Arch Resources Inc (ARCH) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to this Arch Coal Inc first quarter 2012 earnings release conference 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 me remind you that certain statements made during this call, including statements related 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 from 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 would 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, John Eaves, Arch's President and Chief Executive Officer, John Drexler, Senior Vice President and CFO, and Paul Lang, our Executive Vice President and Chief Operating Officer. 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. I plan to keep my comments very brief. As you know, I retired as CEO of Arch last week, on the date of our annual shareholders meeting. It has been a true honor serving as Arch's CEO over the past two decades, and I am proud of what we have accomplished over that timeframe.

I am particularly proud of Arch's exceptionally talented work force and the fact that they have consistently ranked at the top of the industry in safety performance and environmental stewardship. During the past 20 years, I've seen numerous market cycles and during each cycle, Arch has kept its focus on creating long-term shareholder value and exited the market trough as a leaner, stronger, more aggressive competitor. I expect it to be no different this cycle.

And, while the current thermal market is exceptionally difficult, and the stock price is a source of pain for all of us, I am confident that Arch is exceptionally well positioned for the future success, growth, and value creation. We have aggregated some of the best assets in the US coal industry and one of the lowest cost profiles when operating at optimum production levels.

The leveraging impact of a metallurgical coal franchise will leap forward with the startup of the Leer Mine next year and continue to grow in the coming years, as more high quality met reserves are brought into production. Let me emphasize, I couldn't be passing the baton to a more capable, talented leader. John Eaves is the ideal person to lead Arch forward in this rapidly evolving marketplace, which poses challenges, but offers even greater opportunities.

John and his team have put together an excellent plan for addressing the current market downturn and ensuring that Arch emerges from this period of market weakness as an even stronger global competitor. I want to personally thank each of you on the call for your interest and investment in Arch Coal, for your questions, your comments, and advice. You have helped us sharpen our communications and focus with investors and shareholders over the years.

Let me close by again saying that it has been a privilege and a deep honor to serve as CEO. And, I look forward to continuing to work with John and his team and the Board in my role as Chairman. With that, I will turn the call over to John Eaves, Arch's new CEO.

Thanks, Steve. Before I turn to discussion of the industry and our views, I would like to say a few words about Steve. On behalf of Arch's Board, management team, and employees, I would like to thank Steve for his contributions to the coal industry and to Arch Coal over the past two decades.

He's been a tireless leader and in the months and years ahead, we plan to take advantage of Steve's counsel as he continues in his role as Chairman of the Board. Thank you, Steve. Turning now to coal markets, we can all agree this has been one of the worst downturns we've seen since at least 2003.

While disappointing, it's also important to remember that we've managed through these tough times before. History shows that coal equities languished in 2003 and 2004, but gained momentum in 2005. Coal equities hit highs as it became evident domestic markets were under-supplied.

And, following the downturn of '06, coal equities rose again, driven by growth in global coal demand. Of course, each cycle has different drivers. But, they all eventually played out in the same way. A demand downturn reversed itself over time and the ensuing supply correction overshot itself, igniting the next upswing.

This scenario is likely to play out again over the course of 2012 and 2013. And, there are five drivers that should combine to restore coal markets to health over the next two years. The first is coal exports. We project that export capacity for US coal should reach 270 million tons by 2016.

This significant capacity increase includes port expansion along the East Coast and the Gulf region, particularly as the Panama Canal is expanded, as well as multiple projects moving forward on the West Coast. The second driver, strong met markets. There's a positive momentum building for met demand. Global steel production rates tipped up higher in March and supply constraints out of Australia began setting a price forward.

Over the next five years, we believe the met markets will remain under-supplied, with normal cyclical volatility. We also believe that the US companies like Arch can play even greater role in overseas met markets, because costs are rising to bring on new met production in Australia, Mongolia, and Mozambique. The third driver that will help fix coal markets is rationalization of supply.

We believe that we're in the midst of a dramatic restructuring of domestic thermal supply, whereby some players will exit the market and others, like Arch, will pare back operations until market conditions improve. As supply is shut in, or more is diverted into met export markets, the domestic market will again become under-supplied. And, that under-supply condition will become apparent as power demand reasserts itself.

Fourth is a correction in natural gas base. We don't believe sub-$2 gas prices are sustainable. But, like the coal industry, the natural gas industry needs time to self correct. Declining productivity in shale plays, reduced gas-directed drilling, and more rational players in the space seem likely to emerge over time.

And, lastly, we expect US power demand to grow, weather does revert to the mean, and US economy is starting to recover, with manufacturing, chemicals, and fertilizer sectors leading the way. All these factors will be good for the power demand, our industry, and our company.

Turning now to Arch Coal, I would like to review our comprehensive strategy, geared towards improving our execution, optimizing our portfolio, and enhancing our liquidity. First, let's focus on operational excellence. We're matching production targets to current demand by cutting our annual volumes by 25 million tons for 2012.

In the PRB, we've idled one drag line and one rail load out at Black Thunder and swung a second drag line into reclamation. In the second quarter, we expect to have a total of three drag lines down. While these volume reductions will have predictable consequences on our cost structure, we believe it's critical to reduce coal generator stockpile overhang in the PRB served regions.

However, as coal demand begins to normalize on more favorable weather patterns, and even small increases in natural gas prices, we believe that the unused capacity at Black Thunder can be brought back easily with virtually no capital and no major time delays. Our unused capacity clearly represents some of the lowest cost production in the basin and in the country.

In Appalachia, we curtailed production at our thermal operations and reduced the work force by roughly 500 people since the downturn began. At Mount Laurel, we've elected to leave the long wall down after transitioning to the Cedar Grove scene. In total, the long wall was down about 55 days in the quarter, with 20 of those days on idle.

While Mount Laurel's cost structure can play in any type met market, we chose not to force those valuable tons into the soft met market. The mine's long wall began operating again on April 9. In the Western Bit region, we're rationing back supply from higher cost operations, while continuing to service our customers. Other steps were taken include addressing cost escalations at the mines and on the admin side.

The largest single impact on our cost structure is the significant volume reductions. But, we look at everything, from rationalizing high cost supply, right sizing operations, eliminating overhead, reducing head count, and working with our suppliers to generate savings. The second part of our strategy focuses on optimizing our assets.

Since our last update, we've eliminated another $45 million in capital spending and will continue to evaluate options to delay future capital needs. At the same time, we will continue to spend time and money on port development and met coal expansion projects. We're focused on high return projects that will create the most long-term value for our shareholders.

