UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March~~June 3130, 2011

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 333-107569-03

Arch Western Resources, LLC

(Exact name of registrant as specified in its charter)

Delaware		43-1811130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
One CityPlace Drive, Suite 300, St. Louis, Missouri		63141
(Address of principal executive offices)		(Zip code)

One CityPlace Drive, Suite 300, St. Louis, Missouri		63141
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (314) 994-2700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At ~~May~~August 1615, 2011, the registrant’s common equity consisted solely of undenominated membership interests, 99.5% of which were held by Arch Western Acquisition Corporation and 0.5% of which were held by a subsidiary of BP p.l.c.

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Table of Contents

		Page	~~Page~~
Part I FINANCIAL INFORMATION		1	1
Item 1.	~~Item~~Financial 1.Statements	~~Financial Statements~~1	1
Item 2.	~~Item~~Management’s 2.Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~16	13
Item 3.	~~Item~~Quantitative 3.and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~21	16
Item 4.	~~Item~~Controls 4.and Procedures	~~Controls and Procedures~~21	16
Part II OTHER INFORMATION		22
Item 1.	~~Item~~Legal 1.Proceedings	~~Legal Proceedings~~22	17
Item 1A.	~~Item~~Risk ~~1A.~~Factors	~~Risk Factors~~22	17
Item 2.	~~Item~~Unregistered 2.Sales of Equity Securities and Use of Proceeds	~~Unregistered Sales of Equity Securities and Use of Proceeds~~22	17
Item 3.	~~Item~~Defaults 3.Upon Senior Securities	~~Defaults Upon Senior Securities~~22	17
Item 4.	~~Item 4.~~Reserved	~~Reserved~~22	17
Item 5.	~~Item~~Other 5.Information	~~Other Information~~22	17
Item 6.	~~Item 6.~~Exhibits	~~Exhibits~~24	19

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PART I FINANCIAL INFORMATION

FINANCIAL INFORMATION

Item 1. Financial Statements.

Arch Western Resources, LLC and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands)

	Three Months Ended March 31
	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(unaudited)
Revenues
Coal sales	$	~~534~~565,~~405~~632		$	~~472~~481,~~847~~478		$	1,100,037		$	954,325
Costs, expenses and other
Cost of coal sales	~~423~~447,~~324~~706			~~397~~396,~~509~~570			871,030			794,079
Depreciation, depletion and amortization	3940,~~586~~513			4440,~~040~~087			80,099			84,127
Amortization of acquired sales contracts, net	5,~~944~~603			105,~~753~~214			11,547			15,967
Selling, general and administrative expenses	98,~~298~~337			711,~~841~~408			17,635			19,249
Other operating income, net	(12,~~174~~561		)	(1,~~390~~114		)	(3,735		)	(2,504		)
	476,978			458,753
	499,598			452,165			976,576			910,918
Income from operations	5766,~~427~~034			1429,~~094~~313			123,461			43,407
Interest income (expense), net:
Interest expense	(10,~~491~~458		)	(17,~~503~~571		)	(20,949		)	(35,074		)
Interest income, primarily from Arch Coal, Inc.	1213,~~857~~265			1114,~~915~~103			26,122			26,018
	2,366			(5,588		)
	2,807			(3,468		)	5,173			(9,056		)
Net income	$	5968,~~793~~841		$	825,~~506~~845		$	128,634		$	34,351
Net income attributable to redeemable membership interest	$	~~273~~318		$	26118		$	591		$	144
Net income attributable to non-redeemable membership interest	$	5968,~~520~~523		$	825,~~480~~727		$	128,043		$	34,207

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Western Resources, LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

