Arch believes that the accelerating global effort to combat climate change and to build a low-carbon economy is creating — and will continue to create — significant, value-driving opportunities for smart, well-positioned resource providers. In keeping with this longstanding view, Arch initiated a strategic pivot nearly a decade ago with the objective of intensifying our focus on steel and metallurgical markets, which we believe will be significant beneficiaries of global de-carbonization efforts. We believe that a significant amount of new steel will be required in a de-carbonizing world, given steel’s importance in urbanization, infrastructure replacement and the construction of essential de-carbonization tools such as mass transit systems, wind turbines and electric vehicles. We also believe that Arch is exceptionally well-positioned to capitalize on this expected growth in global steel demand, given our extensive reserves of high-quality metallurgical coal, which is an essential input in the production of new steel; our large, modern and efficient metallurgical mines; and our deep expertise in the mining, marketing and transportation of coal products. We project that we will generate roughly 80 percent of our cash flows from our metallurgical business once our world-class Leer South growth project comes online in the third quarter of 2021, and an ever-larger percentage over time.
Arch’s strategic pivot is also acting to mitigate our principal climate-related risk — the world’s shift away from thermal coal as a primary source of power generation. As we have expanded our metallurgical portfolio, we have correspondingly reduced our thermal coal asset base via asset sales, mine closures and the continuous streamlining and rightsizing of our thermal portfolio. Over the past decade, we have reduced our thermal coal output by 65 percent — from 163 million tons sold in 2010 to 57 million tons sold in 2020 — and continue to drive forward with further reductions. Recently, Arch announced plans to explore strategic alternatives for our remaining thermal assets, while accelerating final reclamation activities at our largest thermal coal operations in the Powder River Basin of Wyoming. As part of this latter effort, we recently announced the closure of our Coal Creek mine, where we expect to complete approximately 80 percent of the final reclamation work in the next 18 months. At the same time, we are continuing to focus on optimizing cash flows from our remaining thermal assets, which we believe are well-positioned to generate sufficient cash to fund their own long-term closure obligations. In addition, this systematic and ongoing transition provides key stakeholders — including employees, coal communities and economically sensitive power consumers — the time they need to adjust to a changing landscape.
Near-Term Climate Strategy: In keeping with Arch’s strategic pivot, we have built — and continue to expand — a world-class metallurgical coal franchise, fueled in large part with cash harvested from our thermal assets. During the past four years, we have generated nearly $600 million more in cash than we have invested in maintenance capital at our thermal mines, and have directed much of that excess cash to the buildout of our metallurgical portfolio. In 2020, Arch directed approximately 95 percent of our total capital spending to our metallurgical segment. We are currently in the process of developing another world-class longwall mine, Leer South, on our high-quality Leer metallurgical reserves in northern West Virginia, at a total projected investment of between $360 million and $390 million. In support of this buildout, we have focused intensively in recent years on building a robust customer base in the international arena, including Asia, where new steel production and demand is expected to be greatest.
Given that high-quality metallurgical coal is more valuable than thermal coal, Arch expects to produce far less coal in our new configuration, but to generate significantly greater value for our stakeholders. In short, Arch is transitioning from a supplier of higher-volume, lower-value thermal products, to a supplier of higher-value, lower-volume metallurgical products. In addition, Arch’s core metallurgical mine portfolio consists exclusively of underground mines, which rely on electricity as their principal energy source, in contrast to our thermal operations, which are largely surface mines that rely principally on diesel fuel. Consequently, Arch’s energy usage will become increasingly climate-compatible as the U.S. power system continues its shift to renewable and other low-carbon resources. In keeping with these developments, Arch’s Scope 1, Scope 2 and Scope 3 emissions have declined by an estimated 50 percent or more over the course of the past seven years, and should decline further — and at a rapid pace — over the coming decade.