In February, Millennium Bulk Terminal, our port investment on the West Coast, submitted a permit application with a coal export terminal that could handle up to 25 million metric tons initially and up to 44 million tons at full capacity. We're also progressing on the development of the Leer met mine, named in honor of our former CEO. The slope construction at the mine is on schedule and is on coal. And, the construction of the coal handling facility is 70% complete.

With two-thirds of the Leer mine's capital already spent or committed for 2012, we're close to bringing it online. With an expected cost structure that will allow us to maintain our cost advantage in that region, and with the anticipated high vol A pricing in triple digits, we believe the return potential at the Leer mine is compelling. Furthermore, we've finalized a strategic review of our mine portfolio and are considering potentially divesting non-core assets or reserves.

Given the uncertainty over timing of any action, we'll refrain from discussing specifics related to the potential value creation driver. The third area of our plan includes enhancing financial flexibility, the recently undertaken financing initiatives provide us with the liquidity needed to execute on our strategy. John Drexler will discuss the specifics in his remarks.

Our Board has also determined to reduce the dividend rate on Arch Coal stock at this point in the market cycle. Although it's not an easy decision, ensuring that our dividend expenditures are aligned with our reduced expectation is the best long-term decision for the company and our stake holders. Lastly, I wanted to briefly address our expectations as we progress through a challenging 2012.

Our new thermal guidance range eliminates nearly all unsold tonnage. To date, we have received some requested deferrals on our committed sales, 5% or so on overall volumes, that have affected our commitment tables in the release. We're working with customers to ensure that Arch retains the full value of those commitments.

At the same time, we're offsetting lower domestic sales with increased exports. While pricing is not where we would like, we are seeing solid demand for export tons. In total, we would expect to ship 12 million tons for export in 2012. Lastly, on the met expectations, we've placed lower quality met sales in the global market at net back prices of $85 to $90 per ton and are in negotiations to place our remaining tons with customers.

First quarter met prices averaged $122 per ton on shipments of 1.6 million tons. While we expect met markets to improve as we have progress through 2012, we have reduced our expectations to between 8 million and 8.5 million tons of met sales for 2012. We have put an aggressive plan in place to manage through the downturn and still execute on our long-term plan.

We believe the steps we are taking now will allow Arch to emerge as a stronger player in the global coal markets. With that, I will now turn the call over to John Drexler, Arch's CFO, to provide an update on our first quarter results and the recent financing achievements. John?

Thank you, John. Arch reported GAAP net income of $0.01 per share in the first quarter. Excluding sales contract accretion on acquired coal supply agreements, the adjusted net loss was $0.04 per share. Revenues were up 19% versus a year ago, but costs were up as well, due to the challenge of absorbing fixed costs at lower than expected shipment levels.

Quarterly EBITDA totaled $180 million, generated by our operations, profits from trading, higher income levels on equity investments, and the sale of non-core reserves, as outlined in our comprehensive strategy. Looking ahead, we are focused on reducing costs and capital spending needs for 2012 and for future years. At the same time, we are proceeding with investments where we are highly confident that we can earn a return above our cost of capital.

We believe this is the right course of action to create shareholder value over the long-term. Turning briefly to our regional results, we saw higher pricing per ton in the PRB, but our first quarter margins fell due to lower shipments and higher cash costs. In Appalachia, we continue to execute on our cost reduction initiatives, though the positive impact of these initiatives were offset by the temporary idling of Mount Laurel, as well as severance and closure costs of $7 million.

In the Western Bituminous region, we reported strong cash margins, though domestic shipments were below expectations. We were able to offset lower domestic sales, with increased exports. Looking ahead, we expect to average two long wall moves per quarter for the remainder of 2012 in the region, which should cause our costs to trend higher there.

Turning now to our balance sheet, we are executing an aggressive strategy to enhance our financial flexibility. We believe our plan will position Arch to refinance near-term debt maturities, increase liquidity to succeed in a tough operating environment, and continue to execute on key long-term growth initiatives, particularly our met coal portfolio, which will help us to generate incremental EBITDA beginning in 2013.

As part of the overall financing package, our bank group has agreed to amend our senior secured revolving credit facility to suspend the total debt to EBITDA ratio and other financial metrics over the next 24 months in exchange for achieving minimum performance targets that both parties believe are achievable, in light of the current market environment. In addition, we'll reduce the revolving credit facility by $1 billion, but will replace the reduced portion with a funded term loan.

The term of the credit facility will remain 2016. We have commitments to fully underwrite the $1 billion term loan, subject to customary conditions pending the close. Given the ongoing nature of the process, we are limited as to how much we can discuss regarding specific terms. It is important to note that we will -- that we believe the term loan will have no financial maintenance covenants and is pre-payable.

We plan to use the term loan proceeds to further improve our liquidity position by repurchasing or redeeming the Arch western finance notes of $450 million, which mature in June 2013. This buyback simplifies our capital and reporting structure. In addition, Arch will use other proceeds from the term loan to pay down outstanding short-term borrowings.

Together, this financing package represents the lowest cost alternative, while providing us with the most financial flexibility to manage through these challenging market conditions, while still focusing on capturing long-term opportunities. Upon completion, Arch will have no significant debt maturities until 2016. As a reminder, none of our unsecured bonds due 2016 and beyond have financial maintenance covenants.

Lastly, I want to review our updated guidance. As you can see, we've reduced our open sales position to address current market conditions, and the unseasonable build in customer coal stock piles. Our new ranges effectively remove nearly all open thermal tonnage, while leaving a 25% open position in met volumes.

While we hope that coal markets improve as we progress through 2012, we don't plan to push tons into an already over-supplied market. We now expect thermal sales volumes in the range of 128 million to 134 million tons, with met sales between 8 million and 8.5 million tons. Cash costs in the range of $11.50 to $12.50 per ton in the PRB, $24 to $27 per ton in Western Bit, $68 to $73 per ton in Appalachia, and $32 to $35 per ton in the Illinois Basin.

DE&A in the range of $520 million to $550 million, SG&A in the range of $125 million to $135 million, excluding one-time financing costs associated with the amended revolver and term loan, interest expense in the range of $290 million to $300 million, which contemplates the change in our financing. And, capital expenditures of $410 million to $440 million.

Given our current outlook and the impact of percentage depletion, we expect to record a tax benefit in the range of 40% to 60% of our pretax loss for the full year. With that, we are ready to take questions. Operator, I will turn the call back over to you.

