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Arch Coal responds to thermal coal market weakness by idling several operations and reducing production in Appalachia

Oilfield Technology,

Arch Coal Inc. has announced plans to idle several operations and to reduce production at other mining complexes in Appalachia due to the unprecedented downturn in demand for coal-fired power. Today’s actions, along with other recent changes in Appalachia, will result in a total workforce reduction of approximately 750 full-time employee positions.

“We deeply value our people, and the decision to reduce personnel was made only after exhaustively reviewing other options and exploring opportunities to avoid this measure,” said John W. Eaves, president and CEO of Arch. “We sincerely regret the impact this announcement will have on our employees and their families as well as on the local communities where we operate. This decision was difficult but necessary in order to weather the current downturn and to position the company for long-term success.”

Arch Coal’s subsidiaries will close three higher-cost thermal mining complexes and associated preparation plants, temporarily idle Hazard’s Flint Ridge complex and curtail production at other operations in Kentucky, Virginia and West Virginia. The mine locations affected by the announced closings are the East Kentucky, Eastern and Knott County complexes. For full year 2012, the company expects average cash costs in Appalachia, excluding severance and related costs, to remain in the range of US$ 68 – 73/t.

Moreover, these actions will reduce Arch Coal’s thermal coal production by more than 3 million tpa. However, the company continues to expect thermal coal sales volume in the range of 128 million – 134 million t for 2012. The company also plans to realise savings on future capital spending due to the idling of several operations and the redeployment of equipment into other active operations. Arch Coal estimates future reductions in annual capital expenditures in the range of US$ 30 million – 40 million.

“Current market pressures and a challenging regulatory environment have pushed coal consumption in the US to a 20-year low,” said Eaves. “In response, we had previously streamlined capital spending, idled equipment and reduced shift work. We now are taking further steps to enhance our competitive cost position in Appalachia, while increasingly shifting our portfolio in the region toward higher-margin metallurgical coal operations. Despite the operational changes announced today, we are still able to serve customers here and abroad with the high level of quality they have come to expect from Arch.”

Eaves reiterated that a strategic portfolio review is ongoing and may result in the future divestiture of some of Arch Coal’s noncore assets or reserves. “The continued aggressive steps we are taking to optimise our portfolio will allow us to better manage through the current business cycle and to prosper in the inevitable market rebound,” added Eaves.

Adapted from a press release by Lauren Bryant

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