steady progress on the Leer mine development, and expect the longwall to begin operation in December."

Key Developments

Arch completed the sale of its Canyon Fuel subsidiary on Aug. 16, 2013, and received net cash proceeds of $423 million. The sale included the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation as well as a total of 105 million tons of coal reserves in Utah.

Arch also recorded asset impairment charges of $200.4 million in the third quarter of 2013. The charges primarily relate to the reduction in the carrying value of the Hazard thermal mining complex in eastern Kentucky due to ongoing weak thermal market conditions in Appalachia, as well as the write down of an equity investment in a coal conversion project. These charges have no impact on the company's cash flows, financial maintenance covenant calculations or ongoing business operations.

In October 2013, Arch entered into an agreement with Patriot Coal ("Patriot") that is subject to approval by the bankruptcy court and contingent upon Patriot's exit from bankruptcy. Under this agreement, Arch will acquire the Guffey reserve property from Patriot for $16 million. The metallurgical reserves are owned in-fee, are contiguous to Arch's Tygart Valley reserves and the Leer mine, and are comparable in quality to Leer's high-volatile "A" coking coal. The addition of these reserves will enable Arch to recover up to an incremental 8 million tons of metallurgical coal at the Leer mine, thereby extending the estimated mine life by nearly three years. The agreement also resolves all pending and potential legal claims with Patriot related to Arch's sale of coal companies to Magnum Coal Company, a subsidiary of ArcLight Capital Partners LLC, in 2005 and the subsequent purchase of those companies by Patriot in 2008. During the third quarter, Arch recorded a $5 million accrual for this legal settlement.

"As part of our effort to re-align the asset portfolio, Arch continues to execute its plan to divest non-core assets and reserves, idle operations or trim production in response to market conditions, and concentrate on core operations that will drive our profitability as coal markets improve," said Eaves. "We are also pursuing value-enhancing growth initiatives in our strategic areas of focus. One such example is the Guffey acquisition, which represents a unique, synergistic, bolt-on opportunity that extends the reserves and mine life at Leer, one of our key metallurgical coal operations."

Core Values

During the third quarter of 2013, seven of Arch's operations and facilities attained A Perfect Zero – a dual accomplishment of operating without a single environmental violation or reportable safety incident. Arch's efforts will be honored with two national safety awards for exemplary 2012 safety achievements. In addition, several of the company's subsidiaries reached new safety milestones during the three months ended Sept. 30, 2013. In August, the Coal Creek mine in Wyoming and the Hazard complex in Kentucky each completed 1 million employee hours without a lost-time incident. In September, the West Elk mine in Colorado achieved 2 million employee hours without a lost-time incident.

"Our employees continue to live Arch's core values by achieving new safety milestones and remaining committed to our ultimate goal of A Perfect Zero across all operations," said Paul A. Lang, Arch's executive vice president and chief operating officer. "We want to achieve continuous improvement in mine safety, and operate as a responsible energy company with strong safety and environmental performance records every year."

Operational Results

"As our third quarter results demonstrate, we remain focused on controlling costs across our operating platform," said Lang. "Higher shipment levels and strong cost control in the third quarter led to the best cost-per-ton performance in 10 consecutive quarters in the Powder River Basin; and our ongoing success in that area has allowed us to lower our full year 2013 cost guidance again in key operating regions."