	March 31,		December 31,
	June 30,		December 31,
	2011		2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6670,~~114~~139	$	79,817
Receivables	32,~~752~~097		2,015
Receivable from Arch Coal, Inc.	627,~~025~~349		582,384
Inventories	~~169~~172,~~630~~587		150,419
Other	1915,~~562~~395		21,435
Total current assets	~~886~~887,~~083~~567		836,070
Property, plant and equipment, net	1,~~463~~448,~~552~~170		1,488,843
Other assets:
Receivable from Arch Coal, Inc.	~~930~~939,~~410~~175		910,797
Other	1013,~~600~~873		10,920
Total other assets	~~941~~953,~~010~~048		921,717
Total assets	$	3,~~290~~288,~~645~~785	$	3,246,630
LIABILITIES AND MEMBERSHIP INTERESTS
Current liabilities:
Accounts payable	$	~~101~~95,~~160~~478	$	121,670
Accrued expenses	~~140~~151,~~145~~450		153,141
Commercial paper	~~60,585~~—		56,904
Total current liabilities	~~301~~246,~~890~~928		331,715
Long-term debt	451,~~456~~294		451,618
Note payable to Arch Coal, Inc.	225,000		225,000
Asset retirement obligations	~~303~~306,~~675~~274		301,355
Accrued postretirement benefits other than pension	2223,~~630~~004		23,509
Accrued pension benefits	1918,~~910~~627		23,904
Accrued workers’ compensation	6,~~882~~845		6,102
Other noncurrent liabilities	5336,~~000~~552		36,913
Total liabilities	1,~~384~~314,~~443~~524		1,400,116
Redeemable membership interest	1011,~~718~~032		10,444
Non-redeemable membership interest	1,~~895~~963,~~484~~229		1,836,070
Total liabilities and membership interests	$	3,~~290~~288,~~645~~785	$	3,246,630

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Western Resources, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

	Three Months Ended March 31
	Six Months Ended June 30
	2011			2010
	(unaudited)
OPERATING ACTIVITIES
Net income	$	59128,~~793~~634		$	834,~~506~~351
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	3980,~~586~~099			4484,~~040~~127
Amortization of acquired sales contracts, net	511,~~944~~547			1015,~~753~~967
Amortization of debt financing costs	~~314~~596			~~650~~1,258
Changes in:
Receivables	(~~1,737~~82		)	56,~~611~~490
Inventories	(1922,~~210~~168		)	511,~~513~~697
Accounts payable and accrued expenses	(3327,~~434~~836		)	417,~~177~~193
Other	154,~~683~~198			2325,~~790~~325
Cash provided by operating activities	66174,~~939~~988			~~103~~196,~~040~~408
INVESTING ACTIVITIES
Capital expenditures	(1439,~~197~~340		)	(1338,~~826~~203		)
Change in receivable from Arch Coal, Inc.	(7084,~~140~~746		)	(86143,~~974~~330		)
Proceeds from dispositions of property, plant and equipment	1496			74
Additions to prepaid royalties	—(3,772		)	(2,~~509~~635		)
Cash used in investing activities	(84127,~~323~~762		)	(~~103~~184,~~235~~094		)
FINANCING ACTIVITIES
Net proceeds from commercial paper	3,681			3,778
Net proceeds from (repayments on) commercial paper	(56,904		)	12,545
Debt financing costs	—			(63		)
Cash provided by financing activities	3,681			3,715
Contribution from non-redeemable membership interest	—			891
Increase (decrease) in cash and cash equivalents	(13,703		)	3,520
Cash provided by (used in) financing activities	(56,904		)	13,373
Increase (decrease) in cash and cash equivalents	(9,678		)	25,687
Cash and cash equivalents, beginning of period	79,817			6,819
Cash and cash equivalents, end of period	$	6670,~~114~~139		$	1032,~~339~~506

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Western Resources, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Arch Western Resources, LLC and its subsidiaries and controlled entities (the “Company”). Arch Coal, Inc. (“Arch Coal”) has a 99.5% common membership interest in the Company, while BP p.l.c. has a 0.5% common membership interest and a preferred membership interest in the Company. The terms of the Company’s membership agreement grant a put right to BP p.l.c., where BP p.l.c. may require Arch Coal to purchase its membership interest. The terms of the agreement state that the price of the membership interest shall be determined by mutual agreement between the members. Intercompany transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three ~~months~~and six month periods ended ~~March~~June 3130, 2011 are not necessarily indicative of results to be expected for the year ending December 31, 2011. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

There are no new accounting pronouncements whose adoption is expected to have a material impact on the Company’s condensed consolidated financial statements.