(Operator Instructions)

Shneur Gershuni.

Hi, good morning, guys.

Good morning, Shneur.

Just a clarification before I start my questions. John, just can you clarify with the financial package, everything is actually in place, or you just got to cross some T's and dot some I's with respect to proceeding with everything?

Yes, Shneur, essentially everything is in place. There are some ongoing things just to close the transactions on the credit amendment. We've received signs of agreements, commitments from over -- the majority of the banks that participate on that facility.

That process will continue, but at 50%, that's a successful execution. So, that has been completed. The term loan is fully underwritten. We have signed commitment papers for the underwriting of that, given that process, I'm limited on what I can say there. But, we have described in my comments and in the press release everything we can discuss there.

So, yes, everything's in place. As we saw the market continuing to evolve, it was important to us to be proactive and work with the banks and address some of the issues and concerns we saw developing with the markets. And, as we move forward and we think we've been successful in doing that here at this point.

Okay, and my question, the first is on coal production, second on met coal. Just, you've definitely done a sizable production cut. Obviously, it was definitely needed. I gather your crystal ball's probably a little murky at this stage right now. But, are there any ongoing discussions that still have to be settled? Or is this guidance cut your best guess of all the information that you have available?

Or are we going to go through another round of this later on in the year? And then, secondly, on met coal, I was wondering if you could talk about the ICO met coal assets, about how they are performing? Are any of them idle, or is it primarily the pullback just on legacy Arch, just given the fact that you have the opportunity with the long wall already down at Mount Laurel?

Yes, Shneur, on the cuts, yes, these decisions are not easy. And, we've gone through every operation we have and taken a pretty thorough look, and we think we hopefully made the last cuts. The last call, we indicated we would cut about 5 million tons. Now, we've cut another 20 million tons. A big part of those would be in the PRB.

Given the sound demand that we see in the market right now, we just don't think it makes sense. So, therefore, we're idling the three drag lines during the second quarter. The eastern thermal market continues to be soft. So, we've made some further cuts there. No further cuts in Western Bit. We wouldn't anticipate any additional cuts there.

Continue to be encouraged by what we're seeing in the international market, particularly out of our Western Bit. On the met, if you'll remember, our midpoint last call was 9.5 million tons. We've pulled that back to 8.25 million tons, given the softness we saw first quarter, the fact that the long wall at Mount Laurel was down, we thought that was prudent. If something materializes the back half of the year on the met side, we would probably try to take advantage of that.

We are seeing capacity factors continue to improve. It's about 81% right now in the US. Globally, it's about 81%, 82%. We're forecasting about a 5%, 6% growth in steel production for the year. So, we're cautiously encouraged by what we're seeing on the met market.

In terms of your question on the ICG assets, I would tell you if you look at the top four to five properties in terms of cash margins and EBITDA contributions, certainly the met mines that we've got from ICG are in that. I would talk about Beckley, Sentinel are clearly making major contributions to our EBITDA and cash margins. Some of the mines that we have closed in central App on the thermal side were some of the ICG mines that we just didn't think made sense in this marketplace.

But, we're very pleased with the met assets that we've gotten from ICG, the build-out that we've got on the Leer mine starting in '13. We're very excited about it from a cost standpoint, from a quality standpoint, from the ability to access the global markets, as well as the US markets. So, that's why, as we pull back capital, we continue to spend capital on these projects that create real margins and we think the Leer mine is one of those. And, it's going to be a big part of our future.

Great. Thank you, very much, guys.

Thank you.

Mitesh Thakkar.

Yes, hello, guys.

Good morning.

Good morning. Can you talk a little bit about -- you just mentioned about managing the portfolio and divesting some non-core assets. Can you just talk a little bit about what areas you are looking at, more thermal, met Illinois basin, Western Bit, how do you think about that?

There's been a lot of rumors out in the press and we just don't comment on the M&A rumors that end up in the Rags. What I will tell you is that over the last 20-plus years, Arch has always looked at their portfolio. We're buyers, we're sellers of assets. We'll continue to do that.

So, if we have a non-strategic asset that somebody else can come in and provide more value, we're willing to potentially monetize that. But, it's always an ongoing process at Arch and if we don't get appropriate values, we keep those assets. So, other than that, we just really wouldn't care to comment further on that.

Okay, fair enough. And, just looking at your CapEx spend, it looks like you are pulling out some more CapEx and postponing some discretionary spending. How should we think about its impact on some of the growth projects? I think, as you mentioned in the press release, probably Tygart Valley Phase I looks like it's still a go. How should we think about the projects and where is that CapEx cut coming out of?

I'll tell you right now, we took another $45 million of capital out and the focus is, as you said, the Leer mine and growing that met supply. We pulled back a little bit on some potential continuous miner production in that area, but can bring that on fairly quickly. The balance of our capital would be maintenance capital. We've really no meaningful growth capital beyond the Leer mine right now. We would expect to monitor that as we move into 2013.

But, wouldn't expect to see major step-ups in capital as we go into 2013, given what we see right now. But, the real focus being on getting the Leer mine production in the market in '13, get it developed with US and international customers. And, as you see that happen, you're going to see a major step up in our margin expansion as an organization.

Great. Thank you, very much, guys.

Kuni Chen.

Hi, good morning, folks. First off, obviously, the state of the coal markets one year from now is certainly anyone's guess, but certainly it's feasible that more production across the industry will need to come out, even headed into next year. Can you perhaps give us some sensitivities around what a, let's say, a 1% production cut would mean for your costs in eastern thermal and PRB?

Well, if you look at these cuts that we've made, we've built all those cost increases into our forecast. And, if you look at our cash costs, the PRB reflects a much reduced production schedule, as does the thermal markets, the met, et cetera. So, I think that's built in there. We really eliminated our exposure to the thermal markets right now. We've got a little over 2 million tons we need to still put in the met markets.

Given what we see, we think we can easily do that. And, as I indicated earlier, if we see some opportunities, hopefully we can do a little bit better than that. But, if you look at our cost guidance right now, it's all built in there, as we think about moving forward. If you look at the industry as a whole, MSHA data had production down first quarter about 14 million tons.

So, if you annualize that, it's about 56 million tons. That's what we're seeing right now. Coal consumption, we're calling about 75 million tons off this year versus last. So, we would agree with you that there's probably some additional cuts coming. But, we've positioned Arch very well to come out the other side of this a much stronger company.

