The net loss was versus income of $113 million in the second quarter of 2008.

In the first half, the producer earned a $15.5 million net income, which included expenses of $6.4 million for the Jacobs Ranch property in Wyoming it is acquiring from Rio Tinto. Arch hopes to close the deal in the third quarter.

In the first half of last year, during a healthier market, Arch reported a net income of $194.1 million.

Sales volumes were affected by volatile demand; Arch said its tonnage was reduced 20% and revenues dipped 29% compared to the year-ago quarter. Its overall operational performance was hampered not only by that drop, but also due to the lower average price realisations in the Powder River Basin and Central Appalachia.

"As expected, our financial results reflect the impact of four longwall moves in the quarter and further reductions in volume levels to match curtailed demand," Arch chairman and chief executive officer Steven Leer said.

"We believe that the trough of the current coal market cycle has been reached, and anticipate better industry supply and demand balance and improving company financial performance in the second half of the year."

While calling this year “challenging”, Leer said Arch was focused on its success through “aggressive” cost and capital-reduction plans.

"Looking ahead, we are positioning the company to capitalise on the inevitable rebound in coal demand," he said.

"While trends remain generally soft for the broader US economy and for our customers, we are encouraged by the swift pace of domestic coal supply rationalisation, signs that the economic recession has bottomed out and recovering global and domestic steel utilisation.

“These trends – along with the resumption of power demand growth – will help improve coal market fundamentals."

Arch put the spotlight on its issue-ridden West Elk operation, which will see further production cuts due to intermittent sandstone intrusions that are in turn leading to higher levels of lower-quality output.

For 2009 as a whole, Arch now expects the underground complex to produce 3.5-4 million tons versus its normal 6.5Mt goal, which will cost an estimated $50-75 million in operating income this year.

"The coal quality issues at West Elk coupled with declining demand from power generators and industrial customers for western bituminous coal has reduced the market for mid-ash coal – a product that could be more easily placed under better market conditions," chief operating officer John Eaves said.

"We are also actively moving forward with the planning and design of a preparation plant at the mine, which we view as the long-term solution to any continuing coal quality issues there. Our goal is to build the plant by mid-2010, with estimated capital costs of $25-30 million."

Taking West Elk’s issues into account, as well as market softness that has led to some pushback from existing contracts, Arch now expects a 114-118Mt production total from its company-controlled operations. After adjustments and commitments signed in the second quarter, the operator has about 3Mt left unpriced for 2009 and about 10Mt committed but not yet priced for 2010 and 2011.

As for uncommitted output, Arch estimated totals of 15-25Mt for 2010 and 65-75Mt in 2011.

"We have reduced some of our sales exposure in 2010 while continuing to implement our strategy of operating at reduced volume levels in the bottom of the market cycle [and] at the same time … have maintained the capacity necessary to respond to the next market upturn – which we believe will deliver a significant rebound in coal demand,” Leer said.

“We expect coal markets to strengthen markedly during the course of 2010 and 2011, and we are well positioned to capitalise."