Arch Resources Vs. Alpha Metallurgical Resources

Core Viewpoint - Alpha Metallurgical Resources (AMR) is the largest metallurgical coal producer in the U.S., expected to produce about 16 million tons of MET coal in 2024, while Arch Resources (ARCH) is projected to produce 9 million tons of MET coal and 65 million tons of thermal coal in the same year [4][8]. Production and Segments - AMR has transitioned to a pure-play MET coal producer after closing its last thermal coal mine [4]. - ARCH's thermal segment, while less emphasized, is expected to see local demand decline, leading to low capital investments in this area [9]. - ARCH's thermal coal sales are primarily domestic, resulting in lower margins compared to export markets [4]. Financial Performance - In 2022, 74% of ARCH's EBITDA came from the MET segment, which increased to 80-90% in 2023 due to diverging MET and thermal coal prices [7]. - ARCH's thermal segment is expected to generate about $100 million in gross profit in 2024, contributing positively to cash flows [11]. - Both companies are currently achieving strong margins in the MET coal market, with ARCH having lower operating costs despite some operational challenges [14]. Valuation and Cash Flow - Both AMR and ARCH are considered cheap, with free cash flow yields in the 15-30% range, but ARCH is viewed as more attractive based on valuations [18]. - AMR has been aggressive with buybacks, distributing 100% of free cash flow to shareholders, while ARCH has balanced buybacks and dividends [17]. - AMR's addition to the S&P Small Cap 600 index has contributed to its stock performance, with U.S. ETFs owning approximately 33% of AMR compared to 22% of ARCH [19]. Conclusion - ARCH is seen as slightly more attractive in terms of valuation and downside protection due to more stable cash flows from its thermal segment [19]. - AMR is favored for momentum and has a strong free cash flow yield even under conservative MET coal price assumptions [20].