Arch Resources Inc (ARCH) 2011 Q2 法說會逐字稿

Good day everyone and welcome to this Arch Coal Incorporated second quarter 2011 earnings call. Today's call is being recorded. At this time I would like to turn the call over to Mr Deck Slone, Vice President of Government, Investor and Public Affairs. Please go ahead, sir.

Good morning. Thanks for joining us today. Before we begin, let remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act. Forward-looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the Securities and Exchange Commission, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by law. I'd also like to remind you that you can find a reconciliation of a non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the investor section of our Web site at archcoal.com.

On the call this morning we have Steve Leer, Arch's Chairman and Chief Executive Officer; John Eaves, Arch's President and Chief Operating Officer; and John Drexler, our Senior VP and CFO. Steve, John, and John will begin the call with some brief formal remarks and thereafter we will be happy to take your questions. Steve?

Thank you, Deck and good morning everyone. It has been a fast-paced and exciting second quarter for Arch Coal. As you know, we announced the acquisition of International Coal Group on May 2 and closed the largest transaction in our history 45 days later. During that time span, we also raised over $3 billion to finance the transaction and put in place a $2 billion credit facility that gives us access to low-cost borrowing capacity through June of 2016.

Since closing the transaction on June 15 we made great strides in integrating ICG. Here, at the end of July, the integration is materially completed. Over the last 6 weeks we've worked diligently on managing an orderly, quick and relatively seamless integration progress including reanalyzing, updating and identifying new synergies. As a result, we have raised the bar on our estimate and we now believe that realized synergies in the neighborhood of $100 million to $120 million starting in 2012 will be accrued to the transaction. In his prepared remarks, John Eaves will highlight our achievements in this area but I would like to personally thank all of the 7,400 employees for their efforts over the last 90 days and formally welcome the former ICG employees into Arch Coal.

Turning to our financial performance this past quarter, Arch set new records for revenues and EBITDA for the 3 months ended June 30. Revenues and earnings were up on higher per ton sales prices across all operating regions, even as sales volumes were down 3.5% from a year ago. In particular, our Appalachian segment made a strong contribution to our results this past quarter. Volumes, pricing and operating margins per ton all increased meaningfully versus last year, a function of improved market conditions and the inclusion of the ICG volumes beginning on June 15. Our Western Bit region also turned in another great quarterly performance with per ton margins tripling versus the year ago.

Strong results from these regions helped offset a smaller contribution from our PRB operations in the second quarter where shipments were below expectations in June given disruptions from flooding on the Mississippi and Missouri rivers. These disruptions are also spilling into the third quarter with our PRB shipments effective through July and with our expectation that they will continue to affect into August and perhaps beyond. As a result of the Midwest flooding, we lost 1.5 million tons of shipment, or roughly $15 million of EBITDA during the second quarter and estimate that we could lose as much as 4.5 million tons for the full calendar year, equating to about $45 million of EBITDA.

Of course these disruptions appear to be having an impact on the market place as well. Industry wide, PRB shipments fell below the 100 million ton mark during the second quarter, the lowest quarterly level since the depth of the recession in 2009. As a result, stockpiles at PRB generators are being liquidated at accelerated rates following by 3 times the normal rate in June. This is meaningful because stockpiles in the region were fairly close to normal even before the floods. Third-party estimates indicate that PRB stockpiles were roughly 1 day below normal at June 30. And rail disruptions actually intensified in July, as I have discussed. We're also seeing the forward PRB price curve move up nicely with indices for 8,800 BTU currently marked in the range of 1565 per ton for 2012 delivery and in the range of 1670 plus per ton for 2013 delivery.

In fact, the overall domestic coal market appears to be heating up, both literally and figuratively. On the demand side, power generation is running essentially even with last year while coal consumption through May, the latest data available, was down. But hot weather in June and July is likely boosting coal burns meaningfully, and cooling degree days to date are tracking 3% better than the hot 2010 and are currently 25% higher than normal.

On the supply side, US coal production nationwide is flat so far in 2011 according to MSHA. Helping to bring the domestic coal market into balance. Furthermore, strengthen the global met and thermal markets have prompted us to raise our forecast to 106 million tons of US coal exports this year. You could ask why we are so bullish, but first, the stats through May already put us on a path to achieve these exports and exports tend to accelerate in the second half.

Second, fuel utilization remains high enough to support increased export, global crude steel utilization reached 83% in June, on par with levels achieved during 2008. In the US, steel utilization now stands at 75% of total capacity. About two thirds of US coal exports will serve the met, but one third, or roughly 35 million tons, will move into the global thermal trade which we believe is growing as well. Stocks at ARA and at generators in the UK have been depleting while coal burn in Europe has returned. All of which should support continued movement to US steam coal offshore. Couple that with another decline in imported coal into the US as Columbian coal is being bid away into other markets, and you start to see that coal markets could tighten even further over the next several months. That is why we are projecting another domestic stockpile liquidation in 2011. Nationwide stockpiles should be at or below normal by the end of the summer, which could set up a very dynamic 2012.

So, how is Arch preparing to capitalize on these trends? First, with the ICG acquisition, we have improved our value proposition and growth prospects for our shareholders. We have diversified our asset base even more, added low-cost high-quality met coal production at much cheaper valuations than could be obtained in places like Australia or else were in the world, and brought under roof some of the best of met coal development projects out there. Our goal is 15 by '15. That is, to grow our met coal volume by at least 15 million tons by 2015. And we are working towards that goal with the ongoing development of the Tygart One mine, we've also begun the engineering and permitting of additional met reserves.

Second, we have started to focus on realizing the full potential of our thermal volumes. It's about finding ways to liberate our steam time and Appalachia through Arch's dedicated export terminals and throughput arrangement. It's about building out our platform in the Illinois Basin where we have already added active operations from ICG to complement our equity investment and significant reserve position there. All in an effort to target the low chlorine segment. It's about delivering value with our vast western thermal portfolio, including delivering high-quality Western Bit tons into new markets and advancing our core development projects on the West Coast to place PRB tons directly into Asia. And finally, it's why we have opened our Singapore business office to help advance these goals.

In summary, these are just some of the reasons why we are on track to deliver the best year yet for earnings at Arch Coal, and we believe it's a very bullish future. With that, I will now turn the call over to John Eaves, Arch Coal's President and COO. John?

