Missouri-based Arch Coal (ACI) is one of the largest coal producers in the U.S., operating 20 mines across the major low-sulfur coal basins of the country. Arch’s well-capitalized, low-cost operations provide a competitive edge over smaller players in the industry. Its PRB assets reflect visible long-term value and the Jacobs Ranch acquisition will only enhance it. The Jacobs Ranch mine, located adjacent to Arch’s Black Thunder mine, would give the coal producer access to nearly 400 million tons of high-quality, low-cost coal reserves and several operating synergies.
Arch is well positioned to capitalize on the rebound in the commodity market once the global economy emerges from the ongoing crisis and demand revives. It has sensibly curbed production to match demand contraction and has taken initiatives to drive down operating costs to stay competitive amid the present challenging business environment. Moreover, the company has been rationally deploying capital resources to ensure that the investments are strategic fits as well as value accretive.
Globally, energy prices have started showing initial signs of recovery, in part because of stronger-than-expected economic activities in emerging economies. Present market outlook indicates a sharp rebound in energy demand driven by an economic revival.
However, a retarded or weaker-than-anticipated global economic recovery, coupled with excess production capacity and soaring inventories, might play spoilsport. We see Arch shares performing in line with the broader market and thus maintain our Neutral recommendation.
Read the full analyst report on “ACI”
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