3. ~~Inventories~~ Debt

On June 14, 2011, the Company terminated its commercial paper placement program and the supporting credit facility.

4. Inventories

Inventories consist of the following:

	March 31,		December 31,
	June 30,		December 31,
	2011		2010
	(In thousands)
Coal	$	6064,~~117~~518	$	46,464
Repair parts and supplies, net of allowance	~~109~~108,~~513~~069		103,955
	$	~~169~~172,~~630~~587	$	150,419

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $12.1 million at ~~March~~June 3130, 2011, and $11.7 million at December 31, 2010.

45. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: At ~~March~~June 3130, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents approximate fair value.

Debt: The fair value of the Company’s debt, ~~including commercial paper and~~ excluding intercompany debt, was $~~515~~450.10 million and $512.5 million at ~~March~~June 3130, 2011 and December 31, 2010, respectively. Fair values are based upon observed prices in active markets ~~when available or from valuation models using market information~~.

56. Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income items are transactions recorded in membership interests during the year, excluding net income and transactions with members.

The following table presents the components of comprehensive income:

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The following table presents the components of comprehensive income:

	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In thousands)
Net income	$	68,841		$	25,845		$	128,634		$	34,351
Other comprehensive income:
Pension, postretirement and other post-employment benefits — reclassifications into net income	(758		)	(1,177		)	(840		)	(851		)
Total comprehensive income	$	68,083		$	24,668		$	127,794		$	33,500

	Three Months Ended March 31
	2011			2010
	(In thousands)
Net income	$	59,793		$	8,506
Other comprehensive income:
Pension, postretirement and other post-employment benefits — reclassifications into net income	(81		)	326
Total comprehensive income	$	59,712		$	8,832

7. Related Party Transactions

6. Related Party Transactions

Transactions with Arch Coal may not be at arm’s length. If the transactions were negotiated with an unrelated party, the impact could be material to the Company’s results of operations.

The Company’s cash transactions are managed by Arch Coal. Cash paid to or from the Company that is not considered a distribution or a contribution is recorded in an Arch Coal receivable account. In addition, any amounts owed between the Company and Arch Coal, exclusive of borrowings under the intercompany credit agreement, are recorded in the account. At ~~March~~June 3130, 2011 and December 31, 2010, the receivable from Arch Coal was approximately $1.6 billion and $1.5 billion, respectively. This amount earns interest from Arch Coal at the prime interest rate. Interest earned on the note was $13.3 million and $13.9 million for the three months ended ~~March~~June 3130, 2011 and 2010, ~~was~~respectively, and $1226.91 million and $1125.98 million for the six months ended June 30, 2011 and 2010, respectively. The current portion of the receivable balance at ~~March~~June 3130, 2011 and December 31, 2010, represents the amounts needed to fund working capital and contractual purchase, service and lease obligations due within the next twelve months.

During September of 2010, the Company received a loan of $225.0 million and a repayment of a portion of the balance receivable from Arch Coal to redeem $500.0 million aggregate principal amount of the outstanding 6.75% senior notes at a redemption price of 101.125%. Interest incurred on the loan was $1.6 million for the three months ended ~~March~~June 3130, 2011 and $3.2 million for the six months ended June 30, 2011.

The Company is a party to Arch Coal’s accounts receivable securitization program. Under the program, the Company sells its receivables to Arch Coal without recourse at a discount based on the prime rate and days sales outstanding. During the three months ended ~~March~~June 3130, 2011 and 2010, the Company sold $~~397~~431.37 million and $~~411~~405.95 million, respectively, of trade accounts receivable to Arch Coal at a discount of $1.0 million for both periods. During the six months ended June 30, 2011 and 2010, the Company sold $828.9 million and $817.3 million, respectively, of trade accounts receivable to Arch Coal at a discount of $01.98 million ~~for~~and ~~both~~$1.9 ~~periods~~million, respectively.