Thanks, Steve. First, I'd likely to briefly touch on the metallurgical markets. High quality, low vol coals, such as our Beckley coal, remains scarce in the marketplace while lower quality high vol coal prices have drifted down slightly from the record levels set in the first quarter. Yet, we continue to be pleased with the levels we are signing business and believe met markets will remain tight as we enter negotiations this fall for the upcoming calendar and Japanese fiscal year.

Today, we've committed nearly 8 million tons of coking and PCI coal for 2011 delivery and are on pace to sell approximately 9 million tons for the full-year which includes roughly a half year contribution from ICG. This past quarter, we shipped 1.8 million tons of met coal which included a very modest level of ICG volumes shipped in the last half of June. Pricing on our met shipments overall were strong, up nearly 15% from the first quarter to reach an average of $121 per ton across our blended met products. For the back half of the year we would expect our met realizations per ton to grow and our met shipments to rise as we incorporate high-quality ton from Beckley, Vindex, and Sentinel into our volume mix and look to create premium blends of coal with our remaining open market tons.

Turning to steam coal markets, we priced some steam tons in the PRB for 2011 and layered in some 2012 sales, one third of which were 8,400 BTU. All at attractive prices. In the second quarter, we also shipped PRB coal via the Gulf to Europe, and have lined up shipments to Asia through Ridley in the second half of the year. Further underscoring that the US is becoming a strategic supplier in the sea borne market. In Western Bit, we continue to move coal offshore to customers in South America, Europe, and Asia. We expect to move 1.5 million tons for export from the region for 2011 and are targeting at least 2 million tons for export and 2012. Lastly, our Appalachian segment reflects a combination of Arch and ICG commitments, and does not include Illinois whose contribution was immaterial for the latter part of June.

Now lets briefly review our operating performance by region before providing an update on the integration of ICG. In the PRB, operating margins per ton declined as costs rose on lower than expected volumes, higher maintenance costs and higher sales sensitive costs. Of note, Black Thunder had a major planned repair to its largest drag line during the quarter, which took the unit out of service for 1 month. In Western Bit, let me take a moment to point out a change in our presentation mythology for the region. Beginning with today's press release, we are presenting sales prices and cost per ton at an FOB point for all domestic customers. Naturally, this chain has no impact whatsoever on the margins, but we do think it provides a more accurate portrayal of market conditions in the region.

In reviewing our operating performance in Western Bit, cost improved versus a good first quarter as higher volumes help to spread fixed costs over a larger number of tons. Coupled with improved pricing, we are in record margins in the region. In Appalachia, margins grew to $25 per ton, up 40% from the first quarter. Realizations rose on higher met shipments and pricing offset by lower price steam sales. Cost also improved due to the return of Mt Laurels long wall on April 17, offset slightly by higher DD&A expense due to the acquisition.

Now to the integration of ICG. We are essentially complete, as Steve mentioned in his remarks. We had already put in place our operational management, including several former ICG executives prior to the close and have retained a few other people from the ICG management team on a short-term basis to facilitate a smooth transition. At close, we assume full control of each functional area of ICG with Arch personnel on-site at all locations to assist with the change over. As you know, we took a very conservative view of potential synergies initially projecting $70 million to $80 million annually, broken into operating, administrative and marketing buckets. Since closing, we have raised our estimate to between $100 million and $120 million as a result of the strategic acquisition, with the majority of the increase attributed to the operations bucket. For example, by spending minimal capital we can upgrade processes at Beckley and Sentinel's preparation plant to improve met coal recovery by several hundred thousand tons.

We also changed the design of the Tygart Valley's prep plant based on what we learned at Mt Laurel which will help upgrade the quality of wash coal and increase the recovery when the long well starts in 2014. In addition, we had merged our Lone Mountain and ICG Powell Mountain's operation into a single complex, idling one prep plant in the process. While we have taken a conservative view and not included any benefit from this integration in our initial model, we are now confident that these contiguous operations will have a better overall cost structure and higher PCI sales as a result of the consolidation. Furthermore, we are seeing that our combined purchasing power grants us additional savings on equipment, mine consumables such as tires and root pulls and service contracts with vendors. We will also secure lower rates on insurance and bonding due to our larger size, the ability to self insurer and a strong credit profile that was maintained post the acquisition.

Another bucket of it estimated synergies consists of overhead and administrative cost reductions, almost all of which have been implemented or soon will be. These savings include elimination of duplicate functions, reductions in professional fees and costs associated with maintaining dual systems, and the consolidation of offices in West Virginia. Taking with the operational bucket, these categories represent roughly 65% of the total synergies identified. The remaining synergies are marketing related. One example is our ability to push ICG's met coal through Arch's dedicated export facilities, eliminating fees in the process. To achieve benchmark pricing for those quality coals. We will also liberate some of the ICG met coal by substituting steam coal from our operations to satisfy contract obligations.

In addition, based on customer needs, we can blend high vol B coal with low vol coal from our newly acquired operations to create a synthetic mid vol, as well is produce incremental high vol A met coal. All which should result in meaningful revenue enhancement for the combined company. Beyond those synergies already identified, we've acquired highly valuable unassigned reserves from ICG. From undeveloped met tons in Virginia to high-quality steam reserves in Ohio and Illinois, we have boosted Arch's future organic growth options immensely with this acquisition.

In closing, I want to reiterate that we have continued to focus on our core values this past quarter, we turned in strong safety and environmental performances with 6 facilities achieving a perfect 0 for the last 3 months. In addition, 8 of our Appalachian complexes took home awards from the state of West Virginia which honored them for outstanding safety performances during 2010. Across our operating platform, we are deeply committed to achieving our goal of operating the world's safest and most environmentally responsible mines and bringing the best in class practices to all our complexes. I'd like to thank all our employees for their hard work and outstanding efforts. With that, I will now turn the call over to John Drexler, our CFO.

Thank you, John. I am happy to report that from a finance and accounting perspective, the integration continues to go remarkably well too. Since June 15, we have successfully migrated nearly all backbone systems onto Arch's platform and reassigned all customer contracts. Within any remaining transition work on track to be completed by the end of the fourth quarter. As Steve mentioned, excluding the impact of transaction costs, Arch set records on several important financial metrics this past quarter. Namely revenues, EBITDA and free cash flow. With ICG now in the fold, we would expect to eclipse these and other financial metrics in the quarters to come.

