Arch Resources : Reports First Quarter 2023 Results

NEWS

RELEASE

Investor Relations 314/994‐2916

FOR IMMEDIATE RELEASE

Arch Resources Reports First Quarter 2023 Results

Achieves net income of $198.1 million and adjusted EBITDA of $277.3 million

Declares a quarterly cash dividend of $47.8 million, or $2.45 per share

Surpasses $1 billion deployed via capital return program since its relaunch in February 2022

ST. LOUIS, April 27, 2023 - Arch Resources, Inc. (NYSE: ARCH) today reported net income of $198.1 million, or $10.02 per diluted share, in the first quarter of 2023, compared with net income of $271.9 million, or $12.89 per diluted share, in the prior‐year period. Arch had adjusted earnings before interest, taxes, depreciation, depletion, amortization, accretion on asset retirement obligations, and non‐operating expenses ("adjusted EBITDA") 1 of $277.3 million in the first quarter of 2023, which included a $1.5 million non‐cash mark‐to‐market gain associated with its coal‐hedging activities. This compares to $321.0 million of adjusted EBITDA in the first quarter of 2022, which included a $15.5 million non‐cash mark‐to‐market loss associated with its coal‐hedging activities. Revenues totaled $869.9 million for the three months ended March 31, 2023, versus $867.9 million in the prior‐year quarter.

In the first quarter of 2023, Arch made significant progress on numerous strategic priorities and objectives, as the company:

• Demonstrated operational excellence in its core metallurgical segment via another sequential step‐down in cash cost per ton sold
• Deployed a total of $125.0 million via the capital return program inclusive of the upcoming dividend, bringing the aggregate deployed since the program's relaunch in February 2022 to more than $1 billion
• Streamlined its capital structure and strengthened its balance sheet via the repurchase of its remaining convertible securities and reduction of $26.6 million in indebtedness
• Ended Q1 with a positive net cash position of $71.2 million

"Arch maintained its strong operational momentum in Q1, as the team capitalized on improved coking coal prices, drove further productivity gains in our core metallurgical segment, and achieved a more than 30‐percent increase in coking coal margins on a sequential basis," said Paul A. Lang, Arch's CEO and president. "At the same time, we forged ahead with our efforts to

1 Adjusted EBITDA is defined and reconciled in the "Reconciliation of Non-GAAP measures" in this release.

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simplify our capital structure and strengthen our balance sheet via the settlement of the remaining convertible debt and the repayment of incremental indebtedness. Perhaps most significantly, we continued to direct substantial amounts of capital - and 100 percent of our discretionary cash flow - to our value‐driving capital return program."

Arch has now deployed a total of $1,015.2 million under its capital return program since its relaunch - inclusive of the just‐declared June dividend - including $571.0 million in dividends and $444.2 million in common stock repurchases and convertible security settlements.

Financial and Liquidity Update

In keeping with its capital return formula, the Arch board has declared a total quarterly dividend of $47.8 million, or $2.45 per share, which is equivalent to 50 percent of Arch's first quarter discretionary cash flow. In addition, the company deployed $58.4 million in Q1 to repurchase its remaining convertible securities, reducing future dilution by approximately 423,000 shares. The company also used $18.8 million during the quarter to repurchase 131,156 shares at an average price of $143.39 per share.

In total, Arch has now used share repurchases and the settlement of convertible securities to reduce dilution by approximately 3.5 million shares. Arch ended Q1 with 18.7 million basic and 19.5 million fully diluted shares outstanding.

On a related front, approximately 800,000 outstanding warrants were exercised during the quarter, resulting in the issuance of approximately 1.0 million shares of common stock and the receipt of $43.7 million in proceeds. As a result of these warrant exercises, Arch ended Q1 with just over 453,000 warrants outstanding, or 23.7 percent of the original issuance. Arch expects these remaining warrants to be exercised over the next two quarters.

Arch ended Q1 with just $150.7 million of total debt. In comparison, cash, cash equivalents and short‐term investments totaled $221.9 million and liquidity stood at $347.6 million.

"We believe our sustained efforts have set the stage for ongoing capital returns, incremental reductions in our share count, and continuing value creation in the future," said Matthew C. Giljum, Arch's chief financial officer.

Capital Allocation Model

Arch's capital allocation model specifies the return to stockholders of 50 percent of the prior quarter's discretionary cash flow - defined as cash flow from operating activities after contributions to the thermal mine reclamation fund and less capital expenditures - via a variable quarterly cash dividend in conjunction with a fixed quarterly cash dividend. The model

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envisions using the remaining discretionary cash flow for share repurchases, the repurchase of potentially dilutive securities, special dividends, and/or capital preservation.

Arch generated $126.1 million in cash provided by operating activities in the first quarter - a total that was constrained by an increase of $169.6 million in working capital. The company invested $30.5 million in capital expenditures, resulting in total discretionary cash flow for the quarter of $95.6 million. The second quarter dividend payment of $2.45 per share - which includes a fixed component of $0.25 per share and a variable component of $2.20 per share - is payable on June 15, 2023 to stockholders of record on May 31, 2023.

Since the second quarter of 2017 - and inclusive of the program's first phase - Arch has now deployed a total of more than $1.8 billion under its capital return program.