Medium-Term Climate Strategy: Importantly, Arch is focusing on premium-quality products as we build out our metallurgical portfolio. Once the Leer South mine is completed, Arch projects that approximately 80 percent of our metallurgical coal production will be high-quality, High-Vol A metallurgical coal. That’s significant for multiple reasons, including the fact that the use of premium-quality metallurgical coal supports a more efficient steel-making process, which — in turn — lowers the CO2-equivalent emissions from that process. Arch plans to maintain this focus on high-quality metallurgical coals, and expects the value of such coals to continue to grow as requirements for de-carbonization intensify. In short, we believe our premium metallurgical product slate represents a significant competitive advantage today, and that it will represent an even greater competitive advantage in the future, as steel-makers pursue incremental reductions in their carbon-equivalent emissions.
Long-Term Climate Strategy: While incremental reductions in CO2-equivalent emissions will be critical in the intermediate term, we believe steel producers will need to de-carbonize the steel-making process entirely in time, in keeping with the requirements of a net zero economy and a 2°C future. Given the significant amount of integrated steelmaking infrastructure already in place around the globe — as well as the current lack of commercially available low-carbon steel-making solutions — Arch expects metallurgical coal to play an essential role in new steel production for the next two decades or more, which is consistent with the steel industry’s consensus view. At the same time, we are exploring ways in which we can support — and participate in — the development of increasingly low-carbon and ultimately zero carbon steels. Moreover, we believe that maintaining a sophisticated understanding of the pace and shape of steel technology advances will facilitate smart decision-making surrounding our future capital deployment, including reducing the likelihood of stranded investments. Similarly and importantly, we believe that such engagement will help to prepare Arch for the next strategic pivot when the time comes.
Arch’s transition towards steel markets, which are expected to play a pivotal role in global de-carbonization efforts, is the driving force behind its long-term financial strategy. Over the course of the past decade, Arch has allocated the vast majority of its capital spending budget to its metallurgical portfolio. In the process, that portfolio has expanded to providing approximately two thirds of the company’s EBITDA on a normalized basis, versus just one quarter in 2010. Moreover, that figure is projected to grow to roughly 80 percent with the startup of Leer South. With our parallel efforts to identify strategic alternatives for our thermal assets or to execute an accelerated wind-down of those assets, we expect the metallurgical portfolio to approach 100 percent of our EBITDA generation in time.
Estimated 2010 EBITDA Breakout
(by coal type)
In 2010, Arch’s metallurgical segment furnished approximately 25 percent of cash generation
Actual 2019 EBITA Breakout
(by coal type)
In 2019, Arch’s metallurgical segment furnished approximately two thirds of cash generation
$457 million in operational EBITDA
Current Normalized EBITDA Breakout
(by coal type, on an estimated basis post the planned startup of Leer South)
On an estimated basis with Leer South, Arch’s metallurgical segment would have furnished approximately 80 percent of cash generation in 2019
Targeted Intermediate-Term EBITDA Breakout
(by coal type)
Arch is executing a rapid transition towards becoming a pure-play metallurgical coal producer
Declining Greenhouse Gas Emissions
reduction in greenhouse gas emissions
Reducing Energy Intensity
In addition to the structural shift in our business strategy, our operating subsidiaries are sharply focused on reducing energy intensity. Nearly every one of our subsidiary mining operations has an on-site rail-loading facility that allows for the movement of their products to their customer base in a highly energy-efficient manner. In addition, Arch’s Wyoming subsidiary makes extensive use of capital-intensive conveyor systems to reduce truck haul distances, which in turn reduces both energy consumption and diesel requirements. In total, Arch’s Wyoming operations produce products that provide 200 times more energy than is consumed in the mining process.
Arch’s core metallurgical business segment is comprised of large underground mines that rely principally on electricity as their energy source. In each instance, the primary production equipment at these subsidiary operations — as well as the preparation and loading facilities — are electric-powered. In addition, these mines liberate only modest amounts of methane.