Let remind everyone that the financial results for the second quarter include 16 days of ICG results from June 15 to June 30. The second quarter also included transaction costs associated with the acquisition such as direct transaction costs, bridge financing and arrangement fees, consulting and professional fees, integration related expenses and severance costs. We have excluded these costs from our adjusted EBITDA and adjusted EPS figures to provide you with a more representative view of our continuing operations. In addition, in accordance with the accounting rules that govern acquisitions, we are in the midst of allocating the value of the purchase price to ICG assets and liabilities. While we have applied our best estimate to these assets and liabilities at June 30, there are likely to be additional changes prior to September 30. These changes could affect non-cash charges such as depreciation, depletion, and amortization which should not affect EBITDA.

Turning to the balance sheet at June 30, I want to highlight the following. First, we have assigned a net sales contract liability of $77 million. $4 million of which was amortized into income for the period ended June 30. We also expect to amortize roughly $40 million to $50 million for the remainder of the year. Another $10 million to $15 million in 2012 and smaller amounts thereafter. Since these net sales contracts are a liability, they will be accretive to income as we move forward. To be consistent with our prior treatment of sales contract amortization, we will exclude these add backs from recurring adjusted EPS.

Second, we have recorded $351 million of restricted cash, including $260 million for the retirement of ICG's senior notes. $75 million as cash collateral for ICG's outstanding letters of credit, and $16 million for certain ICG obligations that were assumed in the purchase price and remain unpaid at June 30. The ICG notes were redeemed on July 14 and we expect the remaining restricted cash to either be paid or freed up as ICG letters of credit are terminated or replaced.

To recap the financing of the transaction, we used a combination of new debt and equity offerings in early June along with borrowings under our amended senior secured credit facility. The equity offering of $1.3 billion was sized at this level to preserve our existing corporate credit rating of DD minus. Giving the market conditions that existed at the time of the offering, we ended up issuing more shares than originally hoped in order to preserve that rating. Concurrent with the transaction, we also issued $2 billion in senior notes and entered into a $2 billion revolving credit facility due in June of 2016. This was upside from our previous $860 million revolver. At June 30, our debt-to-cap ratio, net of all cash, stood at 52% and our total liquidity, including cash and borrowing capacity, was $1.2 billion. Now that we have closed on the transaction our immediate focus is to generate free cash flow to pay down short-term borrowings. In fact, we structured the transaction with meaningful short-term borrowings to allow us to bring down that leverage in relatively short order.

With that, let me now discuss our revised outlook for 2011. We expect the following. Total sales volumes including brokerage tons to be in the range of 160 million to 165 million tons, EBITDA on the range of $1.08 billion to $1.2 billion, adjusted earnings of $1.75 to $2.15 per share. The adjusted EPS range excludes an expected $35 million pretax or $0.10 per share after-tax of non-cash intangible asset income related to sales contract amortization. As a reminder, adjustments to purchase accounting that we expect in the third quarter will affect earnings-per-share but will not affect EBITDA. DD&A excluding sales contract amortization in the range of $452 million to $470 million. Our DD&A guidance increased from the last quarter by $80 million. This is all attributable to the DD&A of the allocation of purchase accounting to the ICG assets.

Capital expenditures, including reserve additions of $480 million to $520 million, was $75 million to $80 million attributed to the ongoing development of the Tygart Valley number 1. And an effective tax rate between 14% and 18%. Going forward we would expect to pay rates similar to an A&P taxpayer. With the major milestone of completing the acquisition and integrating the assets substantially behind us, we now turn our focus to unleashing the earnings potential of the new Arch Coal. With that, we are ready to take questions. Operator, I will turn the call back over to you.

(Operator Instructions) We'll go first to Paul Forward from Stifel Nicolaus.

Now that we've got the merger done and you're seeing material complete, you've got a pretty good outlook on the cost side and the Appalachian business for the second half of the year and going into 2012. Just wondering if you could give us a little bit of information just directionally compared to the $66 posted on Appalachian cost in the second quarter? Where do you think that goes directionally in the second half of the year and do you think that's a number when you think about higher pricing average in 2012, can you hold that cost under $70 for 2012 when you consider all these -- the synergy potential?

Paul, this is John. We're certainly excited to get these assets put together and as we talked about in Central App, we clearly think we are going to be the leader in terms of cost control in that region. The $66 for second quarter, I think it was probably going to be a little bit of pressure on that as we move forward, as we put the operations together. Our goal is certainly to hold it below $70 and hopefully well below $70. With hope to more than offset it on the revenue side with margin expansion. But with all the cost pressures that we are seeing in Central App, I would say there would be a little bit of pressure on those costs. But the guys are focused on it and clearly we are going to be a leader from a cost stand point in Central App.

Okay. You had mentioned one point on the Tygart, the new design for the prep plant. Just wondering if you could talk about as you think about modifications and if you think about say a similar market that we're in today when Tygart comes online. What share of output of that mine would you anticipate goes to the met markets?

Certainly in our models we were pretty conservative as we continue to look at it and make modifications to the plant. We think a very high percentage of that product is going to go in the met market. It's a high volume A product, very well received in the domestic market as well as the international market. And I would tell you that 75%, 80% number would be certainly something very achievable and we would hope to well exceed that. I think ICG was looking at it when they were modeling it at about 50% and we have come well off of that. And hope to continue to build where virtually all that coal is in the met market, but I think it's a little bit early to tell but early signs are that we can continue to move that percentage up.

Right, thanks.

Thank you.

The next question comes from Shneur Gershuni with UBS.

First question, just wanted to talk about contracts in the east and your strategy going forward. You posted some contracts this quarter, did that include some ILB tons even though you didn't include it in the operations? And as you look at the market going forward, are you going to try to be conservative similar to the way ICO was or be a little bit more aggressive and try to price the market on a go forward basis?

Certainly we hadn't been that thrilled with what we had seen in the eastern thermal market. Inventories are still above the five-year average. We think with the extreme weather we are having that they are certainly drawing those inventories down and we are starting to see more inquiries in terms of the domestic thermal market. We have been very pleased with what we are seeing in the international market on the thermal side. We continue to believe that, that market is going to evolve the back half of this year and well into next where we are going to be exporting quite a bit of thermal coal off the East Coast.

I wouldn't say we are going to be aggressive on our thermal pricing. We are going to be patient as we have said many times before, we are market-driven. We're going to pick our spots, where we can get the appropriate return we think we are going to have a good cost structure relative to our competition. But right now, we will tell you that we are focused on the international thermal market. The domestic met market and the international met market. We don't see anything on the met side that would discourage us as we start thinking about negotiations for 2012. We are very positive. Especially in light of the products that we can take to the market. So, feel pretty good about our Eastern position. Good cost, good quality coals, not only on the met side but on the thermal side. I think we can be very selective the way we market our coal. I don't think that changes at all.