Okay, great. And, just as a quick follow-on, I guess, can you -- obviously, it's going to be rough going for Arch and the industry for the next couple quarters. How do you think the company may approach how it goes to market differently, once the industry stabilizes? Maybe you could talk about some lessons learned here, and just overall thought process on risk management and strategy, longer term, if there's any shift there?

I would say that we've been a market-driven company. We'll continue to be that way. We're focused on when we see improving markets to layer in sales. And, we've said many times, and I'm sure you've heard Steve say, that we're not smart enough to catch the top, but we want to always be layering in business.

We came into this year with about 85% of our thermal coal committed. Obviously, we weren't counting on the market to come back to us like it has. Natural gas prices continue to erode. Coal inventory's built through the winter months and the economy was pretty sluggish. But, as we think about 2013, would we look at putting a higher percentage to bed as we move into 2013?

Absolutely, we would. I think it depends on the opportunities we see in the US and the international markets. But, it's -- our portfolio and our sales approach is something we're always looking at and we're always tweaking to try to maximize value. And, we'll continue to do that.

Great, thanks.

Brian Gamble.

Good morning, guys. Wanted to talk about central App a little bit. You noted the thermal operations that are closed and as well as the Mount Laurel operation that's back on and running. Maybe you could juxtapose a couple things, talk about are those operations on the thermal side gone permanently?

Or are those, are any of those temporarily idled? And then, maybe talk about the mix between met and thermal, the Mount Laurel coming back online while idling some of the thermal assets, how that impacts just your overall profile in central App as we go into the back half of the year and into '13?

Yes, first, on the thermal closures, nothing we've closed is something we can't bring back with some time and people. And, if we saw a sustained market in the thermal side, whether it's in the US or internationally, we would certainly consider bringing those assets back. On the Mount Laurel side, it's some of the best cost coal in the eastern United States.

One of the reasons that when we completed the long wall move from the Alma to the lower Cedar Grove, we left it down an additional 20 days just because we didn't want to force low cost tons into a relatively soft met market. But, as we're back up and running now, we started the wall on the 9th of April. It's running well.

The footage continues to get better. I would tell you that, as we've said in previous calls, the seam is a little bit thinner, about 10 to 12 inches, but we think the coal quality is a little bit better than the Alma that we were mining. So, we hope to more than offset that in the marketplace.

We really don't expect any of the volumes out of Mount Laurel to go into thermal market right now. We're focused on pretty much met and maybe a little PCI. And, think they will replace that volume between now and the end of the year.

Great. And then, you noted some deferral requests, not unlike everyone else in the business right now. But, talk about, I guess, the magnitude, the 5%. Is that about what you had expected?

And, what is the general attitude that utilities have had towards that reduction? Are they asking to push years? Are they asking to push quarters? And, if so, what is their preference, your customers' preference, for how to go about maintaining the integrity of this contract?

Yes. Well, I would say it's a little bit less than what we saw maybe in 2009, Brian. We're probably pushing 10 million tons in 2009. Right now, we're saying it's in that 5% range, so call it about 7 million tons. And really, it's a whole variety of things.

I mean, we're pushing tons from the first half of the year, the back. We're pushing tons into '13 to '14. And then, we've had discussions on just pure monetization of some of the contracts. So, I would say it's all those.

What I will tell you is that we're preserving value on all those. We do not intend to give up any value and actually trying to build value through the restructuring. So, hopefully we've got all that in there for the year. It depends on the summer weather and what we see the back half of the year. But, we think we can manage through it pretty efficiently.

Thank you, John.

Thank you.

Andre Benjamin.

Good morning.

Good morning, Andre.

Hey, Andre.

First question, on Mount Laurel being idled, should we take your decision to bring back the long wall as indicative that customer interest has actually started to pick up? Or are you mainly just bringing it back in anticipation of a stronger market, given some of the supply concerns out of Australia?

And then, I guess, given that it's a low cost asset, could you discuss why you chose to leave that long wall down versus bringing that back as quickly as possible? And, maybe shut in some of your higher cost operations?

Yes, I mean, really, the reason we did it we wanted to preserve those tons for better market and we have seen an improvement in the market. I mean, we're not ready to claim victory yet. But, I will tell you what we're seeing towards the back half of the year with capacity factors in the US and globally. We're seeing good demand for our product.

And, if you look back over the last two or three weeks, there's been a step up of about $5 to $7 a ton in the met markets on the spot. And, we're starting to see that. And, we just thought it was prudent to bring that back in early April and really feel pretty good about the outlook for the balance of the year.

Thanks, and one other question. I know you made a number of significant changes and announcements this morning. Are there any other major strategic or operating topics that we should expect to get updated color on at your analyst day later this month?

I think clearly, the operating guys have done a great job in managing their costs when we brought down significant volume. I think we -- it provided pretty good ranges on your costs as we move out. Our analyst day's going to be over -- we're going to showcase our Beckley mine. I think it's one of the more impressive mines in the country. Good quality coal, good cost structure, travels very well in the US, as well as internationally.

So, no, I think it's a mine I think you're going to be very impressed with. We have right sized our business. We think we've got it to a very manageable level right now, with these cutbacks. We plan to manage through this tough period, we've done it before. We think we've got a very diverse asset base. Whether it's thermal coal, met coal, we've been very proactive in terms of going out and seeking port capacity.

And, we'll be one of the largest, if not the largest, exporter over the next three to five years of thermal and met coal in the seaborne market, where we see most of the growth. So, no, I mean, we are managing through a tough environment right now. But, when we think over the next three to five years, we feel very, very good about where the company's headed and how we're positioned in that space to take advantage of what we see in improving marketplace globally.

Thank you.

Thank you.

Meredith Bandy, BMO Capital Markets.

Hey, good morning.

Hi, Meredith.

Hey, Meredith.

So, my first question is on the CapEx, I guess, just to put a little finer point on it. Last time, I think you said 50% of the previous guidance was for the met coal projects. So, that amount is unchanged, right?

That's correct. It's -- the build-out, we've spent about $85 million last year on the Leer mine and the plans are to spend about $180 million, $190 million this year. That's correct.

Okay. And, so then, the rest, the cuts really come out of maintenance. Should we just consider that maintenance across the board, or was there a particular region that's taking more of that than others?

I think you can consider it across the board. If you look at where we've made our cuts in the PRB, we've idled a lot of equipment, so we don't have those normal maintenance expenses that we would have in a normal marketplace. Some of those were in central App as well. But, I would say the biggest part of those were probably in the Powder River Basin.