For the three months ended ~~March~~June 3130, 2011 and 2010, the Company incurred production royalties of $24.79 million and $1820.18 million, respectively, under sublease agreements with Arch Coal. For the six months ended June 30, 2011 and 2010, the Company incurred production royalties of $49.6 million and $38.9 million, respectively, under sublease agreements with Arch Coal.

The Company is charged selling, general and administrative services fees by Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on behalf of the Company. Amounts allocated to the Company by Arch Coal were $98.3 million and $711.84 million for the three months ended ~~March~~June 3130, 2011 and 2010, respectively and $17.6 million and $19.2 million for the six months ended June 30, 2011 and 2010, respectively. Such amounts are reported as selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

78. Contingencies

The Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably determinable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

8. Segment Information

The Company has two reportable business segments, which are based on the major low-sulfur coal basins in which the Company operates. Both of these reportable business segments include a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and coal quality are generally consistent within a basin. Accordingly, market and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating costs (defined as including all mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such as safety and environmental performance. The Company’s reportable segments are the Powder River Basin (PRB) segment, with

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~~operations in Wyoming, and the Western Bituminous (WBIT) segment, with operations in Utah, Colorado and southern Wyoming~~9. Segment Information

~~Operating~~The ~~segment~~Company ~~results~~has ~~for~~two reportable business segments, which are based on the ~~three~~major ~~months~~low-sulfur ~~ended~~coal ~~March 31~~basins in which the Company operates. Both of these reportable business segments include a number of mine complexes. The Company manages its coal sales by coal basin, ~~2011~~not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and ~~2010~~coal quality are ~~presented~~generally ~~below~~consistent within a basin. ~~Results~~Accordingly, ~~for~~market ~~the~~and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating ~~segments~~costs ~~include~~(defined as including all ~~direct~~mining costs ofbut ~~mining.~~excluding ~~Corporate~~pass-through transportation expenses), ~~Other~~as well as on other non-financial measures, such as safety and ~~Eliminations~~environmental ~~includes~~performance. ~~primarily~~The ~~corporate~~Company’s ~~overhead~~reportable segments are the Powder River Basin (PRB) segment, with operations in Wyoming, and ~~other~~the ~~support~~Western ~~functions~~Bituminous (WBIT) segment, with operations in Utah, Colorado and southern Wyoming.

Operating segment results for the three month and six month periods ended June 30, 2011 and 2010 are presented below. Results for the operating segments include all direct costs of mining. Corporate, Other and Eliminations includes primarily corporate overhead and other support functions.

The asset amounts below represent an allocation of assets used in the segments’ cash-generating activities. The amounts in the Corporate, Other and Eliminations represent primarily intercompany receivables.

	PRB		WBIT		Corporate, Other and Eliminations			Consolidated
	(In thousands)
Three months ended March 31, 2011
Three months ended June 30, 2011
Coal sales	$	~~378~~376,~~966~~478	$	~~155~~189,~~439~~154	$	—		$	~~534~~565,~~405~~632
Income from operations	3927,~~510~~846		2643,~~896~~668		(85,~~979~~480		)	5766,~~427~~034
Total assets	1,042,276		657,251		1,591,118			3,290,645
Depreciation, depletion and amortization	19,233		21,280		—			40,513
Depreciation, depletion and amortization	19,866		20,514		(794		)	39,586
Amortization of acquired sales contracts, net	5,603		—		—			5,603
Amortization of acquired sales contracts, net	5,944		—		—			5,944
Capital expenditures	15,027		10,115		—			25,142
Capital expenditures	2,420		11,777		—			14,197
Three months ended June 30, 2010
Three months ended March 31, 2010
Coal sales	$	349,369	$	132,109	$	—		$	481,478
Coal sales	$	340,166	$	132,681	$	—		$	472,847
Income from operations	24,714		13,864		(9,265		)	29,313
Income from operations	10,147		12,446		(8,499		)	14,094
Depreciation, depletion and amortization	21,922		18,165		—			40,087
Total assets	1,020,724		654,529		1,667,557			3,342,810
Amortization of acquired sales contracts, net	5,214		—		—			5,214
Depreciation, depletion and amortization	23,778		20,262		—			44,040
Capital expenditures	3,674		20,703		—			24,377
Amortization of acquired sales contracts, net	10,753		—		—			10,753
Six months ended June 30, 2011
Capital expenditures	725		13,101		—			13,826
Coal sales	$	755,444	$	344,593	$	—		$	1,100,037
Income from operations	67,356		70,564		(14,459		)	123,461
Total assets	1,039,036		650,455		1,599,294			3,288,785
Depreciation, depletion and amortization	39,099		41,000		—			80,099
Amortization of acquired sales contracts, net	11,547		—		—			11,547
Capital expenditures	17,447		21,893		—			39,340
Six months ended June 30, 2010
Coal sales	$	689,535	$	264,790	$	—		$	954,325
Income from operations	34,861		26,310		(17,764		)	43,407
Total assets	1,025,456		654,493		1,707,320			3,387,269
Depreciation, depletion and amortization	45,700		38,427		—			84,127
Amortization of acquired sales contracts, net	15,967		—		—			15,967
Capital expenditures	4,399		33,804		—			38,203