I think it's important to point out that in the earnings release where we give some price coal, that is reflecting some of the below-market contracts that ICG has in place, that certainly we will honor which ultimately is reflected in the amortization that John mentioned earlier in the financial part of the discussion where those get marked up to market. It's not a big piece of the tonnage, but it will be an important piece for the Company.

Okay. And I guess as a follow-up, Paul just mentioned cost per ton and so forth. Quarter over quarter from the first quarter to the second quarter, your cash costs actually declined by more than the total operating costs. Can we assume that there's a depreciation step up that is driving that as well too, as well as some fixed cost absorption reversal? Is that the way to be thinking about it?

Yes, Shneur. As part of the acquisition, clearly we are allocating purchase price and a significant amount of value into the property plant equipment. That results in the higher DD&A. I think you can see the step up in the guidance for the back half of the year that we expect as a result of that preliminary allocation, about $80 million.

So, it's fair to say you're not experiencing the same kind of the cost pressure that some other players have experienced recently?

I think that's fair. We feel pretty good about where our costs are. We are really just starting the budgeting process for '12, but where we came in second quarter where we will be the balance of the year, we do think we will be in a leadership role in terms of cost in Central App.

I think if you look back at the last several quarters, Arch Eastern operations typically were among the lowest cost in the Eastern or public sector companies and ICG was second. So, in combination we would expect us to continue to occupy that position.

Okay. And finally, I realize it's too early for 2012 guidance, but do you guys expect to see 2012 if everything stays where it is right now, to be meaningfully higher than where we are right now as to what you are expecting for this year?

Yes. With the caveat everything stays where it is at from the market projections.

All right great, thank you very much guys.

The next question will come from Jeremy Sussman from Brean Murray.

Can you give us a sense for next year in terms of your quality breakdown out of your met coal? How much high vol A, high vol B and low vol do you think we are looking at, or should we be thinking about it more on a blended basis?

Jeremy, we are going to be doing a lot of blending, so I would hate to allocate it. What I will tell you is that we've got a strong position in low vol with our Beckley and Vindex mines. Some of the best coal in the world if you actually look at those coals, they compare very favorably to the Peak Downs coal in Australia. We would expect, on those types coals, to get the benchmark type pricing. By blending some of our low vol coals and our high vol coals, we create a mid-vol coal which really there is not a lot of that here in the US, so we feel like that is unique. We have the high vol B, the high vol A, and then the PCI, so when we walk into a customer we literally have any product they can envision in terms of putting into their plants. I think it's hard right now until we get through the budget process to really allocate what products go where. But I think it's safe to say that we've got portfolio of products that is almost unmatched in the US and should be well received, not only here in the US but around the world.

I appreciate that. Just as a follow-up, Steve, you mentioned 15 by 15, where you plan on increasing your met coal output by another 15 million tons, if I heard you correctly. Maybe from a bigger picture standpoint, can you kind of walk us through how we get there? Obviously, the ICG properties are big part of that, but I would love to hear your thoughts on that.

Sure. I did say 15 by 15, and what we are looking at is 15 million total tons of production of met coal by 2015, round numbers adding 1 million tons a year moving forward here. I think you look at Tygart One coming online in very early 2014 with the long wall would be a big chunk of that. As John indicated, my expectations are that, that will almost all go into the high vol A markets. Really no reason that it doesn't. The coal theme could vary if all high vol A coal theme that's just the logical development of the mine, and as customers develop. That would be the largest piece of it.

Some of the prep plant modifications that we will be implementing over the next six months, and then on into a couple of those plants on into 2012 will add another several hundred thousand tons of very high quality low vol and some of the high-quality, high vol A to the mix. And then we are starting the permitting of the other metallurgical reserves and the engineering really on day 1 of closing the transaction. It is always difficult to predict the permitting and construction times of those mines, but our goal is to have, I'll call it Tygart 1, 2 and 3, up simultaneously in the second half of this decade. Not in theory, which was the original concept that ICG had. And there's really no reason that can't occur.

That's great to hear. Thanks, Steve.

Thank you.

We'll move next to Brian Yu from Citi.

Thank you. My question is on the synergy estimate and with the revised guidance that $100 million to $120 million. Is that a run rate that you hope to achieve in 2012 or is that the full year number that you are expecting?

We've got about 10% of that number at the back half of this year, and then as we move into 2012, we would expect to get in that $110 million range for the 2012 year.

Okay.

Bottom line next year.

And so the change that's incrementally around $30 million to $40 million, is that something we should expect to come through on the cash costs line? Holding all else equal, I'm not asking you to make a prediction on where costs would be, but holding all else equal, will cash costs come down by roughly $1 on the mining side?

I think it's fair to say again, kind of one third, one third, one third if you think about administrative buckets, marketing buckets, and operating buckets. Ultimately, I think, there is going to be additional, we hope, at least in my goal personally is that the marketing and the blending bucket will grow further. So, about one third of that should show up in the operating side, and the other two, the administrative side is an easy one to look at. Obviously, there is redundancy when you bring two companies together and their corporate overhead, on day one everybody in the Company new what their future was with Arch Coal. And there were some terminations with severance on day one, which have been reflected in the second quarter. But we also kept a group on that would help close the books in the second quarter, and worked through the third quarter, they already know their departure date, and then there's a few folks who stay on to the end of the year. So, you get the full synergy effect by 2000 -- or through 2012, but it's layered in here, in the initial six months of the rest of this year.

Brian, as you look at the income statement, that's going to come through those synergies on the revenue line, that's going to come through in the cost line, and it's going to come through on SG&A as well.

All right. My second question is earlier you mentioned about shifting some of Arch's thermal to free up ICG's met. How many tons, roughly, are we talking about?

It is minimal for the back half of the year. As we move forward we think we can increase that, but I would hate to throw out a number, but I wouldn't say it's a significant amount in the back half of this year. As we move forward, we're looking at doing more and more of that as we get familiar with contracts and get the appropriate consents from customers.

Thank you.

Thank you.

We will move next to Brian Gamble from Simmons & Company.

The prognostication on the exports was a pretty strong number, Steve, wondering if you want to put your prognostication hat on and guess what the next couple of met signings are going to be in the international market. You guys obviously have a bigger footprint now, and have more of a horse in that race. You want to enlighten us?