Okay. And then, if we think about your 12 million tons of export, how does that split between the basins? And, if you can give us any sense of just taking a snapshot of the freight rates and the rail rates you're seeing, what sort of international prices do you need to be in the money in the basins?

Well, it's -- if you look at the 12 million tons overall, it's going to be about 70% of that will be on the thermal side and the balance will be on the met. I would say that the railroads have stepped up to the plate and continue to help us move met coals, as well as thermal coals into the global market. We continue to move volume out of the PRB to the West Coast. I don't know what the latest volume forecast is there, but call it between 1 million and 2 million tons.

The Western Bit region continues to grow in the global marketplace. I had indicated last call that that was somewhere between 2.5 million and 3 million tons. I still think that's a reasonably good number. And then, out of central App on the thermal side, we're actually looking at several million tons in the international market there. And then, the balance of that would be our met volumes.

And, if you think about last call, we had about 4.9 million tons of met committed, virtually all of that was in the US market. So, the balance, if you get to that 8.25 million midpoint, the balance of that would go in the international markets. So, that's the makeup of the 12 million tons. In terms of what prices it requires to get a good return, I mean, we don't like the prices we're seeing right now in the international thermal markets.

API's been moving around pretty hard recently to the downside. But, what we've been trying to do as a company, because we see how important the global marketplace is over the next three to five years, we've been trying to develop a customer base off the West Coast, off the East Coast, and through the Gulf.

And, the net backs aren't something that we're real proud of, but we think it's important given our growth strategy over the next couple of years to develop those customers. And, that's what we've been doing. And, as we all know, the API prices can move pretty hard either way. And, we want to make sure that we've established these customer contacts and have a seat at the table when we see the market improve.

All right. Thank you, very much.

Thank you.

Michael Dudas, Sterne Agee.

Good morning, everybody, and congratulations, Deck and John, on the promotions.

Thanks, Michael.

First question is, John, how long ago did the organization and the Board maybe, in conjunction with you --.

Michael? Hello?

It looks like we lost Michael.

Okay.

Okay.

Justine Fisher, Goldman Sachs.

Good morning.

Good morning.

Good morning, Justine.

So, the first question that I have is on the strategy for 2013 and given -- I mean, obviously, you haven't given production guidance for 2013. But, given that the cost guidance for PRB for '12 is $11.50 to $12.50, my question about selling in '13 is, you obviously -- maybe you can, but to me it seems like it would be difficult to just not sell what's uncommitted for '13 like you've done with 2012.

So, when you're making commitments for '13, do you look at your average PRB price versus the cost, i.e., including your already committed tons, or your spot PRB price versus your cost? So, would you sell spot tons at $11.50 if your cost is above that, as long as the average price gives you a margin, or would you not sell any spot tons if they are below your cost regardless?

We might sell some spot tons if it's something that was close to our cash costs. We've done that in the past. We've done it in the last six to twelve months. That's something we evaluate on a case by case basis. But, if it helps us optimally run the mine we will do that. When we think longer term, we want better pricing.

If we're going to commit our coal for three years, we need a better realization, something better than our cash costs. So, that's the way we look at the market. I think it's really on a case by case basis and we make a determination based on what's going on at the time.

Okay, and then, as far as the covenants on the credit facility, it seems like you would raise enough money to repay all the drawings under your secured credit facility, with the new term loan. And then, when the covenants kickback in in 24 months, what are they at that time, or what -- are they what they would have been? Or are there new maintenance covenants that will kick in, I guess, at the beginning of '14?

Justine, this is John Drexler. Right now, with the credit amendment not being completely finalized at this point, we can't get into a lot of detail. But, the covenants -- actually the relief from the leverage ratio, debt to trailing 12 months of EBITDA, actually goes through June of 2014. At that point, some of the covenants do come back in and reestablish themselves.

We'll have more color on that once all of the facility is finalized. But, at this point, we think we've created a substantial window here through what arguably, and as we've all discussed, will be challenging market conditions for sometime. This process in working with the banks, we've got a supportive bank group. They understand where we are in the cycle.

We've built a structure that we think will be putting us in a position to achieve a wide variety of market scenarios as we move forward. And, that's over sometime, where we clearly have uncommitted volumes in the outer years of 2013. But, we'll have to watch that continue to evolve.

If there's significantly negative developments for Arch in the industry we feel confident at some point well into the future we would be able to hopefully go back to the banks, if need be. But, at this point, we think we've built a structure that allows us to work through what we think will be the market cycle here through the process.

Operator?

Okay. We'll move next to the site of -- and looks like we have Michael Dudas back online.

Guys can you hear me now?

You disappeared

Yes, we lost you.

Sounds like a mobile phone commercial, right? Just two questions. First, I was trying to say, John, when did you and the Board start thinking about this plan? Was it a reaction to the difficult, January-February, the marketplace?

Was this something that's been thought about over the past few months? Give me your view on that front. And, with regard to that, any thought about Coal Creek and where that stands relative to opportunity to monetize or to cut back production?

Michael, no, it's not something we just started recently. Steve and I have been communicating with the board for quite sometime. And, we start our budgeting process in October, November of a given year and we were starting to talk about seeing some softness as we were putting the budgets together. And, it's been an evolving process. We didn't think that we would have no winter.

We didn't think natural gas prices would continue to decline like they have. So, this thing has just been building. And, we just got to the point that we thought it was the right business decision to pull back, manage our business, eliminate our exposure to the thermal markets, and manage through this thing. We've been through these before. We've managed through them well.

And, our goal was really to come out the other side stronger than we went in. And that's why we've continued to focus on the met build-out, managing our capital, and trying to manage the costs the best we can. So, no, I wouldn't say it just happened. It was something that we've been talking about for a period of time, that had just progressively got worse and we reacted to it.

And, Coal Creek?

Coal Creek, it's something that when we're looking at these business decisions, we're always taking a look at Coal Creek and how it plays into Black Thunder. But, I will tell you that we have a solid customer base at Coal Creek. And, it specifies that that coal needs to be shipped on those contracts.

And, with our cost structure from that operation, we don't have any immediate plans to do anything there. I mean, it's always something we're talking about. But, given our customer base there and our commitments, we're pretty comfortable continuing to run Coal Creek.

Paul Forward, Stifel Nicolaus.

Yes, thanks. Good morning.

Hi, Paul.

Good morning.