"While the board continuously evaluates the optimal use of discretionary cash flow, we view the current capital return program and allocation model as appropriate, durable and well‐ aligned with stockholder interests and preferences, and expect the capital return program to remain the centerpiece of our value proposition going forward," Lang reiterated.

As of March 31, 2023, Arch had $322.4 million of remaining authorization under its existing $500.0 million share repurchase program.

Operational Update

"Arch's core metallurgical segment executed at a world‐class level in Q1, with each of the company's four, large‐scale coking coal mines achieving excellent productivity levels, strong cost control, and exceptional cash margins," said John T. Drexler, Arch's chief operating officer.

		1Q23
Tons sold (in millions)	2.2
Coking	2.1
Thermal	0.1
Coal sales per ton sold	$204.25
Coking	$209.84
Thermal	$76.34
Cash cost per ton sold	$82.66
Cash margin per ton	$121.59

Metallurgical

4Q22

2.3

2.1

0.1 $179.98 $187.77 $74.92 $86.83 $93.15

1Q22

1.5

1.5

0.1 $255.52 $269.54 $28.10 $88.04 $167.48

Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures." Mining complexes included in this segment are Leer, Leer South, Beckley and Mountain Laurel.

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Arch's core metallurgical segment contributed adjusted EBITDA of $263.1 million in Q1. In sum during the quarter, the metallurgical segment's average selling price for coking coal increased 12 percent on a sequential basis, the average cash cost per ton sold declined by 5 percent versus an already extremely competitive Q4 performance, and the average cash margin per ton climbed 31 percent. Arch currently expects coking coal shipments to increase by around 10 percent in Q2 when compared to Q1, assuming continued solid rail and logistics performance, and to increase further in the year's second half, consistent with its reiterated annual sales volume guidance of 8.9 to 9.7 million tons for full year 2023.

		1Q23
Tons sold (in millions)	17.0
Coal sales per ton sold	$18.49
Cash cost per ton sold	$15.79
Cash margin per ton	$2.70

Thermal 4Q22

16.1 $19.58 $15.73 $3.85

1Q22

18.2 $18.85 $13.43 $5.42

Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures." Mining complexes included in this segment are Black Thunder, Coal Creek and West Elk.

Arch's legacy thermal segment contributed adjusted EBITDA of $46.3 million in Q1, against capital spending of just $5.5 million. Thermal segment margins were hampered by improved but still sub‐optimal rail service at its Powder River Basin mines, as well as geologic challenges at the West Elk mine in Colorado that acted to constrain volumes and erode product quality at that operation. Arch expects the challenges at West Elk to continue to hamper the thermal segment's sales volumes and to pressure unit costs over the next two quarters, at which point the mine expects to transition to an area of more advantageous geology. Since the fourth quarter of 2016, the legacy thermal segment has generated a total of $1,304.9 million in adjusted EBITDA while expending just $144.1 million in capital.

ESG Update

During the first quarter, Arch maintained its exemplary environmental, social and governance (ESG) performance. Arch's subsidiary operations achieved an aggregate total lost‐time incident rate of 0.62 per 200,000 employee‐hours worked during Q1, which was more than four times better than the industry average, and once again recorded zero environmental violations and zero water quality exceedances. In total, Arch's subsidiary operations have now operated a total of more than three years without a single water quality exceedance.

In addition, the Leer mine and the Leer and Leer South preparation plants were recently honored by the State of West Virginia with Mountaineer Guardian awards for safety excellence. Leer's award represented the seventh time it has been so honored in the past eight years. The State of West Virginia also honored the Leer and Beckley mines - along with one of Arch's idled

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operations - with awards for reclamation excellence. In addition, the West Elk mine was honored by the State of Colorado with the Outstanding Safety Performance Award and Excellence in Mining Reclamation Award.

Market Update

Despite a number of supportive indicators, global coking coal prices have retraced significantly in recent weeks, principally due to macroeconomic concerns that are weighing on global steel demand, Arch believes. Even with this retracing, global coking coal prices remain reasonably strong on an historical basis, with High‐Vol A coal - Arch's principal product - currently being assessed at $247 per metric ton on the U.S. East Coast.

Among the more supportive indicators, European steelmakers have now restarted the vast majority of the 25 million tons of blast furnace capacity they idled in 2022 in the face of a weakening economic outlook, and hot‐rolled coil prices in major global steel markets have increased an average of 50 percent since their recent lows in November 2022.

In addition, global coking coal production continues to exhibit evidence of years of under‐ investment. Through the first two months of 2023, coking coal exports from Australia - the source of more than 50 percent of global seaborne coking coal volumes - were down 4 million tons, or 15 percent. Meanwhile, the other two major sources of high‐quality coking coal to the global seaborne market - the U.S. and Canada - continue to show only modest increases in export volumes despite a sustained period of historically high prices.

Looking Ahead

"The Arch team continues to drive forward with our simple, clear and actionable plan for long‐ term value creation," Lang said. "In recent quarters, we have expanded and strengthened our world‐class coking coal portfolio, extended the global reach of our high‐quality coking coal products, restored our balance sheet to a positive net cash position, greatly simplified our capital structure, and extended our industry‐leading ESG practices. We believe this significant progress - across every facet of our business - sets the stage for continued success, strong discretionary cash generation, and robust capital returns in the future."

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