We probably have better luck in forecasting when the debt deal is done, if ever, in Washington. Right now, I think we have spent a lot of time looking more in the next five years, trying to look out to 2015 on global thermal and met coal demand and supply sourcing. And on the assumption that there is not a global recession of any sort, but really taking projections that are commonly available out there on GDP growth from various countries around the world, we continue to see a shortage of -- in the supply demand balance, with a cumulative shortage of thermal and met exceeding 300 million tons, approaching 340 million tons with about two thirds of that met and one third steam. Where the settlements end up here in the third and fourth quarter and on into next year, obviously, the folks in Australia will probably make those settlements, but we think there is strong pressure for the high-quality coal to maintain their value in that $300 range, plus or minus, and then everybody else pricing off of that. For the B quality coal, we've seen a little softness out there, but from the first quarter, but nothing hugely negative or disruptive. Again, we are feeling pretty positive about it.

To that end, Steve, is there any additional color you want to give on potential development past Tygart 1? I know you talked about your potential there, that there's a Tygart 2 and a Tygart 3 in your hip pocket. Has there been any more definitive thought with regard to the timing there? Could you bring that forward and really the 15 and 15 be North of that if one of those projects were two be justified by the economics?

It would be North of that if it was -- right now, the economics are overwhelmingly in favor of that. It's really a question of getting the engineering done, which is pretty straightforward and then the permitting and construction. A realistic view of that would be a two-year process for engineering and permitting, and then a three-year construction timeframe. I think that's a workable number now. If you run into issues on permitting, obviously you add to it, if it would go amazingly smoothly, you could cut that by a half or year or so. I think that's a bad assumption in today's world, thinking that permitting will be amazingly smooth.

Yes, those two things don't go hand-in-hand.

Not recently.

Thanks guys, I appreciate it.

Our next question comes from Mitesh Thakkar from FBR and Company.

Good morning, guys. A real quick follow-up question on the Tygart project. Can you provide us an update on how the capital expenditure balance is playing out? I know you mentioned long wall would be in 2014, for phase 1. How do we think about phase 2 and phase 3? Is there anyway you can give us some production numbers around it? I know timing is uncertain, but just in terms of production numbers?

Well we will start some development production later this year into next year, but really, Mitesh, until we see long wall come on, and we are expecting that in the first quarter 2014, we are not going to see any meaningful production come from that operation. We should be able to ramp that up pretty quickly and get to a 3.5 million ton run rate in pretty short order. In terms of what has been spent and will be spent on the project, ICG spent about $40 million this year. We are going to spend another $70 million to $80 million between now and the end of the year. We're looking at long wall equipment, we're looking at prep plant designs. The total project right now is about $375 million is the way we are pegging that.

Each of the other mines would probably have a similar type expenditure. Mitesh, to put in perspective, the total reserve base there is 130 million, 135 million tons recoverable high vol A coal. It is a significant reserve base and, as I mentioned earlier, when you look at the global supply demand balance as we see it, we think it's going to be a major contributor to not only global supply, but certainly to Arch's future earnings down the road.

And just catching up on the result base, just from a capacity of the mine, if we forget about all the phases 1,2,3, whatever it is, what do you think is an optimal capacity of that kind of result base on an annualized production run rate kind of thing?

Each phase is probably 3.5 million to 4 million tons.

9 million to 10 million total if you are running all three of them at the same time.

Okay, this is helpful, thank you very much. I appreciate it.

We will move next to Mark Levin from BB&T Capital Markets.

Most of my questions have been answered, but I want to focus a little bit on the free cash flow situation and on the balance sheet. With regard to the balance sheet, where debt to LTM EBITDA is today adjusted for the acquisition, what is the max level and then maybe where you hope to be a year from now?

Mark, as we entered into this transaction our debt to cap was in the low 40 percentile area. And that EBITDA was around 2 times. Clearly, in order to execute on the transaction, we have taken that leverage up. As indicated, we are at 52% and we are pushing 4 times on debt to EBITDA. Immediate goal posted transaction with the significant free cash flows that we will have is to bring that down, and as indicated in my remarks, we've structured the transaction with meaningful pre-payable debt. A lot of revolver borrowings and that's our intent, that's our goal. As far as a comfort level of where we would like to be and how quickly we would like to be there, I would say from where we were at that low 40s was a fairly comfortable level that we liked to be in that range. However, clearly if there is opportunities to enhance value, we're willing to take that leverage up, but right now that will be the primary focus of bringing that leverage down.

All right and then I believe, and I could be wrong, but some meaningful LBA opportunities in the PRB that could be presenting themselves in short time. Is that viewed as a potential use of free cash flow as well?

Clearly, as we look at how we operate our Black Thunder operation in order to move that forward, we are in the business of having to acquire those reserves through LBAs and, yes, you're correct, there are LBAs that are coming due in the future. First one we expect to come due in 2012. So, we will be evaluating that. Clearly, that would be a use of cash flow as we move forward.

Okay and then just on the CapEx subject and more specific, I know you guys don't want to get in the business of giving your 2012 CapEx yet, but it obviously has meaningful impact on what free cash flow looks like next year. Can you give us some guidepost or a good way of thinking about what CapEx could conceivably look like for 2012?

I think it's a little early. The guys are meeting over the next two or three weeks for their first budget meeting, and I would just hate to put a number out there right now. That is something that we are going to be working on over the next couple of months and should have a reasonable number here over the next three months that we can share the progress on that.

Great. Last question just specific to Mt Laurel quality -- the met coal that you shipped from Mountain Laurel. Can you talk about where that would be price today in the met market and where it was last quarter?

I think if you look from first quarter to second quarter in some of the sales that were made, a lot of that was high vol B which would of been our Mt Laurel product and that was in the $143, $144 range. I would say we've seen a little softening off that number over the last couple of weeks. We'll see where that goes. As we look to the balance of the year, most of our own committed volumes would be that high vol B type product. We are watching that market pretty closely right now.

The next question comes from Jim Rollyson from Raymond James.

A couple of higher level questions for you. As it relates to guidance for this year, coming down from your original guidance, as far as thoughts on distribution of that between to maybe some of the early drag from the ICG acquisition before you get everything integrated and get into the benefits of the synergies we talked about earlier versus some of the things that been going on like the flooding issues, et cetera. Any color on the distribution or what is driving the delta?