On the PRB, you gave a pretty wide guidance range on cash costs of $11.50 to $12.50. I'm just wondering, considering that you've eliminated the unpriced tons, I was wondering why there's such a big range on the cash costs?

And then, on the $11.50, on the low end of that range, would we need to get one or more of the drag lines back up and operating in order to achieve that low end of $11.50? I mean, I guess this quarter it was $11.24. So, I was just curious if you could talk about that range and how you could achieve the lower high end of it?

Paul, since we got our new COO in here, I'm probably going to avail myself of this benefit and let him field that one.

Well, I think, Paul, as you look at the first quarter, things dropped pretty fast. And, I think, we reacted to it as quick as we can. Going forward, you look at the cash cost structure we think we've built in the fact that the three drag lines will be idle. And, we wanted to give ourselves some margin, particularly on where we ended up on our -- or what process we do in cutting back the costs and give ourselves a little bit of margin of error.

Paul, what we tried to do when we made these revisions, we've tried to put a plan in place that we can manage to and meet. And, we think that's important, given the tough environment we're in. And, Paul and his team do a great job in managing costs. If you think about the volumes that we've taken out and what we're doing to some of these operations, it's a real credit to him and his team, the way they have managed through this.

Paul, another component that causes some uncertainty with that cost structure having -- putting us in a position to put a wider range out there is diesel fuel. As we've indicated previously, we've entered a hedging program where we're essentially protecting the company against increases, volatile increases in diesel pricing, but we benefit if the pricing declines. So, that's another area, given some of the volatility that we see in the diesel pricing arena, that's built into that range as well.

Great. And then, on the, one of the other sources of uncertainty in the model is the couple million tons of unpriced met coal this year. Just wondering if you could talk a little bit about the, the lower Cedar Grove, the Mount Laurel production these days? And, I guess that's still pretty much a high vol B coal. Where are high vol B markets today?

And, does -- how does that Cedar Grove quality match up with what the market's needs are today? And, what -- if you were to do a back of the envelope plug-in, what could we assume with some margin of error on the unpriced business? Is it 80%, is it 100%? Are we somewhere in that ball park for that type of coal?

Paul, when you think about lower Cedar Grove, as I mentioned, it's a little bit thinner seam, but the characteristics are a little bit better. I think the sulphur might be a little bit lower, the coke strength is a little bit better. What we're seeing in the market for that type quality coal, it is a high vol B, it's fairly comparable to the Alma seam.

We're seeing that $85 to $90 range right now. That's what we're seeing in the market. That's what we're selling. We're seeing good demand. If you think about our uncommitted volumes for the balance of the year, the majority of our uncommitted volumes are the high vol B.

We may have a little bit of high vol A in there, which is a step up in realization. But, for the most part, I think that $85 to $90 price range we're seeing today is what we would expect. Now, hopefully we see some improvement. We see some recent settlements in the spot market at $216, $216.50, which is encouraging given the most benchmark was $210.

So, capacity factors continue to inch up here and around the world. China was on a pretty torrid pace in March. We're cautiously optimistic that hopefully we can do better than that. But, I think if you're modeling this thing, that $85 to $90 range is probably a good price.

Okay, thanks, John.

Thanks, Paul.

Brian Yu, Citi.

Thanks, and good morning. I have a question on your 2012 contract portfolio. Could you comment on the core on core change in average pricing? Because when we talk about the implied, it looks pretty low, but I know there's more going on there within the context, maybe, deferrals, new contracts, and exports that's rolling in.

What region were you talking about?

All three, if you could, PRB, we're getting a negative imply price, which I don't think is right. Western Bit, $12. Central App thermal, $41.

Yes. All those have pushed back tons in them and that's what's drawing that price to the negative. There were some lower price export sales. But, for the most part, if you look at that 7 million tons or so of pushbacks, most of that's in there creating those negative numbers.

And, what would be the offset, just given your comments earlier about trying to preserve the MPV value of these?

Well, I mean, obviously, for example, we had one large contract, if you look at 2013, on the table. When you step down about 1.2 million tons, we restructured a big contract out of our West Elk mine and actually took that volume to the PRB in 2014, 2015 at a real premium price to the market. So, we created value there and helped the customer in the short-term. So, we're looking at those type things.

Okay, and then, my second question is just on the change you made in the credit earlier. Can you disclose what your liquidity position is now and then the previous adjustments that you've made, if there's any difference?

Yes, Brian, that's -- this is John Drexler. As we sit here today, prior to the full execution of, and finalizing the plan, as of March 31, we have about $700 million of liquidity under our existing structure. Post all the transactions with the refinancing activity that we're doing, as we look forward with cash that we'll have on the balance sheet, with full availability of the revolver we would project that we're going to be approaching that $1 billion range of liquidity post all of this activity.

Okay. Thank you.

Brian Atwell. And, due to the participants in the queue, please limit yourself to one question.

Thank you. I think that's Wayne Atwell. Steve, congratulations on your move. I had a question on the export capability you have. And, you've pretty much touched on this.

But, maybe, could you give us just a quick review on what you have planned? And, I would guess with the tone of the export market, you're probably going to step up your export capability and, maybe, what you might do in addition to what you've already done.

Yes, let me talk just first about the general industry. We exported out of the US last year about 108 million tons. We're forecasting about 114 million, 115 million tons this year. Arch's internal forecast over the next couple years are probably 10 million to 15 million tons per year of growth in the global markets.

As we look at the demand growth in the -- particularly Asia, but all around the world, we've identified about 290 gigawatts of new coal fire generation that are going to come on over the next 36 to 48 months. And, when you look at the supply projects around the world, and those are going to need about 950 million tons of additional supply, that exist today. You're talking about more than replicating the coal industry today.

If you look at all the supply projects all over the world, Mozambique, Mongolia, Australia, Canada, and you assume that all of those projects come on as scheduled on time, which can always be a challenge, you come up with a cumulative shortfall of about 300 million tons over the next 36 months. So, what we've tried to do as a company is position ours to be able to take advantage of that shortfall in supply.

So, if you look at the capacity today, call it 110 million, 115 million and you look at the expansion projects going on, whether it's Eastern seaboard, Western seaboard, or Gulf, New Orleans, or Houston, we think it's very feasible by 2016 to have 270 million tons of throughput capacity out of this country into the global market. So, what you're seeing is the US going from more of a swing supplier to a long-term strategic supplier in the global markets.

