Arch Resources Inc (ARCH) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Arch Coal, Inc. third quarter 2011 earnings release conference call. Today's call is being recorded. And at this time I'd like to turn the call over to Mr. Deck Slone, Vice President of Government, Investor and Public Affairs. Please go ahead, sir.

Good morning and thanks for joining us.

Before we begin, let me 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 the 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 website 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 Vice President and Chief Financial Officer. Steve, John and John will begin the call with some brief formal remarks and thereafter we'll be happy to take your questions. Steve?

Thank you, Deck, and good morning. In the third quarter of 2011, Arch reported adjusted earnings per share of $0.08, and recorded $211 million in EBITDA. Quarterly revenues reached $1.2 billion. And EBITDA grew year-over-year, even with lower PRB shipment and a longwall outage in Appalachia. Year-to-date, we have also generated record free cash flow, a combination of incremental earnings and prudent capital spending. While our quarterly performance and revised full-year earnings guidance are below our second quarter expectations and projections, we remain on track to deliver the best year yet for Arch.

In particular, and as previously announced, our third quarter performance reflects lower PRB shipments on rail disruptions due to flooding. As you know, our second quarter shipments in the region were affected and this issue continued into September, impacting planned volumes. However, we are seeing a recovery in October and expect to end the year with a strong fourth quarter performance at our PRB operations.

In addition, we experienced difficult geology and a longwall outage at Mountain Laurel during the third quarter that reduced our sales of met coal and raised our quarterly costs in the region. To remind everyone, Mountain Laurel re-entered the final panel of the Alma seam in August. This is the same panel that cost us an outage in the first quarter. The final panel or two of any coal seam often represents the most challenging geology of a coal mine, and this is proving to be the case at Mountain Laurel. As such, we've reduced our met coal volume expectation for the full year, largely due to lower high-vol B sales out of Mountain Laurel.

At the same time, we expect Mountain Laurel to transition -- or at this time we expect Mountain Laurel to transition to the Cedar Grove seam in mid-first quarter 2012. We also believe that the Cedar Grove seam will have stronger met properties than the Alma seam, and that mining conditions in the Cedar Grove will be significantly better than what we've encountered during 2011. However, the Cedar Grove is a moderately thinner seam than the Alma seam.

Overall, Mountain Laurel has been a star performer for Arch since it opened in the fourth quarter of 2007. And we expect it to continue to be a major contributor to the Company's future profitability throughout the current decade and beyond. More importantly, Arch has significantly expanded our met mine profile in Appalachia, while diversifying our sources of supply with the addition of the high quality ICG met coal assets.

By mid-2013, Arch will have an even more powerful portfolio of met coal operations in Appalachia, anchored by low-cost longwall mines at Tygart Valley and Mountain Laurel, and exceptional continuous miner operations at Beckley and Sentinel. These four cornerstone operations will be further supported by met production from Vindex, Cumberland River, Buchanan and Lone Mountain.

We are also moving forward aggressively with planning work on a second longwall mine at the Tygart Valley number two high-vol A reserve, now called Shelby Run. With the goal of starting up that operation toward the end of our five-year time horizon. We are also strong believers not only in the continued demand for met coal in the developing world but also in the scarcity of high quality met coal supply. While there will be an inevitable volatility, we believe increased demand and constrained supply will be the prevailing factors in the met coal markets over the next five years. And we are preparing to capitalize on that trend.

Turning to current state of the global met coal markets, we continue to see a very constructive environment. In fact, domestic steel utilization has averaged above 75% since July. Remember that utilization dipped below 40% at the depth of the recession of 2009.

On a global scale, year-to-date steel production has increased 8% through September. And capacity utilization has risen to 79%. That being said, steel production in China slowed in September due to consolidation efforts and some slowdown in end user demand. But the month-over-month reduction in Chinese steel output was offset by a rebound in European steel sector, even with some announced mill idling there.

So we are cautiously optimistic about the near term and believe met coal markets will remain relatively tight. Although we expect some easing from the record price level set earlier this year, our guidance also reflects and assumes a modest weakening in demand for lower quality met coal, driven by the economic uncertainty in Europe.

The outlook for global thermal markets remains positive despite the overhang of the European debt crisis and the recent decline in ARA prices. We anticipate growing coal demand in Western and eastern Europe in 2012, a function of higher natural gas prices, German nuclear plant shutdowns, destocking, and reduced supply availability from traditional sources. In fact, while over 70% of South African exports have been diverted from the Atlantic to the Asian Pacific region to date, we anticipate that Asia could capture 90% or more of South African output over the next five years.

Coal demand in Asia remains strong, helped by the return of Japan to the marketplace, a pick-up of other Southeast Asian nations, and continued growth in China. According to industry estimates, net coal imports into the Chinese mainland will reach at least 115 million metric tons in 2011. Furthermore, despite the talk of Indian price sensitivity, we still believe that the country will import 30% more coal than it did in 2010. And we haven't even mentioned Central and South America, and specifically Brazil, where a doubling of coal imports is expected by 2015. These estimates suggest to us that the opportunities to export US coal overseas will accelerate.

While Australia and Indonesia will remain the powerhouses in the met and thermal coal trade, there is no reason why the US can't displace Russia as the third largest player in the international coal marketplace, particularly as port capacity is expanded and built in this country. At Arch we already have a strong export capacity in place and we will continue to work on further expanding that capacity as opportunities develop.

In the domestic coal markets we also see meaningful opportunities to capitalize here at home. With the new cross-state air pollution rule and the soon to be finalized MAC rule, it seems clear that low sulfur and low chlorine coal will be advantaged. We're seeing that now with growing interest in sales of our ultra low sulfur product out of Black Thunder. The anticipated increase in demand domestically for PRB coal, coupled with export potential of this coal should allow us to unlock additional value from our PRB assets.

Of course, these rules have a down side for the coal market, and for energy affordability, reliability and security of supply. We expect these new emission rules to force older coal plants into early retirement. And currently believe that 35 gigawatts of coal capacity could be at risk for closure over the next decade, impacting coal demand by some 40 million tons or so. In addition, some incremental coal consumption could be lost to natural gas over time, although our analysis shows that this displacement is likely to remain in the 30 million to 40 million ton range in the near to intermediate term, and that most of that displacement is already occurring.

It's also important to remember that there are significant offsets to these assumptions. First, some lost coal consumption related to the retirement of coal units is likely to be offset by increased utilization at the remaining coal plants. Second, without a massive build out in new gas-fired capacity or transmission lines, it seems reasonable that the market share lost to natural gas will be capped. Third, as I've noted, we've projected a significant step-up in coal exports. And fourth, which granted is more Arch specific, we see continued switching to low sulfur, low chlorine PRB coals over time. These demand offsets coupled with declining production in the mature coal supply regions like central Appalachia and the Western Bituminous region suggest that domestic coal markets will be balanced or even perhaps under-supplied in the future.