As part of their overall efficiency efforts, Arch subsidiaries employ a variety of demand management methods and equipment to reduce their need to draw electric power from the grid. These efforts include the use of variable frequency drives (VFDs) on large-capacity and electric motor-driven equipment; power correction capacitors; voltage regulators; and demand timing measures.
The use of variable frequency drives (VFDs) on belt conveyors, pressure pumps and mine fans allow motor torque to be matched with output demand, resulting in reduced power draw during times of reduced need. Matching output to demand reduces the overall electrical usage required to operate the mine, and reduces the mine’s draw of power from the national grid.
Further, Arch subsidiaries rely on automatic-switching and power-factor-correction capacitors. These capacitors keep the mines’ power factor between 95 and 96 percent, versus a more typical 88 percent. As an example of what this means from an energy savings perspective, the Leer mine’s power demand for a typical month — at a 95 percent power factor — is 24,000 kVA. Without the capacitors, the kVA demand — at an 88 percent power factor — would be 25,909 kVA. In other words, the use of the capacitors facilitates an 8 percent reduction in power demand, and thus an 8 percent reduction in associated carbon emissions.
In 2020, Arch directed roughly 95 percent of its capital spending towards its metallurgical portfolio.
After electricity, Arch’s largest energy source is diesel fuel, with the company’s Thunder Basin thermal subsidiary generally — and the Black Thunder mine specifically — the predominant user. Given this fact, Arch launched an initiative at Black Thunder five years ago targeting a reduction in diesel fuel use per ton of coal uncovered. Each year, Arch establishes a target for this efficiency and incents its Thunder Basin subsidiary operation to meet it. Operating practices and equipment efficiency factors are monitored and adjusted continually to drive improved operating performance. Through this effort, the Black Thunder mine has improved the efficiency of its fleet and systematically reduced its diesel use per ton of coal uncovered, while simultaneously reducing the amount of coal produced at the operation on an absolute basis.
Fuel Use at Black Thunder Mine
(gallons of diesel used per ton of coal uncovered as well as total consumption)
Fuel Use vs. Target at Black Thunder Mine
(in gallons per ton uncovered)
Total Energy Consumed by Arch Subsidiary Operations
Arch’s subsidiary operations track the total energy they consume in mining and reclamation activities. The table below represents the total energy from both renewable and non-renewable sources and the corporate-wide trend in energy consumption. As discussed, this downward trend represents Arch’s strategic pivot toward steel and metallurgical markets, as well as its transition away from thermal coal production, which tends to rely on more energy-intensive surface mining operations.
Energy Consumed by Arch’s Subsidiary Operations
(in millions of mega-joules)
Arch’s subsidiary operations purchase all of their electrical power from the U.S. electric grid. Our regional electricity suppliers provide regularly updated data on the percentage of power they generate using renewable sources, and Arch relies on these published numbers to quantify our mix of renewable versus non-renewable power purchases. All non-electrical energy sources used by our subsidiaries come in the form of fossil fuels consumed in the mining fleet. Arch derives none of its non-electrical energy from biofuels or other renewable liquid or solid sources.
Total Energy Consumed by Source
(renewable vs. non-renewable as a percentage, for Arch and its operating subsidiaries)
Total Energy Consumed by Source
(renewable vs. non-renewable in millions of giga-joules, for Arch and its operating subsidiaries)
Total Electricity Consumed by Source
(renewable vs. non-renewable as a percentage, for Arch and its operating subsidiaries)
Total Electricity Consumed by Source
(renewable vs. non-renewable in thousands of megawatt-hours, for Arch and its operating subsidiaries)
Percentage of Total Energy Consumed from Electrical Grid
(for Arch and its operating subsidiaries)
As part of its ongoing transition towards steel markets and away from power markets, Arch has embarked upon a plan to systematically reduce the footprint of its subsidiary thermal operations, which will drive a corresponding reduction in the consumption of non-renewable energy corporation-wide. As discussed, our subsidiary thermal operations are principally surface mines that rely on diesel fuel as their primary energy source, versus our subsidiary metallurgical mines, which are underground and rely principally on electricity from the nation’s electric grid. As a result principally of the planned, systematic wind down of our subsidiary thermal operations, we expect to reduce our consumption of non-renewable energy sources by at least 20 percent by 2025 and by at least 40 percent by 2030.