Jim, this is John Drexler. I think as you look at that question, there is several major items and you have hit on a few of them that are impacting that. First, one of the major impacts is just the additional shares that we issued in order to allow this transaction to happen. And if you take the midpoint of our previous guidance and layer in those additional shares, you can see the impact that share count is having on the EPS. If you then look at the increase in EBITDA midpoint to midpoint, you've got $150 billion increase. Layered in the increase is a significant impact of what's flowing through in PRB. You do get the benefit, clearly, of ICG but there is a lot of things coming through there.

You also have, not affecting EBITDA, the additional interest expense, midpoint to midpoint for the remainder of the year is $87 million. On the DD&A front, non-cash charges, but primarily all related to the increase in allocation of the value to the property plant and equipment is $80 million. The increase in EBITDA offset by the additional interest in D. With the increase in EBITDA offset by the additional interest in DD&A, you then can reconcile and step forward where we are looking on an EPS standpoint which our midpoint now is $1.95.

Good color. Then as far as going forward to next year, and I'm not expecting to give guidance overall yet, but if we think about this know that your synergy number has moved up to the $100 million, $120 million range from $70 million, $80 million. Let's say from where you started this in your own models, where do think the accretion overall comes out for Arch on a combined basis for next? You don't have to give the where you start and where you were but maybe just the delta? Is it better or worse?

On the assumption you recover from the flooding, and you look at the overall numbers, we are not going to give a percentage right now because we would like to get the final purchase count -- purchase price allocation and some other things. But we would still believe and project that we are slightly accretive in the first full year of 2012 and then we will have an update -- the full update and guidance will be provided on the call in January.

Sounds like directionally it is getting a little bit better, given the rise in synergies?

Yes. Getting a little better there, and the disappointing thing this last quarter and really the third quarter is really the flooding, which obviously we have no control over, but it has had an impact on the Company. And it will follow itself as the rivers go down.

Absolutely. Thank you.

(Operator Instructions) We will move next to David Beard from Iberia Bank.

Maybe just a follow along on your EBITDA guidance bridge. When I step back, you originally guided $990 million in the midpoint and it went up to $1.140 billion. You add back the PRB and take out the synergies and the guidance seemed to be up $185 million. Is part of that ICO in that number is my question, and what sort of accounts for the balance?

David, I think the significant step up that you just referenced there, I think a large portion of that is the impact of ICG and their operations for the rest of the year layered into our results.

Okay. Thank you.

Thank you.

We will move next to Brandon Blossman from Tutor, Pickering, Holt.

Stay on PRB just for a second. A couple things. One, care to comment on the recent increase in competitiveness around the LBA process? At least the last go around? And two, on the forward curve pricing, looking pretty attractive right now, are there actual opportunity to lock in some of that pick up that we've seen over the last couple of months?

On the competitive bidding, it's a competitive process out there always. And the government always has the right to determine a bid is non-market related or competitive if they so choose. Arch as been competitive in multiple bid situations before, and obviously there was one that occurred recently where two other guys were in that process. I think it's the way the system is structured, and it works well for the state and for the government on getting full value for their bid.

As we look at the current pricing, the answer is yes. The pricing has moved in really the last few weeks. Somewhat significantly. In the Powder River Basin, we're not going to give the details but we have done some contracting at that pricing, we also did some earlier in the quarter that was lower than that or in the second quarter that was lower than that. But we have been riding the pricing upward and people are in the market and with the disruption in shipments, and the heat wave that's embraced pretty much the entire nation, the stockpiles are getting -- coming down significantly and we are certainly seeing an increase in questions and activities and calls.

And I think the other important aspect to note is while the committed but unpriced coal, particularly in the PRB, have all sorts of calculations to ultimately get it, but a somewhat rule of thumb to think about it is the unpriced -- the committed but unpriced coal prices at whatever the average price was for the previous quarter. So, if we are looking at third quarter pricing is picking up. It will end up picking a second quarter price ultimately pricing. As we move forward and assuming this pricing continues where it's at, it will have a positive impact next quarter as we roll through the system on the on uncommitted -- committed but unpriced coal.

Thanks. Useful color. And then switching topics real quickly. On integration. It sounds like it's gone exceptionally well today, so congratulations on that. And the question is between signing and today, sounds like you've had some positive surprises. Have there been any negative surprises against what you pro forma prior to the deal being signed?

Great question and actually, no, we've literally had a Board meeting yesterday and both John Eaves and I reported to the Board that in all the deals we have done speaking for myself over 30 years, this one has gone smoother and faster than probably anyone that I've seen given its size. And really no negative surprises, knock on wood. But the usual bumps of coal mining that you have, really have been more on the positive side than negative side. And it's really a credit to the men and women of the former ICG, to Ben Hatfield and his team to the men and women of Arch Coal. People rolled up their sleeves and decided to get this down. I've never seen an operation ever where we converted the computer system on the first day of the acquisition. That's just unheard of. And they got it down. Which is incredible.

We will move to the next question from Dave Martin from Deutsche Bank.

Thank you. Wanted to come back, Steve, to your comments about first your comment about second half exports if you would. Given all the macro concerns, I'm just curious if you can give us any comments or color on what you're seeing that gives you confidence to make that statement. And secondly, on the met markets do you anticipate that some of the open tons that you have available for the second half will be sold domestically, or is that all export? And then lastly, just curious on the weakness you noted in some of the lower grade mets, whether you think -- what do you weight as more important? Is it demand driven weakness in the price or do think it's more a supply driven issue with more blending going on in the industry?

I think going in reverse order, it's probably just uncertainty of some of the steel companies as they look forward in just their market book, we have seen, as John mentioned, a slight decrease in the grade B type quality coals. It's in that $5 or $10 range. It's not a big jump down if you will. We expect to really sell that coal, we are in negotiations. We have sold that coal over the last 30 days we've committed in some of the coal and continue to have a pretty good visibility of the market we think. So, it's more -- what the future holds when you look at our lunacy that's going on in Washington. That's not giving confidence to people out there. So, you see that sort of thing occurring.

From the total export number, we've actually pulled back a little bit. We had raised our number internally, that was above 110 million tons for total export. The flooding on the river system has pulled back some of that, that we've seen here and expect to build that into our thinking, but it is a robust market out there, most of the sales are committed already. Obviously, boats can move around or something could slipped from fourth quarter into first quarter for somebody. But the demand is clearly there. And for the most part, the commitments are already tied up.

And we'll move next to Richard Garchitorena from Credit Suisse.

First question, you did say that you see inventories tightening to below normal by the end of this year. I'm just curious, do you still see, given the strength in the export markets and eastern tons coming out of the US, do you still see PRB demand increasing through backfill to the east? Have you had any interest from utility in that sense? What is your view going into 2012?