On that note I will turn the call over to our President and COO John Eaves to discuss the steps we're taking from here, and the Company perspective to capitalize on the trends discussed. John?

Thanks, Steve. First, I'd like to extend my deepest sympathy to the family of Charles Hall, the miner who was fatally injured at our Mountain Laurel operation in August while assisting in a longwall equipment move. As fellow coal workers, we are saddened by the loss and more determined than ever to strive for our ultimate goal of zero safety incidents at each operation every single year.

Next, I'd like to touch on our met sales efforts. During the quarter we shipped 2.1 million tons of met coal, even with Mountain Laurel being down 45 days. However, given the Mountain Laurel outage, and its impact on inventories, we have revised down our met sales for the full year 2011. Pricing on our met shipments this past quarter was strong, averaging $126 per ton across our blended met portfolio. High quality, low-vol coal, such as Beckley coal and high-vol A coal such as Sentinel, remains scarce in the marketplace. While lower quality high-vol coal prices have drifted down recently in the face of global economic uncertainty. Yet we continue to place met volumes in 2012 at attractive price levels. And as Steve pointed out, believe met markets will remain tight in 2012.

As for export sales, we continue to pursue opportunities off the East and West Coast and via the Gulf. We have recently shipped PRB coal to Europe via the Gulf, and to China through Ridley in Canada, underscoring that the US is becoming a strategic supplier in the sea-borne markets.

We are also building our success in sending Western Bit coal overseas, which is particularly important given the domestic market weakness in that region. We see increased interest from abroad in this bituminous, low-sulfur coal, and are exploring creative ways to liberate more of that coal in the sea-borne market. In Appalachia, we have shipped thermal coal through DTA, as ARA prices have supported that move until very recently. However, the first priority for our port space on the East Coast remains moving met coal, and we've exported about 60% of our total met volumes year-to-date.

Also, in recent months, Arch has added to its management strength in sales, marketing and business development areas with a clear focus on supporting and elevating our activities in the global coal marketplace. This year we opened an office in Singapore and are planning to open an office in London in early 2012. In this way we are seeking to expand relationships with international customers, as well as better understand the Asia-Pacific and Atlantic basin dynamics from a market intelligence and eventually trading perspective.

On the domestic front, thermal pricing for bituminous coal remains muted, a function of flat demand load, competition from hydro and natural gas, and weak industrial pull. However, we are seeing a real demand for our PRB coal which is benefiting from the rebuilding efforts by PRB-served generators that have seen their stockpiles dip below normal. And from interest in ultra low sulfur coal associated with the cross-state rule. Since our last update, we've priced tons in the PRB for annual delivery in 2012 through 2014 at attractive price levels. And in the case of ultra low sulfur, at meaningful premiums to prevailing benchmark.

In the Western Bit and Appalachian markets, we placed some volume in the domestic and export markets where we felt we can earn a sufficient return. Also to note that 2013 commitments included in the press release reflect legacy ICG contracts in Appalachia.

Looking ahead we remain committed to following a market-driven strategy and will take steps across our mine portfolio to optimize sourcing and to match our production levels to future market requirements.

Now let's review our third quarter operating performance by region relative to the second quarter. In the PRB, operating costs per ton declined quarter-over-quarter on lower maintenance expense as Black Thunder had a major drag line repaired during the second quarter. PRB operating margins expanded slightly in the most recent quarter and we expect an even stronger performance in the fourth quarter. In Western Bit, we had two long wall moves in the third quarter versus one move in the second quarter. The third quarter moves were at West Elk and Sufco, Arch's largest and lowest-cost mines in that region. And thus had a disproportionate impact on quarterly volumes and costs. However, our Western Bit segment had a solid third quarter operating performance versus record second quarter performance, despite sluggish demand in that region.

In Appalachia, third quarter prices declined on a larger mix of thermal shipments which outweighed higher met pricing on met sales. In addition, costs were inflated due to the longwall outage at Mountain Laurel which caused a 40% jump in that mine's cash cost quarter-over-quarter. Total cost in App also rose given the full quarter's contribution of the former ICG mines which have a higher cost base than Arch's mines. Of course it's important to point out that those ICG mines are still very competitive in a region that has seen escalating mining and regulatory costs over the past few years.

We have now essentially finalized the integration of ICG and continue to work on bringing those $110 million of synergies to the bottom line, while pulling forward cash flows, particularly via the accelerate of Tygart Valley's longwall startup to mid-2013. We're also in the process of upgrading the preparation plants at Beckley and Sentinel, both of which turned in strong operating performances in the third quarter.

Looking ahead, our focus now turns towards maximizing the operating performance of our entire asset base. This would include prioritizing cost containment efforts, prudently allocating capital and right-sizing operations to match our estimates of current market demand. These efforts should further improve our profitability as we move forward.

With that, I will now turn the call over to John Drexler, our CFO. John?

Thank you, John. Even with some of the operating and market challenges that Steve and John discussed in their prepared remarks, it's important to note that Arch continued to generate substantial free cash flow, paid down debt, and further shored up its balance sheet in the third quarter. In fact, we paid down $316 million of debt during the quarter. \ Some of it with restricted cash. And grew our cash balance by $76 million. As September 30, our net debt to cap position of 51% is a slight improvement over the last quarter.

And our liquidity continues to be strong with over $1.1 billion available from existing cash and borrowings under the revolving credit facility. As a reminder, the financial results for the three months ended September 30 include a full quarter of legacy ICG operating results. In the quarter just ended, we incurred a nominal amount of ICG transaction related costs. These costs include incremental severance costs, miscellaneous transition expenses, and a non-cash charge from the write-up of acquired coal inventories to fair value. We have excluded those costs from our adjusted EBITDA and EPS calculations to better reflect results from our Continuing Operations.

We also continue to work on allocating the purchase price to ICG's assets and liabilities. We have made some changes this past quarter including the aforementioned inventory adjustment and an adjustment to the net liability related to acquired sales contracts. We currently expect to finalize the purchase price allocation in the fourth quarter. At that time, we expect some adjustments will be made to the value of the acquired property, equipment and coal reserves. These changes will affect non-cash charges such as depreciation, depletion and amortization, but will not affect EBITDA.