So, how does Arch play in that? Well, last year, we shipped about 7 million tons of exports. This year, as I indicated, it's in the 12 million range and hope over the next six to eight years, it would be well above 30 million tons. So, we're trying to position ourselves through expansion of our own facilities, throughput agreements, whether it's East Coast, Gulf, or West Coast, to be able to position ours ourselves to take advantage of this growth we see.

Dave Katz, JPMorgan.

Hi, just to follow up on that last question. I recognize the need by the industry and the desire by the customer to have the coal flow offshore. But, it would seem that there's both local opposition and, more importantly, EPA opposition to that happening. How does that enter into the ability to expand to that 270 million number?

Well, I think the big challenge right now, if you look at that 270 million ton number, about 40 million to 50 million of that's off the West Coast. And, some of that capacity's in place right now. There's a couple projects that are in development out there. Arch is involved in one of those.

We have submitted our permit. We're going through the process now. We're going to do a full blown environmental impact statement on that facility. So, yes, it's going to be a challenge. It could take us four or five years to get it done, but, again, we're creating hundreds of jobs.

We're spending $600 million plus in Longview, Washington to develop this facility and we think the world the needs coal. It's something we're going to continue to pursue. We'll have challenges from time to time. We think at the end of the day, we'll prevail.

David Gagliano, Barclays.

Hi, thanks for taking my questions. I just have one quick question. On the -- in the press release, I compare Q1 versus Q4. I know there's something going on there, but for 2013, it looks like your PRB commitments went up 7 million tons during the quarter. And, it actually looks like it came at a pretty good price. I was wondering if you could talk to us about what happened there in Q1?

Yes, I mean, we booked about 7 million tons during the first quarter for 2013 at pretty good prices. And, we feel good about that. Just like I said earlier, that we're focused on trying to get value when we place these tons longer term, and we're encouraged by what we were able to put to bay.

Lucas Pipes, Carret.

Good morning.

Good Morning.

Quick question on the met coal side. First, could you maybe give us a breakdown of what you plan to ship domestically versus what you plan to export? And then, in terms of on the domestic side, do you think natural gas use in blast furnaces is having an impact on your business?

And then, on the export side, how would you say -- I know you've sold a lot of your higher quality met coal already. But, how would you say this Beckley product trends versus the recent benchmark?

Yes, on the natural gas piece here domestically, we've heard a couple steel companies talk about it in their calls. We've actually talked to some of our customers and really aren't getting the feeling that it's impactful at all. So, I would tell you that we really don't see an impact here in the US.

When we think about what we're shipping domestically, I think you need to think about 4.5 million to 4.8 million, 4.9 million tons that's going to go to the US markets and the balance of that will go in the international markets. The other part of your question on the international piece -- oh, Beckley. Yes, we think Beckley's some of the best quality in the world.

And, if you look at the low vol, it compares comparably with maybe a slight discount to the peak down Saraji coals in Australia. But, clearly, it's a well known coal in the US and becoming a better known coal around the world. So, when you combine that with the increased production at the Leer mine, and you think about our overall portfolio, today we're 25% to 30% of low vol and high vol A.

By the time we get to 2014, 2015, over 50% of our portfolio will be high vol A and low vol. So, not only will it play very well in the US markets, but it will play well in the global markets as well.

Chris Haberlin, Davenport & Company.

Hi, good morning.

Good morning, Chris.

Can you just expand -- there was a question earlier about the 7 million tons of PRB. Was that new business or was that anything that was deferred from this year going forward, or was that a long-term contract? And then, as you look out to 2013, what's your appetite for booking incremental thermal volumes? And, what's the customers' appetite for taking additional thermal volumes, given inventories and the uncertain environment?

Chris, I think that 7 million probably had some tons in it. We're restructuring. It's a combination of new business and restructured agreements. As we think about 2013, as we said earlier, we're not willing to sell coal on a sustained basis at even near cash cost. I think, when we look out over the next one to three years, we're still seeing reasonably good prices.

We're seeing good demand, as we think '13 and '14 and would hope to continue to layer that in in those latter years. If we have a normal summer, this summer, I think you're going to see more and more customers come to the market, start thinking more about 2013 and 2014. We've identified a lot of demand out there particularly for '13 and '14 that we think offers real value for Arch Coal.

Matt Vittorioso.

Yes, just a quick first question. Does the tender for the Arch western bonds trigger any kind of tax consequence? And then, secondarily, on coal to gas switching, we've heard from some guys that infrastructure limitations are really limiting any coal to gas switching, even if gas were to continue to go lower, do you share that sentiment? Thanks.

Matt, in relation to the tender, other than what was put in the press release, I'm very limited on what I can say about that. However, in regards to the Arch western notes, we have had commentary in the past. Given the structure of those notes and BP's 0.5% ownership, there is an issue that we continue to monitor related to the tax consequences that we have in a partnership agreement with BP who owns the other 1%, or 0.5% of Arch Western Resources.

As we continue to evaluate that, we think that that's a minute risk in the overall view. One that is not at all material to us. In fact, we have begun discussions with BP as we look at that agreement which comes to fruition in June of 2013.

And, as you look at our SEC disclosure material, our 10-Ks, our 10-Qs, we disclose what the potential tax implication of that is, and as we step up through each quarter, it continues to ramp down. And, as we look at it today, we think it's very immaterial to any of our issues.

On your natural gas question, if you look back over the last couple of years on a cumulative basis, we think there's probably been 82 million tons of coal displaced. Could there be anymore? We don't think it's real material.

Could be another 5 million tons in an perfect world, but we think most of what's been displaced is all that can be displaced. So, as we think out over the next year or two, that's the numbers we're looking at. If we get back into that $2.50, $2.75 range on natural gas pricing, PRB starts to get back their market share in a pretty significant way.

Lawrence Jollon, Shenkman Capital.

Good morning. I was hoping you could elaborate on the $18 million of income flowing through the income statement under other operating income. Is there a noncash gain on sale of reserves in there?

Yes, no, as we described in the prepared remarks and as we've talked about our strategy moving forward, we'll look at assets and our ability to monetize some of those assets if they are non-strategic and non-core to our portfolio moving forward. So, we had an asset sale during the quarter in alignment with that strategy. It resulted in a cash gain that we've recognized and that flows through other income there.

Lance Pettis, Tuohy Brothers.

Hi, just had a question about -- you're looking at some strategic asset sales. First of all, would those potentially even include some of the PRB mine? And also, when are you allowed to? And, two, would you consider selling off al royalty rights? I know that when you acquired international Coal, I believe you own the royalties there. So, would that, maybe, give you some flexibility?