Yes, Richard, this is John. We continue to believe and see interest from the Midwestern and Eastern utilities as they look at inventories continuing to be drawn down, the continued challenges they see out of Central App, we are very bullish on PRB coal coming to the Midwest and the Eastern United States and secondarily going off the West Coast to the Asian markets as we develop more port capacity. We are seeing that happen right now. As Dave indicated, we are encouraged by the pricing we are seeing. Certainly over the last couple of weeks. If you look from June 10 on, the step up in pricing has been pretty significant. As we come into the third quarter, we continue to layer in business at very attractive prices and would expect that to continue throughout the back half of the year.

One of the interesting mileposts out there too is historically when these kind of market conditions occur, you will see Eastern utilities a start to approach the Colorado market and usually Colorado will start selling into the East. This year Colorado coal is being exported, and speaking for ourselves, it is pretty well all committed to the export market. There is no opportunity to backfill with Colorado, so you move faster to the PRB.

Great, thanks. On that note in terms of the PRB strength, can you give us any idea in terms of what you have committed price for 2013? I know you didn't give it, but maybe you can give us a sense of what you've got open.

Our uncommitted part is in the press release I think. But in terms of pricing, I think if you look at the indice numbers, those are pretty representative of where the marketplace is right now. That's in that high $16 range right now.

As a Company, we have plenty of exposure to what we think is improving market in 2013 out of PRB and some of our other regions. That's by design. And with what we see occurring right now, it should play out very nicely for Arch.

Our next question comes from Andre Benjamin from Goldman Sachs.

Couple quick questions also on the PRB. I guess the first would be how should we think about your contracting and production going forward? Have you noticed any difference in utility willingness to contract as this strip has risen over the last few months and could you give a little color on how much of those price last quarter or say earlier in the quarter when it was about $15?

Yes, certainly our customers continue to show interest with our PRB. I would say it's that one to three year length in terms of the term and the contracts. As Steve indicated, we did commit some coal earlier in the quarter, we've always said that we will layer in sales, especially when we see markets improve. That we can always catch the top, and so as I previously mentioned, we saw the markets start to really move around June 10, and move a pretty significantly after that. We had committed some of our sales prior to that. But everything we are seeing right now over the next one to three years indicates very attractive pricing over the next couple of years. And should continue to improve.

John mentioned it in his comments but I think it's important to reiterate, roughly one third of our commitments this last quarter were in our 8400 product. While it pulls down the average pricing out there, it would have very attractive pricing for the market.

That's definitely helpful and to follow-up on a question I was previously asked on EPA regulations, I know you guys have had the believe that PRB has a big opportunity to backfill not only impact of fallen supply in Appalachia, but also benefit from pending EPA regulations particularly for sulfur. Have you started to actually get the increase inquiries from utilities that give you the confidence that, that view is actually going to be born out, or do think that, that's something you're going to have to wait a little bit until the dust settles around the pending regulations?

I think we are getting inquired -- the correct way to phrase it was we are getting inquiries, more people are thinking about it, you are starting to see some of the consulting groups come out with the view that there will likely be some switching to the lower sulfur, lower chlorine type coal out of PRB. But the utilities, quite rightfully are looking at it saying we have to start our thinking and planning, but until we see the final rule making, we're certainly not going to make commitments.

Thank you.

Thank you.

And we'll move next to Brett Levy from Jefferies & Company.

Almost all the questions have been answered for me. In terms of equipment moves, is there anything causing a description in 3Q or 4Q? How is that going to compare to the second quarter you guys just posted?

A couple things. We did have a major repair on our largest drag line at Black Thunder that was down for over 30 days. That was in the early part of the quarter. Back half of the year, we've got about four long wall moves. All in the Western Bit region. So, other than that, it's just normal course of business. We are moving our long walls all the time, so we don't see that as unusual. Other than that, everything is business as usual.

In terms of EBITDA or EPS impact, similar impact from 2Q, to 3Q, to 4Q?

I think that's a fair characterization.

Thanks very much guys. Good quarter.

Thank you.

Our next question comes from Lance Ettus from Tuohy Brothers.

I just wanted to know with the West Coast ports, how the permitting process is going, and just if we could just over the details of how that works, I'm sure it's not just all one permit, layout for us the various things you need to get and the time horizon for each one of those and whether you have to get one before the other. Just the detail on how that works.

The Millennium Ford, of which Arch owns 38% of, again we are not responsible for running that, but we are a large equity holder there. I think the easiest way to think about it is the port itself is in a fairly heavily industrialized area, and it was a former aluminum facility, so much of the port issues are already there if you want to think about it that way. What was agreed to was that, I should say the port was permitted 5 million tons per year of product and originally, Millennium thought they could just add coal to that. Ultimately it was determined that may be under all of the laws in Washington that you had to go through and EIS or what's the maximum potential size, even if you were going to build it and construct it in a period of phases and millennium agreed to do that, so they are performing EIS for the maximum size that the port might be in and that number is still open to review and debate internally. But they are progressing with the expectation that hopefully they will complete that study and environmental impact information, either by the end of this year or early next year.

On the assumption that goes forward, and it is submitted to the state then the actual review and ultimate permitting takes place. If we were extremely lucky, that could occur in 2012. I think realistically it will take longer than that, and then you would have phases where you would actually start at 5 million tons and then whatever the final size ultimately agreed upon when you think about the railroad movement through the town, and the port itself. Probably be built in two or three phases. A little early, but sometime between 2012 and 2015 is about the best I could give you right now. We are not including it in our numbers until later into that span of years.

Okay, thank you.

And we'll take the next question from Justine Fisher from Goldman Sachs.

I have a question on the debt repayment. I know that you guys mentioned you had structured the deal around being able to pre-pay debt in order to bring your leverage metrics down. And when we look at it, there's a $360 million of revolver drawing that can, obviously, be repaid with strong cash flow over the next 18 months. But beyond that, it doesn't seem that anything is pre-payable unless you count calling a bond. The question is, if we assume that you repay the ICG bonds and the revolver to bring debt to about $3.6 billion, is that the goal that you would look at or does that need to be lower than that and if so, how do you get there?

Justine, yes. Part of evaluating all of this and contemplating what the markets would be as we move forward and what the opportunity for free cash flow was, was to put meaningful pre-payable debt, which you have referenced there as the drawings on the revolver, but then on in addition we do have the maturity of the AWR notes which are coming due mid-2013. We will continue to evaluate depending on what market conditions are, what free cash flow is, what our opportunities are with that as we move forward.