For the remainder of 2011, we project strong free cash flow due to an expected solid fourth quarter operating performance, as well as reduced planned capital spend versus what was previously forecasted. In particular, we're finding ways to reduce our defer as we continue to unlock value from the ICG transaction. And we're focused on a prudent allocation of our total capital needs in response to current market conditions.

With that, let me now discuss our outlook for 2011. We expect the following. Total sales volumes including brokerage tons to be in the range of 157 million to 160 million tons. EBITDA in the range of $900 million to $1 billion. Adjusted earnings of $1 to $1.40 per share. The adjusted EPS range excludes an expected $34 million or $0.11 per share of non-cash intangible asset income related to sales contract amortization.

As a reminder, adjustments to purchase accounting that we expect in the fourth quarter will affect EPS but not EBITDA. Moreover, our full-year EPS guidance is based on a count of 191 million shares which we estimate will be the average for the year. Please keep in mind that the fourth quarter EPS will be based on the average count for the fourth quarter of approximately 212 million shares. DD&A, excluding sales contract amortization, in the range of $449 million to $465 million. Capital expenditures, excluding acquisitions and new reserve additions, of $390 million to $410 million. Our new CapEx range is roughly $100 million lower than our previous forecast. And an effective tax rate between 5% and 9%.

With our diverse low-cost portfolio of steam and met operations, we are confident that we have positioned the Company well to excel throughout the full market cycle.

With that, we are ready to take questions. Operator, I will turn the call back over to you.

(Operator Instructions). Brian Gamble with Simmons & Company.

My biggest question has to do with the costs in Central App. John, I was hoping you might be able to break out the portion of the cost creep that was directly related to Mountain Laurel versus that of the inclusion of ICO, just to get a better feel for what a more normalized cost structure will look like going forward.

Sure. Brian, with Mountain Laurel's longwall down 45 days, clearly it had an impact on our costs. And I would tell you probably well over half of the cost impact was driven by Mountain Laurel. As we said, we brought on the ICG mines third quarter. Those are higher cost mines than what Arch has, but clearly very competitive mines in the Central App region. So that would be driving the balance of that. As we moved forward with Mountain Laurel back running now, we would expect a pretty good stepdown in that as we move into fourth quarter.

I think you might have mentioned last quarter that you were hopeful to keep costs in Central App under $70 for 2012. Do you still think that has potential?

Brian, it's a little bit early. We're in our planning stage right now for budgets. In fact, we've got budget meetings in the next two weeks. And I want to look at the numbers and see how we move forward. We're going to do everything we can to manage our costs. But you're well aware of the challenges in Central App and the things we face. But clearly we're focused on it and hopefully we can update you on that on our next call.

Shneur Gershuni with UBS.

First question, you had some positive contracting data with respect to the PRB. You did mention about inventories in the prepared remarks. Is it specifically related to the drawdown of inventories? Obviously they're way down from where they were. Or is some of it CASPR related at all?

I think it's both, Shneur. Clearly, when you look at the heat this summer and then the performance of the rails due to the flooding, the stockpiles were drawn down and they're below the five-year average in the traditional PRB market. So you're seeing some recovery of that, both on spot purchases and in makeup of contracts. But we have made and we've often said, or at least in the last year we've said it, we were reading the preliminary proposals of these rules that appeared to us that it was a rule that would cause some utilities, or perhaps a lot of utilities, to switch to PRB over time. And clearly, now, we have actually made sales under that, both one-year to three-year term type sales of some significant tonnages. So it's still every customer's trying to wrestle with CASPR, the cross-state air pollution rules. It's almost unit by unit. I described it to someone the other day as it started as a trickle, it's widened into a stream. And it may not be a raging river yet but it looks like it may head that way. A follow-up question on your comments about Mountain Laurel. I understand that you're in the last part of the panel there. And there's always some difficult challenges and so forth. Have you done any development work on the next section? \And can you speak to the roof control, if there's going to be any issues there or anything that you've seen in your early development work?

Yes, Shneur, certainly this has been a challenging panel. It is our last panel in the Alma. And, quite frankly, we're ready to get out of it and move forward. We are excited about moving into Cedar Grove. We expect to do that mid first quarter. It is going to be a little bit longer move just because we're moving to a different section. As Steve indicated in his comments, the quality is an improvement from what we've seen in the Alma. And clearly the conditions, although the seam a little bit thinner, is going to be much better than we've anticipated in the last couple of panels in the Alma.

Any time you're finishing up your last few panels in a section it's always a challenge. And this has proved to be that and we're ready to move on. So we're excited about getting to Cedar Grove and putting good results to the board there. Mountain Laurel has been a star performer for a long time and we would expect it to be a continued good performer in our overall met supply over the next several years. So we're excited about it, have had a few challenges. We're going to watch it for the balance of the year. It currently is running reasonably well. I think it's a day-to-day thing that we continue to monitor. But we continue to be excited about the opportunities we see in the Cedar Grove.

Paul Forward with Stifel Nicolaus.

Just to follow-up on that question on Mountain Laurel. It's been doing, over the last three years, maybe a little over 4 million tons a year. I was just wondering, when you talk about the thinner Cedar Grove seam, you get a higher quality out of it, maybe a little bit higher price. But is it still a 4 million ton per year mine going forward in Cedar Grove?

Paul, as I indicated earlier, we're in the planning stages right now and budget meetings. And I would think in that 3.5 million ton range is probably a reasonable range right now to plan. We'll see how it goes. But I think mid-3s is probably a pretty good volume as you think about 2012. And I'll update you more on that in the call in January.

And I know you're still budgeting and everything as far as capital for 2012. I was just curious, I think the numbers, just backing into them, this quarter $108 million or so of CapEx. And your guidance, which is lower, would imply a step-up in CapEx pretty sharply to $180 million-plus CapEx in the fourth quarter. Just wondering, as you look at 2012, when you've got some heavy spending going on and accelerated timetable on the Tygart longwall development, can we think directionally in terms of up or down from that fourth quarter level, where you can anticipate capital spending throughout 2012?

I think it's a little early to say, again, getting back to the old budgeting process. I'd rather take some time, look through the numbers. I think the guys have done a great job this year in managing their capital. If you look at the $100 million reduction, it's something we've been managing all year. And then when we put the ICG assets with Arch we saw some additional opportunities to reduce that capital. I think there will continue to be opportunities we see moving into 2012. As we said, we're going to match our production to the market. And we're going to let the capital drive that.