Emissions Reduction Efforts at the West Elk Mine
Arch’s only subsidiary operation with relatively high methane levels is the West Elk mine in Colorado. As an underground mine, West Elk must ventilate the mining space to reduce methane concentrations to safe levels for miners. The mine employs a combination of forced air ventilation and boreholes drilled from the surface to extract the methane from the mine works as operations progress. West Elk’s intensive and focused efforts have led to a significant reduction in methane emissions over the course of the past decade.
In addition, West Elk has captured and concentrated some of the methane gas generated from within the mine for the past 10 years, utilizing it for heating the ventilation air during cold winter months. This heated air improves equipment efficiency as well as worker safety and comfort, and the combustion of the methane serves to reduce emissions significantly.
West Elk has engaged an outside specialty contractor, in coordination with the state of Colorado, to fabricate and deploy specialized flares designed to combust the methane emitted from the boreholes. These flares are reducing mine methane emissions still further through the elimination of more than 90 percent of borehole emissions. In just the first six months of operation, these flares destroyed incremental methane emissions in excess of 7,000 tons of CO2e.
West Elk has also worked diligently over many years to reduce energy consumption through electrical demand and utility initiatives. These initiatives include:
- The use of capacitor banks and high voltage regulators that enable the mine to normalize the rate of energy draw from the local utility, thus improving overall energy efficiency.
- The deployment of a compressed air system and time-of-use practices, including controls that automatically shut off equipment and conveyors between system demands and during idle times.
- The installation of a blowing fan that has reduced energy requirements by approximately 33%.
In 2019, these efforts resulted in a reduction in energy usage of more than 2.5 million kilowatt-hours.
Arch is investing between $360 million and $390 million in a high-quality, highly efficient metallurgical mine in West Virginia in a coal seam with very low levels of methane. As an underground longwall mine, it will use electricity as its primary energy source, and its high-quality products will facilitate a reduction in the emissions profile of its customer base. Perhaps most significantly, it will contribute to Arch’s transition from a producer of high-volume, lower-quality products to a producer of low-volume, higher-quality products, which will facilitate the ongoing reduction in the company’s overall GHG emissions.
Arch’s transition towards metallurgical mines is accompanied by a transition towards a greater reliance on electricity, which is increasingly reliant on renewable resources. As a result, Arch’s subsidiary operations are systematically increasing the percentage of renewable energy in their aggregate energy use mix. In 2020, Arch’s electricity providers sourced 7.0 percent of their power generation from renewable resources.
Greenhouse Gas Emissions
Arch has been tracking carbon emissions from its subsidiary operations for more than 10 years. The company tracks Scope 1 and 2 emissions — including power purchases, materials usage, fuel utilization, and anthropogenic sources — across its operational fleet to calculate the direct or, in the case of purchased power, indirect functional emissions generated in the mining and transferring of resources. While acquisitions and divestitures, as well as other factors, have caused significant swings in emissions levels on a year-to-year basis, the company’s combined Scope 1 and Scope 2 emissions have declined by 55 percent since 2013 and are expected to fall further as production levels at its subsidiary thermal operations continue to decline over time.