We really don't want to comment on what particular region it is. As we said earlier, we're always looking at our portfolio, looking at what makes sense in terms of possible monetization. It's something we've done for a long time, we'll continue to do. In terms of the royalty monetization, I mean, it's always a possibility.

That fits into our strategy as we look at our asset base, whether it's operational reserves. Those are all things that we'll take into account as we move forward and manage our business.

Michael Goldenberg, Luminous Management.

Good morning.

Good morning.

Trying to get a better understanding of this new term loan that you have agreed to. Is it going to be senior two outstanding bonds, or Pari passu?

With where we are in the process, I'm very limited, from a legal perspective, on what I can discuss. I think everything that we described in our prepared remarks and in the earnings releases is what we can discuss at this time.

Wes Sconce, Morgan Stanley.

Hi, thanks for taking my question. This one's for John. Given the tremendous earnings volatility in your Appalachian met platform, do you expect to take a different approach to layering in your thermal coal business going forward?

And, perhaps being less exposed to the spot market? And, secondly, with -- is it all an option to permanently moth ball some of the idled PRB drag lines so as to eliminate the markets notion that there's 50 million tons of spare capacity in the region?

Wes, I said, I think, on an earlier call we came into this year with about 85% of our thermal committed. We thought that was a good position to be in at that given time. The market kept coming back to us with lower natural gas prices, milder weather, and it just continued to snowball us on where we really didn't feel like it was prudent to try to place those tons.

And, therefore, we've cut production tons back. As we think about 2013, I think we evaluate every opportunity on its own. But, would I like to go into 2013 with something higher than 85%? I think it depends on the opportunities out there. But, it's a likely scenario if we have that opportunity. In terms of the permanent idlement of the drag lines, there's no plans to do that. We've got second quarter, three drag lines that will be idle.

You're right, we do have 50 million tons of unused capacity. It's low cost. It can serve the US markets and the international markets. And, we'll be looking for sustained demand before we make a quick decision to bring that production back. But, no, there's no plans whatsoever to idle those drag lines on a permanent basis.

Richard Garchitorena, Credit Suisse.

Great. Thanks for taking my question. Basically, I just wanted to ask about the ICG transaction. Can you give us an update on what you're expecting from synergies this year? And, also, is this year's cap guidance reflective of any benefits from that? Or should we expect further improvement in 2013 as you move forward?

Yes, I think our midpoint was about $110 million of synergies, and it was really in three buckets. It was on the operating side, the administrative side, and the marketing side. And I would tell you, certainly, on the operational side and the admin side, we're getting those synergies. It's built into our forecast.

The one area that we've been a little bit challenged because of the soft market has been on the blending synergies. I mean, our met volumes were down a little bit. One of the real opportunities was the blend of various coals, eliminate the middle men, and really export it out of our facilities. And, with the volumes down a little bit, I would tell you we hadn't gotten all of that. That would materialize in a much bigger way as we move into 2013.

Brandon Blossman, Tudor Pickering.

Good morning, gentlemen.

Good morning.

We've touched on this a bit during the call, but just to put it -- all the pieces together, PRB '13 and beyond, recently it's taken probably a disproportionate share of the domestic thermal hit. What do you think about the recovery there on '13 and beyond relative to the other basins, and particularly the ultra low sulphur, Black Thunder coal?

Well, we're in a pretty good position when we've got some unused capacity, we've got some of the highest quality coal out there. If you look at our higher BTU, our low sulphur, our ability to move back between a 0.55 and a 0.8, we think we're well positioned from that standpoint. I would think a normal summer weather pattern would help. Clearly, a little movement in the natural gas prices would help.

As I mentioned earlier, $2.50 to $2.75, the PRB starts getting back real market share. That would be very helpful. I think the other thing that, if you look at the continued deterioration in central App, and our internal forecast having been down from '11 to '12 about 30 million tons, we think that could be conservative, given what we see in this market environment.

I think all of those could really accelerate the PRB's pricing and volumes as we move out. If you look around right now, as I mentioned on one of the earlier questions, there's been about 14 million tons of decrease in production, according to MSHA first quarter.

If you annualize that, that's about 56 million tons. I think that's probably light. I think you're going to see a lot more volume come off as we move through the year. So, that, too, will help the PRB situation.

Dave Lipschitz, CLSA.

Good afternoon.

Hi, Dave.

Quick question, how many tons of coking coal do you ship in the first quarter?

We shipped 1.6 million tons first quarter.

And you basically think that's going to be every quarter, pretty average, or it could be better, bigger in the second half? Or what do you think for second quarter?

Well, I mean, we think obviously it's going to be a step up, because our midpoint's 8.25 million. When you think back to the fourth quarter, when actually the market was starting to weaken pretty significant, we shipped 2.2 million tons. So, we know that we can ship those kind of volumes. So, yes, we expect volumes to continue to step up. And, as you get in the third and fourth quarter, you'll really see the step up. We're not concerned about meeting that midpoint of our range.

Dave Martin.

Yes, thank you, good afternoon. I had two questions for John Drexler. John, first, working capital consumed, I think, about $100 million in the first quarter. I'm just wondering if you expect working capital to be a significantly positive contributor to cash in the second quarter?

And then, secondly, on the new financing package, John, I think you mentioned that there still were some minimal financing requirements under the new deal. Could you mention what those are? Are they EBITDA targets, or what type of items?

David, from working capital perspective, yes, that essentially tends to normalize over the course of the year. So, we'll see improvement in that as we move over the course of the year. From the standpoint of the covenant package of the credit facility, we'll continue -- we've replaced the debt to trailing 12 months EBITDA, with minimum EBITDA requirement.

We'll continue to have an interest coverage ratio, a senior secured leverage ratio, to meet those requirements. Those requirements have been adjusted as well to reflect our revised expectations as we move forward. So, the rest of the package continues to stay in place essentially as-is, but adjusted to meet our revised expectations as we move forward.

There are no further questions in queue. I would like to turn the program back over to our presenters for any closing remarks.

Yes, certainly, we want to thank you guys for your interest in Arch Coal. We think we've got a sound plan in place. We think we can manage through this tough market. We think our diversified asset base, our port infrastructure, our low cost efficiency, and our unused capacity at Black Thunder will bring Arch out the other side much stronger than we went in.

We've been here before. We'll manage through this well. And, we look forward to updating you on our plan on the next conference call. Thank you, very much.

This concludes today's conference. You may disconnect at this time.