We're not going to pull back on Tygart. We continue to see strength in the met markets going forward. That will clearly be a focus point and I think we'll continue to evaluate the eastern thermal market. We haven't seen any real demand there. We'll continue to match our production with the demand we see there. Clearly, excited about what we're seeing in the PRB. Not only with the generic product but with the ultra low sulfur. That and the met I think are very encouraging. As we look at Western Bit I will tell you we're not seeing a lot of improvement in the domestic demand there. We are encouraged by what we're seeing in terms of the international market in Western Bit. We're going to see somewhere around 1.5 million tons there of exports this year and hope to grow that to over 2 million tons next year. So I think all those things as we think about them into '12 will help us make the capital decisions that we need to make.

Mitesh Thakkar from FBR Capital Markets.

Can you walk us through the bridge in terms of your met coal production capacity? If you are to take 7.5 million to 8 million ton guidance for 2011, I know there would be a pro forma number which we would be getting at for (inaudible). But how should we think about your metallurgical coal capacity right now, and outside of Tygart which I think is part of your 2015 plan of getting to 15 million tons?

Yes, clearly Mountain Laurel had a big impact on our met volumes this quarter and will impact the overall volume for the year, i.e., the 7.5 million to 8 million tons. But as we plan toward next year, again, we're in the budgeting process, and we feel very strongly that the 10.5 million to 11 million ton range for next year is very supportable. We continue to build out our met supply. The guys are doing a great job in expansion projects. I mentioned the Beckley and the Sentinel plant expansions. Those are going well. We'll bring those volumes to bear going into next year. And then as we move out over the couple years, we talk about 15-by-15 and we think that's very achievable. As we moved up the Tygart longwall six months to mid-2013. We've got some other very exciting projects that we continue to look at, that we've gotten more excited as we've closed on that transaction. And we think we can bring those volumes in quicker than maybe we originally thought. So as we finish this planning cycle over the next few weeks I think we can update you at the next call on what that met outlay looks like. But we're very encouraged by what we're seeing from 2011 to 2014, 2015 in the met volumes.

And one last question on the same, on volumes but on Powder River Basin. How much volume impact do you think has happened for Powder River Basin due to the Midwest flooding, if you were to put a number on it?

Mitesh, this is Steve. For just Arch, it's a little bit difficult, because some of the customers were in different spots, but we would certainly anticipate that the total impact was over 4.5 million tons.

This is for Arch or --?

I don't know it off -- we could probably estimate it. It impacted the 8800 mines more than the 8400 mines simply because the concentric circles of where 88 reaches versus 84. 84, the floods were in between the 88 and 8400 customers. And then for anybody shipping to the west or to the north, they didn't get impacted by the floods as much. So we would have to sit down and really look at it. But we did look at simply our shipment.

Michael Dudas with Sterne Agee.

Either John or Steve, in your prepared remarks you talked about obviously what I think the market's anticipating, a higher discount for lower quality versus good quality coals. As you have taken the ICG assets and gotten to know them from a marketing and operational perspective, and what you have on the lower quality of PCI stuff, are there any issues on volume or inquiries from your domestic or international customers? Or is it just the uncertainty driving up price but the volume opportunities for you still to be pretty solid moving into 2012?

This is John. We continue to be encouraged by what we're seeing, certainly with the qualities we found. And the combination of those qualities with what Arch has I think makes a pretty powerful portfolio. The guys are in negotiations right now for some of our domestic business for next year. I think they're encouraged by what they're seeing. The international markets, yes, we've seen some softening in the high-vol B products. I think I indicated about $126 this past quarter average pricing. And that was obviously mostly high-vol B and some PCI. But clearly the low-vol products that we got from ICG, the high-vol A's, we think are going to command a real premium in the marketplace.

I think when you look at Beckley and you compare Beckley to some of the other low-vol coals around the world, we've been very pleased when you do a side-by-side of how they look in the international marketplace. So I think they're going to be high demand US and international marketplace. And then as we build out the Tygart production, that's additional high-vol A that we're adding to the overall mix, which is going to command a real premium versus what we're used to with our high-vol B. So we're absolutely very pleased with what we've seen. Really no surprises from a quality standpoint, from a volume standpoint. We're obviously disappointed we had the issue at Mountain Laurel during the quarter but we're working through it and we're going to move forward.

I think it's important to note, and John touched on it there, as we march from the 7.5 million, 8 million tons of met coal sales this year toward that 15 million and beyond that 15 million ton number, it's really additional high-vol A, low-vol type coal, so the higher quality metallurgical coal. So that shift in mix becomes as significant as the increase in overall volumes. So it looks extraordinarily good. And then as I mentioned, the team's already planning the additional longwall in the Tygart reserve. It will become a major high-vol A source of some of the best coal in the United States and the world.

My second question for Steve. You mentioned in your prepared remarks the ability for regulatory driven demand for low sulfur, low chlorine type coals. Maybe you could talk a little bit about how you see Illinois Basin faring with what's happening from a regulatory standpoint. And if the demand picks up so much for PRB and then you start to get the West Coast opportunities, is there a view or a plan that you have that you could actually add more tonnage to the marketplace if those demands come out? Thank you.

As we look at Illinois Basin, and Arch has obviously a large reserve there, a very large reserve base there, we have our joint venture with Nighthawk, plus we just permitted a coal mine there. Our view of Illinois is that it's entering the export markets very well. It's moving into some of the scrub markets here in the United States. If someone has a scrubber, I think they would continue to be able to utilize Illinois Basin coal. But we see that some of the regulatory environment, the EPA really pushing a move to the ultra low sulfur and the very low chlorine type coals out of the PRB, as they try to meet mercury MAC, as they try to meet the acid gases, as they really plan their compliance for CASPR.

I don't see that fundamentally changing, moving forward, from a US domestic position. And as we talk to our customers, and John and I have spent a lot of time at the C-suites level talking to folks, along with our normal sales contacts, and everybody's concerned about CASPR. They're wrestling with the compliance options. It's unit by unit. But the general theme is that if this goes forward as currently envisioned, it's probably a push to PRB over time. You've seen some customers already make those moves.

As we look at supply sources in the PRB, Arch does have some abilities. I presume others might have some abilities. But all of us, you look at the load-outs, one of the great positions that Black Thunder has is we have three load-outs. We can mix and match our sulfur precisely to what the customers need. If they need or want a 0.8 sulfur, we can give it to them. If they want a 0.6 sulfur, we can give it to them. If they want a 0.55 sulfur we can give it to them. And we can develop with those three load-outs really unique capacity that I think is unmatched. Adding equipment in the Basin isn't as easy as people think, at the moment. Obviously, everybody's thought about it, thinking about it, but I think when you look at the lead times for shovels, it's up around two years, trucks are approaching two years. And right now I think people are really focused on let's let the CASPR uncertainty clear out and form a little better and get a greater understanding, maybe getting to that raging river concept before -- certainly I can only speak for Arch -- but before they start making commitments that have longer term in nature.