Arch Greenhouse Gas Emissions
(in thousands of metric tons C02e)
Arch acknowledges that climate change — and global preparations for a 2°C scenario — represents a significant risk to our business, and has undertaken a significant strategic transition to mitigate that risk. In early 2020, Arch made a commitment to reduce Scope 1 and Scope 2 GHG emissions by a total of 5 percent in 2022 when compared to 2019 levels; 10 percent by 2025 when compared to 2019 levels; and 20 percent by 2030 when compared to 2019 levels. During 2020 and in the wake of the pandemic, Arch and its operating subsidiaries recorded a more than 13 percent decline in GHG emissions relative to 2019 levels, exceeding the corporation’s 2022 and 2025 reduction targets and putting Arch well on track for achieving its 2030 reduction target. Arch is confident in its ability to achieve its previously established 2022, 2025 and 2030 emissions goals even as the global economy returns to normalcy post the global health crisis. Moreover, Arch intensified its reduction targets in March 2021 to conform with science-based targets linked to 2°C limits. Arch is now targeting a reduction in GHG emissions of 7.5 percent by 2022 when compared to 2019 levels; 15 percent by 2025 when compared to 2019 levels; and 30 percent by 2030 when compared to 2019 levels. Given the previously mentioned, 13-percent reduction in GHG emissions in 2020, Arch believes that it is on course to achieve these more aggressive targets as well. These reductions will be achieved through reduced energy consumption and other emissions at our operations, facilitated by our ongoing strategic pivot towards higher-value, lower-volume metallurgical products and away from lower-value, higher-volume thermal products.
Summary of Scope 3 Emissions
As part of our commitment to transparency, we calculate and disclose the greenhouse gas emissions from the downstream transport, processing and use of our sold products. Scope 3 emissions occur from sources not owned or controlled by the company. Some examples of Scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of sold products and services.
Scope 3 GHG emissions are not directly calculated as they are not owned or controlled by the reporting entity. In the present study, Scope 3 emissions are estimated using Arch’s operational data as inputs, the GHG Protocol Corporate Value Chain (Scope 3) Standard as the primary guidance for carbon accounting, and the established emission factors from U.S. Environmental Protection Agency (EPA), U.S. Department of Energy (DOE), and GHG Protocol Standard Tools. Results are presented in a range of values to demonstrate the variability in these emission estimates.
The present analysis includes the Scope 3 emissions categories of Downstream Transportation and Distribution, Processing of Sold Products, and Use of Sold Products for thermal and metallurgical coal products produced by Arch. These reflect downstream Categories 9, 10, and 11 in the GHG Protocol.
The current Scope 3 emissions analysis does not include upstream emissions (i.e., the manufacturing of raw materials and chemicals purchased by Arch) or emissions related to corporate travel and contractors’ work. The total 2020 downstream Scope 3 emissions for Arch Resources are estimated to range from 116.5 to 127.3 million metric tons.
Specific Accounting Methods for Coal Transportation, Processing, and End Use
GHG emissions for coal transportation are estimated using the distance-based method; input data from Arch operations (product transportation modes, routes, and product delivery volumes for each Arch facility); and the GREET 2019 model developed by Argonne National Laboratory. The distance for international shipping via colliers is estimated using public online shipping estimators.
GHG emissions for the direct use-phase of coal combustion are estimated using the fuel-based method and are based on the volumes and heat contents of Arch’s coal products. Emission factors are applied from established sources including U.S. EPA, U.S. DOE, and GHG Protocol Standard Tools.
GHG emissions for coal processing include coke production for steelmaking from metallurgical coal. Emissions are calculated using the average-data method and are estimated based on the metallurgical coal product volume and emissions factors from the 2006 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National Greenhouse Gas Inventories for the processing of metallurgical coal into coke for steelmaking.
Summary of Scope 3 Emissions Results
|Scope 3 Category||Supply Chain Activities||Emissions (MMT CO2e)|
|Downstream Transportation and Distribution||Shipment of products by rail and ocean vessel.||14.99||14.99||14.99|
|Processing of Sold Products||Conversion of metallurgical coal into coke for use in steelmaking.||2.46||2.46||2.46|
|Use of Sold Products||Combustion of thermal coal for electricity production and metallurgical coal (as coke) for steelmaking.||117.50||99.00||109.85|