And can you remind us of the tax implications of taking some of those 13's out early, is there a disadvantage from taking some of those out and '11 or '12?

There is a springing tax liability associated with that not to get overly complex here. As we get closer to the take out period of those bonds, is when our partnership agreement essentially goes away and the tax -- springing tax liability to the Company continues to get smaller and smaller. So, we will continue to evaluate that as time goes by.

Thanks for much.

It gets very small as we get to the end.

End of 2012?

Correct.

Okay. Thank you very much.

We'll move next to Jack Frank from Point State Capital.

Hi, it's [Zach Schreiber] from Point State. Can you hear me?

Yes, Zach. Go ahead.

Thanks, Steve. Quick question just in terms of what your thoughts were with some of these new environmental regulations out of the EPA with the CS APR rule and some of the implications of that for putting a price on SO2. Haven't had a price on SO2 for several years given remand an implosion of the old clean air interstate rule, and seems like we might start to get a price on SO2 again? Just curious, how big a price on SO2 and what some of the implications were for PRB coal in general.

And then in particular, the CS APR rule effectively now includes Texas, and there has been a lot of discussion in Texas from the EPA and the power generators there that the way to comply there is to shut down the self owned lignite mines, deal with the reclamation liabilities and start doing PRB blending. Are you getting a lot of interest from some of the large coal fired power generation in Texas requests for pricing on PRB coal and looking into rail and so forth that would corroborate that they are interested in switching or is this all theoretical, hypothetical at this early stage? Thanks.

I would love to be able to answer that question in full detail.

So would I.

It still is early, but I think the general direction is that people are starting to really look at the proposed rule and which should go final here in November. And the fact that they have a very short timeframe if they keep the timeframe the same by 2015 to meet the acquirements of the rule. And that in general, the low sulfur, the low mercury, the low fluorine content of the PRB coals play very well against that rule. So, it's more that the discussions than inquiries are starting, again I don't think people have made commitments yet. But there is increasing level of interest that people try to work through the rule itself and every unit out there is a bit different. We see that as one of the significant upsides that could accrue to the PRB. We are not projecting it yet. But at the moment, it is trending that way. I do think the lower sulfur content is going to become an important piece of that total calculation.

We'll take the next question from RJ Cruz from TCW Asset Management.

Can you provide an update on the Allegheny Energy supply litigation? If you have accrued any more than the $40 million that ICO has recorded in the first quarter?

Ongoing litigation, really can't comment much on. But we certainly recognized it and I will let John talk about the accrual. But we are a big customer of First Energy, which now owns Allegheny. We've have a relationship at some point in time. I'm sure it just hasn't been performed yet, but we will sit down with them and see if there's a logical way to solve this problem.

RJ, in the 10-Q we will be disclosing that we have accrued over $100 million for that if you remember the judgment was $104 million. As we were evaluating that potential, and our economics as we have indicated, we contemplate a more severe impact there as well. So, we feel comfortable in purchase accounting that we have it appropriately accrued in accordance with GAAP, and we will go forward from there, as Steve said, with how this continues to play out.

So, that would mean that you are less certain about your legal basis to win this litigation?

It would mean that we're being conservative and didn't want any surprises to our Board, our shareholders, or the market.

Maybe just to follow-up on what Justine was asking earlier. Beyond the revolver pay down that you mentioned. Are there other uses that you are highly considering for deployment of that free cash?

As we sit here today and as we have stated several times, I think the immediate focus post the acquisition is to bring down that leverage. Post the acquisition, we will continue and expect to continue to have very heavy levels of continued cash flow. As we pointed out over the course of the discussion here, there is plenty -- there will be several opportunities for various things, whether it is organic development, we are continuously and constantly evaluating dividend policy, we have had share repurchase programs that we've had out there and utilized in the past. And so all of those will be out there, and as we have consistently done in the past, we will look at where we create the most value for the Company, for the shareholder and we will execute what we think that is fit, but the primary focus here right out of the gates will be ongoing deleveraging of the balance sheet.

We will take today's final question from David Lipschitz from CLSA.

Thank you. Have you guys talked at all about the Illinois Basin going forward? I know it's a small part, but in terms of what we are doing in that region in terms of the Viper Mine and things like that.

We will, it is a small part at the moment, David, but Viper is a nice contained operation and we do have some activity there. Of course, we have our equity investment in Knight Hawk coal and then we are in the process of permitting a major mine there. Periodically, the discussion that plays on Illinois Basin will certainly be brought up and called in future releases. Viper is a pretty small mine and 15 days it didn't have much impact. I'm sure you'll see some in the future.

Going forward are we going to see that as a separate -- PRB, Western Bit, Appalachia, is that going to be it's own little segment in the third quarter release?

Yes, as it becomes more material we'll see more detail on that.

Okay. And then finally, just want to go back to you said about being accretive next year. I know you haven't given any guidance, but consensus when you did the deal is about $3.80 a share. Basically saying still accretive from that perspective -- from that point in time?

It's accretive from what we are projecting with internal numbers. We are not going to give a number today of where our guidance goes. I just want to say we are feeling very good about the way this has come together, and in fairness, it has come together better than anybody should have a right to expect. Stay tuned, I guess.

Okay. Thank you.

Thank you David.

That concludes the question-and-answer session today. At this time I will turn the conference back over to our presenters for any additional or closing remarks.

Thank you, Nancy. I would like to thank everybody for joining us today. I hope that you could tell that we are -- we have communicated fully our enthusiasm for not only the ICG transaction itself, but really for the way the integration has progressed thus far. Where we stand when we are looking at a complete suite of metallurgical coals from the most economic PCI coals to the most high-value low vol coals. Not many have focused on that Arch becomes one of the major producers of low vol coal in the United States moving forward and we will have significant impact I think on that higher quality and particularly when you add the high vol A and when Tygart comes on as well.

In the thermal markets, we're seeing improvements in the West. We've talked a bit about that today. Domestically the market is getting more and more interesting, led by the heat wave and the fact that the export markets for thermal coals continue to develop and remain strong. And they're pulling off some of the highest quality thermal coals. As the US domestic customers come back, and the stockpiles end up like we are projecting where they are below normal, really sets up an interesting 2012. Going to be very dynamic, we think Arch is extremely well-positioned, and we look forward to discussing not only the transaction, but really our views of the future in our next several calls. Thank you and have a good day.

That does conclude today's presentation. Thank you for your participation.