Jim Rollyson with Raymond James.

Maybe switching to Western bituminous for a minute. You had a couple of longwall moves in the quarter. Obviously your costs went up quite a bit. Curious, longwall schedule going forward, and do you think that comes back down into the $26, $27 range?

Jim, this is John. Yes, I think the real impact during third quarter that the two long wall moves hit us at our lowest cost mines and certainly had an impact on the cost. To be honest with you, we've got two moves in the fourth quarter. They happen to be at our higher cost mines. So I think you're going to see a quarter-over-quarter improvement in our cost. Going forward into '12, I would really like to get through the budgeting process to see where our costs shake out. We're going to do everything that we can to manage our costs effectively out there.

I will say, again, we're very concerned about the US market in Western Bit. We're not seeing any real demand for that product. And thank goodness that we've seen the step-up in the international market. We're going to try to exploit that market, whether it be the Gulf, the South America, Europe, or off the West Coast in the Asian markets. And we're certainly encouraged by what we're seeing there but we've got to see some improvements in the US market in Western Bit to really feel a little bit better about that region. Let me come back to you in January after we finish the budget process and I'll give you a better number on the cost side.

And maybe one for John. SG&A didn't do a whole lot of movement. It went up over 10% sequentially but given that you had a full quarter with ICO in there, I would have thought it would have gone up a little bit more. What do you think that go-forward run rate looks like?

Jim, this is John Drexler. Yes, we did see a modest step-up in the SG&A. And as we've advertised throughout the ICG transaction, we were going to be very focused on synergy opportunity along operations, marketing and along the SG&A line. So we've been very focused on that and feel that we were able to bring a lot of that to the bottom line. We'll see a modest step-up in SG&A. But I think the SG&A that we see this quarter is a reflection of an ongoing rate that we would expect moving forward.

Holly Stewart with Howard Weil.

Two questions for you. One, you talk about record export shipments in 2011. Can you give us what those volumes are going to be and then break that out between met and thermal?

Holly, this is John. We should export between 7 million and 7.5 million tons for the year. We hope to step that up pretty significantly as we move into '12. We've exported about 5.5 million tons to date, about 60% of that is met, the balance would be steam. We continue to look at opportunities on both of those products as we look at the international markets. So really not seeing anything that would discourage us from additional volumes going to the international market. We're forecasting as a Company about 106 million tons going in the international market in 2011. And then a step-up to probably plus 120 million tons in 2012.

So that continues to be a market that we think is going to grow. We think the capacity's in place right now to do that. We think there will continue to be expansions in capacity whether it's on the East Coast, of the Gulf and the West Coast. So obviously with our opening of a Singapore office, opening of a London office, it's a market that we're going to spend a lot more time on it as a Company and a marketing team.

And then for my follow-up, you mentioned Black Thunder in your comments about the lower sulfur product, obviously your largest mine by far. What are you doing at Black Thunder to separate this ultra low sulfur product out to have it sold at a premium?

Holly, it's Steve. Black Thunder, we have three major load-outs at Black Thunder and we basically designated one as I'll call it the 0.8 generic product. And the others are ultra low sulfur. And again, Black Thunder has the capabilities of blending the sulfur to whatever requirements the customer has. Part of the mine does have, right at the top of the seam, a little higher sulfur, about 10 feet or so, in it, and that really gives us that ability to blend and match. So what we're finding in the marketplace right now is customers love that because we can talk to them about a total mix of the sulfur. And then as the mine goes west, which it really progressively does, you're seeing Black Thunder's BTUs go up, you're seeing the sulfur go down. All things are trending the right way there.

Mark Levin with BB&T Capital Markets.

Couple quick questions, maybe on the balance sheet first. As you look at debt to EBITDA levels at the end of this quarter, and where you think you can get them maybe by the end of next year. And then in the context of capital outflows next year, should we think about LBAs next year? And what's up and interesting in 2012 for you guys?

Mark, this is John Drexler. As far as debt to EBITDA levels and projecting out to 2012, as John Eaves has indicated, we're deep into the budget process cycle now so I don't want to speculate on where we're going to be at the end of next year. But as we've indicated over the last several calls, we expect to generate meaningful free cash flow post the ICG transaction, despite some volatility we've seen here this quarter for the remainder of '11. I think it's a testament to the portfolio of assets we have that even despite that, with the reduction in capital spend, that we still see meaningful free cash flow as we move forward. So our focus hasn't changed and we'll continue to work on delevering the balance sheet here in the near term.

From an LBA perspective, yes there are LBAs that are coming up and that are due here. But from the perspective of can we really comment on those LBAs or not, we're not at liberty to really comment on those. So they'll be part of what we're looking at moving forward but we can't really talk about them specifically.

And then just on the port situation in the Pacific Northwest, any update over the last three months? Are things just moving ahead as you would expect? Then just how you're thinking about timing again.

This is Steve. Progressively moving forward. Any permitting process is slow and methodical, and by both design from our view of it and the regulatory agencies. We would anticipate sometime in the first half of 2012 that the permits would be submitted. They are still trying to focus on what's the right size and lots of issues out there. But steady progress would be what I would report. The timing, permitting process is out there and certainly challenges that would be expected. We would continue to think that a 2014 or '15 time frame is a realistic expectation.

The last question I had is I think you mentioned shipping some PRB coal to China and Europe. Can you guys maybe walk us through what the economics of that looks like, and what the netbacks are, just how to think about how to frame the economics?

I really don't want to get into any particulars on the netbacks. But what I'll tell you, we're going to load two large-size cape-size ships through Ridley terminal this year to China. When we look at the netbacks it makes sense from an economic standpoint compared to our alternatives in the US. And we think that will continue. We think that volume for us will improve pretty significantly as we move into 2012. As we look at that market and some of the challenges, some of the other supply regions have, i.e., Indonesia and South Africa, we continue to think that PRB can be a very competitive product in China, India, Korea, and Taiwan. So the marketing guys are spending a lot of time in developing that market. And think over time that we'll be very competitive. Especially with the Indonesian coals that are coming on which are much lower rank quality coals, that allow the PRB to be very competitive.

Andre Benjamin with Goldman Sachs.

Back to the PRB and the pending CASPR regulations, a spin on some prior questions. Assuming that you do get that raging river phenomenon, potentially offset by the lead time for equipment, how high do you think Arch PRB production could go in 2012? And in your view, how much capacity could the rail ship to the PRB all the way, say, to the East if it was warranted? Are there any infrastructure bottlenecks we should think about if demand spikes?

