December 8, 2008 / 9:40 AM / in 9 years

UPDATE 1-Arch Coal sees flat output in 2009; eyes on buys

(Adds details, quotes, background)

By Leonora Walet

HONG KONG, Dec 8 (Reuters) - U.S. energy producer Arch Coal Inc ACI.N expects production in 2009 to be flat or slightly lower while overall output for the U.S. coal industry will slow, and also sees plenty of opportunity for acquisitions amid the economic downturn.

Separately, Peabody Energy Corp (BTU.N), the most valuable U.S. coal miner, said it is eyeing potential investments in western China, the country that is expected to drive much of global growth in demand for coal.

Arch’s chief executive said the company had a strong balance sheet and was well-positioned to make acquisitions.

“We see there’s going to be tremendous opportunity to acquire assets,” Steven Leer, chairman and chief executive officer of the No.3 U.S. coal producer by market value, told Reuters on the sidelines of an event in Hong Kong.

“Within every crisis there is enormous opportunity,” Leer said, declining to comment on specific targets.

Leer expects overall production for the U.S. coal sector to end this year slightly higher despite a slowdown in the second half. He expects industry production to ease in 2009.

U.S. coal prices have slid for weeks after tripling between mid-2007 and mid-2008 to about $150 a short tonne for premium steam coal.

“It seems it’s stabilising and a great deal would depend on the bail-out, demand, and what government will do to stimulate the economy,” Leer said.

He sees opportunities to make new acquisitions amid the global economic slowdown.

“Arch’s balance sheet is stronger than it has ever been in the history of the company and that really prepares us to make acquisitions if it makes sense for our shareholders,” Leer said.

MONGOLIA

Larger rival Peabody is looking into several investment opportunities as well, particularly in China.

    “We’re looking at projects in western China with various companies,” Fred Palmer, senior vice president of government relations at Peabody told Reuters at the same event.

    Leer and Palmer were attending the launch of the Consortium for Clean Coal Utilisation.

    “We are looking at coal development in (Inner) Mongolia for China and we’re in discussion with Chinese companies,” said Palmer.

    Peabody signed a deal in October to explore the possibility of developing a large surface mine and downstream coal gasification facility in the Inner Mongolia region of China.

    The coal giant is now exploring project opportunities in western China with various other companies, said Palmer, without giving details.

    “We are here because we see tremendous opportunity. We believe we can add value to the coal mining development on a sustainable basis in China,” he said.

    Peabody Energy partnered with seven other Chinese companies including China National Coal Group and Shenhua Group to build a $1 billion power plant that will generate 650 megawatts of electricity near Tianjin, which is southeast of Beijing.

    The first phase of the project, also called GreenGen, is expected to go online in 2009, initially producing 250 MW.

    Editing by Jacqueline Wong

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