Coal producers spent 2013 cutting costs

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After cost of coal sales per ton soared by an average of 38.9 percent among eight major U.S. coal companies from 2009 to 2012, none of the companies analyzed by SNL Energy in 2013 saw costs increase by more than 10 percent.

In 2012, facing an unprecedented downturn in Central Appalachia thermal coal demand, Arch Coal Inc. took the dramatic step of shuttering three mining complexes, curtailing production at other operations and cutting 750 jobs.

The move was initially costly: In addition to shrinking its footprint in the industry, Arch expected to take a noncash charge of about $425 million in the second quarter of 2012 in addition to severance and related costs.

A year later, however, the impact is evident. According to an SNL data analysis, Arch reduced its cost of coal sales per ton by 14.9 percent in 2013 compared to 2012, to $19.08/ton.

It is indicative of an industry wide trend — after cost of coal sales per ton soared by an average of 38.9 percent among eight major U.S. coal companies from 2009 to 2012, none of the companies analyzed by SNL Energy in 2013 saw costs increase by more than 10 percent.

In addition to Arch, Alliance Resource Partners LP and Peabody Energy Corp. both reduced cost of coal sales per ton in 2013. Alpha Natural Resources Inc. — which implemented its own major cost-cutting initiative — reported only a very slight increase in 2013 compared to 2012. Even Powder River Basin producer Cloud Peak Energy Inc., which endured rail transportation issues in 2013 and increasing strip ratios, reported just a 5.5 percent increase in cost of coal sales per ton.

Illinois Basin producer Hallador Energy Co. said it experienced its highest cost of production ever due to extremely low recovery in the fourth quarter of 2013. Hallador, however, expects production costs in 2014 to remain lower than in 2013.

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