Maybe start on the other side of it. If non-traditional PRB purchasers really would come in in a big way, I think rail cars would be an issue. There's different sizes in the East and the West. So I know the rails are thinking about that. They're looking at it. But whenever there's changes like that, to assume that there wouldn't be some bottlenecks and disruptions I think would be optimistic. But I do know it's on the agenda of at least three of the major railroads that I personally had conversations with. So it's going to be a challenge if new major buyers would enter that market. But I think both the rails and the production units in the PRB would be up to that challenge. But there would certainly be dislocations in the month-to-month type scenario.

Arch's mines on paper, again, you can get into that 130 million to 140 million tons if everything runs right at Black Thunder. But at the same time, we're very focused on meeting the demands of our customers and their requirements. And I wouldn't want to say that that wouldn't require some equipment. But it's a very, very large mine that has the capability to do a lot of good things, if the market demand is there. But I think we've proven over the years that we will meet market requirements.

And then back to met coal. Could you just speak a little bit to the sensitivity of your expansion plans, the pricing, both next year and long term? Maybe give a little color as to at what price you would maybe reconsider some of the projects that are on the table. And are there any anticipated changes to ICO's previously stated growth plans now that you've owned them for a quarter?

We've studied the world markets pretty hard and we're pretty confident there's going to continue to be an undersupply of met coal over the next three to five years. We think it will be cyclical. There will be peaks and valleys. But if you look at Arch's cost structure with the combined assets, we think it's pretty compelling. And we think we can make very good margins in the markets going forward. We haven't seen any changes in the volumes on the down side. What I would tell you is we've seen some volume changes on the upside. As we've looked harder at this, obviously Tygart 1 was in the planning process when we acquired the assets. We've advanced that six months, which we're very excited about. But beyond that, I think there's some other projects that we continue to be excited about. Continuous miner projects, the longwall that Steve mentioned. All those are coming in the five-year planning cycle that we can take to the market and which we think is going to be undersupplied.

And when we talk about this quality coal, it's a high-vol A product that is in high demand, not only in the US but around the world. So we continue to push these projects forward. We continue to look at port capacity expansions because clearly the global market is undersupplied. And we think Arch has positioned the Company very well to react to some of those opportunities we see. So clearly the opportunities that were afforded us on the met side with ICG is real, it continues to improve, and we'll build on that and advance that as quickly as we can.

Just adding to what John's saying, you think about Mountain Laurel and its history. A longwall mine is probably one of the lowest cost, if not the lowest cost, major metallurgical coal mine in the East. Tygart Valley will have a very low cost structure, we think. And certainly designed with, again, a longwall mine. Traditionally longwalls should be your lowest cost operations, assuming you've engineered them correctly. We think it's extraordinarily competitive. And when you look at the cost structure of the continuous miner operations, again, one of the things we did in the acquisition analysis, we tested it with 2009 depression or severe recession pricing, and it works.

The last point, sometimes get glossed over, unless you're down into the details. The Tygart Valley reserves, all of them, Tygart 1, Tygart 2, Tygart 3, and ultimately Tygart 4, although they'll end up with new names, those reserves are owned in fee. We think Arch's projections over the next five years, that march towards the 15 million-plus tons by '15, and then more than that as we move forward, really survive any short-term or one-year downturn if the global slips into a double-dip recession here. So I don't think you'll see a slowdown there. The thermal markets, capital there might be shifted to the met markets if the thermal markets don't perform.

Lucas Pipes with Brean Murray.

Looking at your new contract position for 2012, it seems like you booked some very solid prices during the third quarter. Could you just give us a bit more color on the average quality of the new PRB contract? And then also walk us through the moving parts of the new commitments for Appalachian thermal coal.

On the PRB I think there's a combination. There was some ultra low sulfur in there, the generic 0.8 and even some 8400. So it was all three of our products, a combination of those. And as Steve indicated, we continue to be encouraged by the premiums and the interest we're seeing from the ultra low sulfur. When you look at the eastern thermal prices, a lot of those, as you look out, would be some of the ICG legacy agreements that the majority of those roll off by the end of 2013. I think we still have a little bit past 2013. Majority of them will roll off. So not seeing anything terribly encouraging in the thermal market for 2012.

I will tell you, I know there's been a real drawdown in inventories this summer, and I think people are trying to decide from a regulatory standpoint how they move forward. What I would tell you, when they do come to market and start buying, you could see a pretty quick reaction in prices certainly on the thermal side. We're going to continue to be market driven, as Steve said. We're pushing all our capital right now to met supply and we'll continue to do that until we see opportunities on the thermal side. So I think the market-driven approach there is fine. Some of the capital reduction has been at some of these thermal mines, and will continue to be there until we see some improvement in the market.

And last year during the fourth quarter we saw some rail issues. How would you describe the eastern rail situation today? Could we see similar impacts this year or do you think they are generally better positioned?

I think generally they're better positioned. Both of the eastern railroads went through fairly significant hiring and got most of that accomplished as they move forward. I think their plans are to maintain their current levels. We've also seen both of them commit to capital for new engines and additional locomotive power. Not to say that a hurricane or a flood or something doesn't disrupt something for a month. But right now it seems adequate. As one of the previous questions, I think if there's a continued major shift to PRB from traditional eastern buyers, you could see some bottlenecks develop as the railroads sort out that movement. But they really do look adequate moving forward.

Brian Yu with Citi.

I'm not sure if I missed this earlier, but with the six-month advancement in that Tygart project, how does this boost the potential 2013 production versus what ICG had outlined previously of 1 million tons?

I probably should let John answer this but I love it so I'll jump in here. ICG has looked at Tygart as basically being 1.5 million tons of thermal and 1.5 million tons of met. We look at it, it's the same theme, same wash plant. The steel and the wash plant is basically up. But we're physically lowering equipment in the Tygart number 1 mine. Right now we should see development production, Company-owned development production, begin next week. And now, admittedly, it will be coming out of the shaft with a two-ton bucket, so it truly is development and there's not a lot. But really on an ongoing basis, if you take that six-month advancement, we would expect, if you just assume the longwall starts up day one, it would be 3.5 million tons of high-vol A coal starting from that point forward.

And my second question has to do with just rail costs. I know a lot of that's borne by the customers but it does impact the mine size value of the coal. Are you seeing any stability in rail cost? And maybe you can comment on it generically even in the West or the East.

