Boston, MA 04/24/2014 (wallstreetpr) – Arch Coal Inc (NYSE:ACI) is a $951 million coal company. It produces and purchases coal from third-parties that it later sells to steel mills, power plants and industrial facilities. The company’s strategic mine locations and accessibility allow it to easily ship the commodity worldwide.
As coal business becomes increasingly complicated due to climate change concerns, many coal companies are trying to diversify their operations to attract sustainable and incremental revenue.
Arch Coal Inc (NYSE:ACI) tried diversification by investing in a project that promised to process coal into various fuel liquids. The company put $44 million in DKRW Advanced Fuels that needed $2 billion to build a facility that produced gasoline and various liquid fuels from coal. In addition to extending a loan to the project, Arch Coal also invested $25 million in the company to acquire 24 percent in an equity stake. However, its equity stake dropped to $13.7 million in recent times.
Writing off investment
Although the project looked promising, work on the facility has yet to start due to various issues that have now pushed Arch Coal Inc(NYSE:ACI) to write off its investment in the project. The company wrote off a total of $57.7 million that included $44 million in loan and $13.7 million in an equity stake. Nonetheless, it will retain its equity interest in the project.
Arch Coal intended to supply coal to the facility, a move that could have increased its coal sales at a time when demand has softened. The move could also have benefited the company through additional revenue from the equity stake and loan repayment.
Challenges
The coal-to-liquids project faced various challenges that saw termination of several construction projects. Permitting issues also weighed in that eventually turned into pain for investors such as Arch Coal Inc (NYSE:ACI). The project also failed to win over federal funding on time, although the issue is likely to be discussed later. DKRW asked for $1.75 billion in federal loan although the project needed to pass stringent regulatory scrutiny.