The rails, as I've told them many times, we have a love/hate relationship. And you're right, on really domestic thermal shipments, principally our domestic met shipments, the rail is contracted by the customer. On export shipments that go by rail it's usually contracted by us. We have seen that the rails are aggressive in their pricing when the markets are robust and supply is tight. At the same time, when markets soften a bit, or when there's opportunities to get a new customer into the fold, each one of the railroads will sit down and negotiate to try to make that movement happen. So it's negotiation, contract by contract. But clearly, as John mentioned, the movement up to Ridley. It's a long ways. Everybody knows that. It's certainly a 2-railroad move right now, or a 3-railroad move by another route. But the rails are willing to help develop that market. The last dollar is always an argument but they're working with us.

Brandon Blossman with Tudor, Pickering, Holt.

Hate to do this towards the end of the call but I'd like to take another pass at '12 Central App costs. Just starting from where we are today, third quarter, obviously we need to adjust for Mountain Laurel and roll in the cost structure of ICG. Are there any other less obvious adjustments we should make when we're trying to forecast '12 costs at Central Appalachia?

Not really, that's it. We're doing everything we can to keep our costs tight and we'll see how it goes. Certainly, the environment's tough. The geology continues to be a challenge for the industry in Central App. We think we have some of the best geology in the business. You're combining the lowest-cost producer in Central App with the next lowest cost. So we think we've got a good cost structure going forward. But until we get through the budget process, I'd be a little hesitant to say exactly where that number might shake out. But we think we'll be able to continue to put forth pretty good margins to the bottom line out of Central App, even on the thermal side. Certainly on the met side.

And it's important when those legacy ICG contracts which are under water roll off. Again, you just get a step-up there, even if the market doesn't change one iota.

And you'd said previously that roll-off was essentially done by the end of '13?

Most of it's in '13. There might be a little that goes into '14 but it's not really material.

Meredith Bandy with BMO Capital Markets.

I'm just going to rephrase a question that you already got. Which was, on the debt side -- this is more for John Drexler, I guess-- what is your target leverage ratios? And given your cash flow, how long do you think you'll give yourself to get there?

Meredith, we've discussed this in prior calls. As we look at our overall leverage, and we look at historically where we've been, we've typically been in that low 40% debt to cap. Post ICG, we stepped that up. Currently we're at 51%. We've indicated we want to take some of the cash flows, the meaningful cash flows we expect post the acquisition, and with our ongoing operations, to bring it back down to within that range. We are deep into the budget process now. But suffice it to say we continue to expect meaningful free cash flows in 2012. And so we'll continue to work to strengthen that balance sheet. So I'm not going to come out right now and give you a specific time frame when we think we're going to be back in there. But I think we're very confident with our overall leverage and what we expect as we move forward.

And then on the tax side, what's going on this year? Is it related to the ICO? What's going on this year that you have such a low tax rate? Are we going to see a more normal tax rate next year do you think?

What you see happening right now, and what you see rolling through in this quarter specifically, and how you account for income taxes, with the reduction that we expect in earnings for 2011 that we recently updated on, that brought down our expected pretax income. In our industry, we receive the benefit of percentage depletion. So that's having a direct impact in our profitability for the remainder of the year and our expectation for taxes. And that's bringing us below what we had previously guided towards. So right now for the year, we're expecting a tax provision of between 5% and 9%. As we move forward, and as our profitability levels increase, we've got significant deferred tax assets on the balance sheet. So we expect to be paying in somewhere in that range of 20%, 25% for the next several years as we utilize those assets. And we've indicated that previously.

Richard Garchitorena with Credit Suisse.

Two quick questions. One, you mentioned earlier that you saw some weakness in the low quality, high-vol coals. Are you seeing that from domestic or foreign customers? Also, do you think there's a risk that some of those crossover tons may get pushed back to the thermal markets?

You know, we've seen some weakness, but we haven't seen tremendous weakness. I think I need to clarify that or certainly emphasize it. We've seen a softening of the record highs we saw earlier in the year/ Right now we're not seeing a reversion back into the thermal markets because, again, not to get too specific on pricing, but the high-vol B type coals there might be super high-quality thermal coal, the pricing might be in the 70s or 80s. And the index is out there on a thermal market and they're well north of 100 still in the met market. So thus far we haven't seen any. We really don't anticipate it at the moment.

And then the other question, can you talk a little bit about some of the cost inflation we've seen across the industry in Central App over the past couple quarters? Is there any sign that that's easing? And also, where is labor turnover currently? Thanks.

I think labor, particularly in the skilled labor, taking that part of the question, is still a challenge. We've seen improvement in labor turnover as really the uncertainty of the whole ICG sale is settled down and the companies have been integrated as part of Arch. So we've seen an improvement there from the old ICG mines just simply, I think, by removing that sales uncertainty. But it's still a challenge, particularly in the mechanic, the electrical, electrician, welder, that sort of thing. And the mines are fighting to have that. So we anticipate that moving forward to continue and have built it both into our thought processes, our training. We're increasing training, red hats, that sort of thing. The old ICG offices where we moved the headquarters in our East, we're building a major training facility in the second floor as part of our longer-range planning. What was the first question?

On the cost side, I think. This is John. I think when we think about our position in terms of costs and the industry and inflation, I think the one thing that Arch has been willing to do over the last five or six years is we've been buyers and sellers of assets. And what we try to do is focus on properties that we can manage the cost effectively, in good markets and bad, met market, thermal market. And we continue to do that. I think you're going to continue to see pressure in Central App on the cost side as an industry. Arch included. But clearly I think we're in that upper tier in terms of low cost, and I think we'll continue to be so. As we said earlier, not real excited about what we're seeing on the thermal side right now. We think where inventories are, that that could change pretty quickly. That's of where we're managing our production levels on the thermal side.

Lance Ettus with Tuohy Brothers.

You guys obviously have made some bold statements on exports. Just if you have any update on the West Coast ports? And also you said imports are declining, which is obviously true. I had heard that there is an import facility that's considering switching to an export facility. Just to see if you have any knowledge of that or any other things like that going on. And I know that you said you want to play an active role. Is there an addition to your proposed West Coast port? Just those questions. thanks for taking my question this late in the call.

One of the earlier questions, we did talk about the Millennium bulk terminal, of which we have 38%. It's progressing slowly forward on its goal of submitting a permit application and environmental impact statement in really the first half, sometime probably at the end of the first quarter, beginning of the second quarter, that time frame. So I think the other terminals out there are progressing forward too, but there's certainly pushback. We see the Canadian ports continue to focus on expansion. In fact, I might rephrase that even to say every port in the United States that has the capability of export potential is looking at expanding, or in the process of expanding. And we continue to see that. You mentioned really the Charleston ship terminal is an import facility. There's certainly discussions out there that it might convert back to its original design which was an export terminal. And I think Arch's view of all of these is that we have discussions going on with all the various terminal operators. Large operators, mid-streamers. And we would anticipate that we'll see additional export capacity developing over the next several years. And it looks to us that the global market is going to need that supply.

Brett Levy with Jefferies & Company.

You mentioned the $110 million of synergies associated with the ICO acquisition and trying to push that to the bottom line. Can you talk about how much of that is in the bottom line now and what the time frame is to roll that in? And then also you said part of your initiatives in the current economic environment is to control costs and to cut costs. Are we going to see a specific program or a cost-savings target associated with headcount reductions or mine closures? Is there going to be something more tangible that we'll see out of you guys in terms of cost cutting, both in terms of the synergies number and in terms of future plans?

This is John. I would tell you that a small percentage of the synergies you've seen thus far, obviously some of the G&A and some of the other things have hit the bottom line. But really you won't see the majority of that until we get to 2012. A lot of the synergies were blending driven, operational driven. We're moving through the budgeting process. But you should see all that $110 million in 2012. Hopefully, that's a conservative number. If you look at our history over the last couple acquisitions, we've far exceeded our forecasts, and would hope that we can do that again this year. In terms of laying out by buckets, where we are in the synergies, I think we'll continue to update the Street each quarter. I don't know that we'll break it out in detail any more than that but you should see that benefit flow to the bottom line.

And in terms of evaluating mines, we've certainly done it in the past and we would continue to do it moving forward. When you look at some of the weaker thermal markets, you have to always ask yourself, can we make this mine work, and is it profitable in this kind of market environment. And if not, one of the earlier questions on labor, Arch's aside, we can offer our people opportunities elsewhere in the Company. But clearly that's one of the things we do look at and will continue to look at moving forward.

Dave Katz with JPMorgan.

Iron ore prices have moved down about 35% over the last two months. Obviously there's a difference in the supply dynamics between that and met coal. The demand dynamics we would expect to be somewhat similar. They're quoted differently. So we were curious if you think that any of the price decrease that you've seen there is going to be seen in met coal over the next month or two?

I think when you look at the overall metallurgical market, they've moved off their record highs from earlier this year. And we anticipate that moving forward, the uncertainty right now in Europe is certainly weighing on the market and our discussions with our metallurgical steel customers. All of them are saying -- Our business is okay right now but we're really concerned about the next quarter and we're uncertain and the crystal ball is fogged in. So I think there's a lot of caution in the marketplace.

But in our original acquisition economics of ICG, we had substantially haircutted the then current met coal prices. And right now we're pretty comfortable where we think they'll come in. You've seen spot weaken a little bit in some of the markets here in the last several weeks. But when you look at the fundamental in demands, it's going to be a highly profitable business. And, to an earlier question, we're really not seeing the volume pushbacks that really signal a substantially weakening market. We just haven't seen that.

So you don't foresee the price decline that has been seen over iron ore over the last couple of months?

I think you've seen the coal prices decline too. They've come off their records of well over 300, if you take the low-vol index out of Australia. It's down in the 275, 285 number. There may be some more there. We'll wait and see. But we don't see it crashing. You've had both of those markets soften over the last couple months.

Justine Fisher with Goldman Sachs.

My question is about Arch's pricing strategy. If I look at the number of tons that you've got committed, especially in the PRB for '12 and '13 now, it seems to be a lot more than you've had in previous years. And maybe my memory's wrong. And I know that an apples to apples with ICG is difficult. But even when I look at previous third quarter press releases, you always had 30 million to 40 million tons on price for the approximate year. And 85 million, 75 million on price for the following year. And it looks like you guy shave actually been willing to price a lot more coal now. It seems to be very different from previous strategies. So I was just wondering, A, whether I've got something wrong, whether it's true that that strategy has changed. B, what is motivating that strategy? Is it that the pricing is what you want as opposed to in previous years where it wasn't? Or is it some different take on the coal market where Arch as a company is willing to commit more tonnage ahead of time now that it seems you've previously been?

Justine, this is John. Really, there hasn't been any change in strategy. We're always looking at our strategy. We're market-driven. Yes, we've seen some opportunities, especially with PRB, that we think are good opportunities. So, yes, we booked the tons. I don't think there's any magic number this time of year that we have. It depends on the opportunities that are presented to us. And I think we've been very pleased, certainly with the ultra low sulfur. And even the generic products. So when we see those opportunities we can get an appropriate return, we're going to lock the tons down. And that's what we've done.

We think we've positioned the Company very well. We continue to be bullish. We think there's going to continue to be opportunities on ultra low sulfur. There's going to be opportunities for exports off the West Coast. Actually, there's going to be additional opportunities in '12 for PRB shipments in the Atlantic markets. So all those opportunities continue to be there. We always weigh the price on every transaction. We'll continue to be market-driven. And we think we've positioned the Company very well. My follow-up is on the Western Bit market. It sounds like you guys are pretty down on demand in that region. But it looks like your pricing is actually holding up pretty well, especially in terms of your commitments for '12 and '13. Is there some explanation for that? Is it just long-term contracts where your customers are locked into high $30 pricing for the next couple years even though demand seems pretty weak? Or how should we judge your qualitative comments versus the pricing you still seem to be able to achieve? We've done a good job on the marketing side. We're pleased with some of the realizations we've seen. But there's not a lot of opportunity. We continue to see high inventories in that part of the world. There's been some displacement from hydro in the Pacific Northwest. But on the other side, we're seeing the export market continue to be a real opportunity for Arch. I think I mentioned earlier, we're forecasting 1.5 million tons of exports this year. We're going to grow that to over 2 million tons next year.

On the US side, there's not a whole lot to be excited about, but we continue to watch that market. If you had a big pull on PRB coal into the East, you could see Western Bit follow that pretty quickly. We've seen that historically. Price is pretty sensitive in Western Bit. When you see a move like that, it can move pretty hard. So we just want to make sure that we position the Company to capture that upside when it does happen. We're prepared to be patient and leave the tons in the ground if it's not there right now.

Thank you. At this time, I'd like to turn the call back over to Mr. Steve Leer for any additional or closing comments.

I thank you for everybody's time and interest in Arch Coal. We've obviously gone over a little bit but some great questions, and really felt that we needed to try to answer all the questions that were out there, as many as we could. As I said earlier, and throughout the commentary, both John and myself, we're feeling pretty darn good about PRB. We're feeling very good about our met position. When you start think and modeling Arch moving forward in the next several years, those are the two drivers of our Company. We're adding and expanding our export capabilities. And that combination, I think, is a powerful combination moving forward into the next several years. So we really look forward to reporting more as we complete the budget process and start talking about 2012 and beyond. And we will do so at the next call. So thank you for your time.

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