A reconciliation of segment income from operations to consolidated net income is presented below.

	Three Months Ended March 31
	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In thousands)
Income from operations	$	5766,~~427~~034		$	1429,~~094~~313		$	123,461		$	43,407
Interest expense	(10,~~491~~458		)	(17,~~503~~571		)	(20,949		)	(35,074		)
Interest income	1213,~~857~~265			1114,~~915~~103			26,122			26,018
Net income	$	5968,~~793~~841		$	825,~~506~~845		$	128,634		$	34,351

9. Supplemental Condensed Consolidating Financial Information

Pursuant to the indenture governing the Arch Western Finance senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes (Arch Western Finance, LLC, a wholly-owned subsidiary of the Company), (iii) the Company’s wholly-owned subsidiaries (Thunder Basin Coal Company, LLC, Mountain Coal Company, LLC, and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) the Company’s majority-owned subsidiary, Canyon Fuel LLC, which is not a guarantor under the Notes.

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10. Supplemental Condensed Consolidating ~~Statements~~Financial ~~of Income~~Information

~~Three~~Pursuant ~~Months~~to ~~Ended~~the ~~March~~indenture governing the Arch Western Finance senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) 31the Company, ~~2011~~(ii) the issuer of the senior notes (Arch Western Finance, LLC, a wholly-owned subsidiary of the Company), (iii) the Company’s wholly-owned subsidiaries (Thunder Basin Coal Company, LLC, Mountain Coal Company, LLC, and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) the Company’s majority-owned subsidiary, Canyon Fuel LLC, which is not a guarantor under the Notes.

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Coal sales	$	—		$	—		$	438,758		$	95,647		$	—		$	534,405
Cost of coal sales	485			—			354,899			67,940			—			423,324
Depreciation, depletion and amortization	(794		)	—			28,849			11,531			—			39,586
Amortization of acquired sales contracts, net	—			—			5,944			—			—			5,944
Selling, general and administrative expenses	9,298			—			—			—			—			9,298
Other operating income, net	(10		)	—			(900		)	(264		)	—			(1,174		)
	8,979			—			388,792			79,207			—			476,978
Income from investment in subsidiaries	66,168			—			—			—			(66,168		)	—
Income from operations	57,189			—			49,966			16,440			(66,168		)	57,427
Interest expense	(10,237		)	(7,688		)	—			(160		)	7,594			(10,491		)
Interest income	12,841			7,594			—			16			(7,594		)	12,857
	2,604			(94		)	—			(144		)	—			2,366
Net income (loss)	$	59,793		$	(94	)	$	49,966		$	16,296		$	(66,168	)	$	59,793

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Condensed Consolidating Statements of Income

Three Months Ended ~~March~~June 3130, ~~2010~~2011

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
	(In thousands)
Coal sales	$	—		$	—		$	~~378~~471,~~435~~584		$	94,~~412~~048		$	—		$	~~472~~565,~~847~~632
Cost of coal sales	~~967~~(701		)	—			~~324~~381,~~560~~292			7367,~~379~~115			~~(1,397~~—		)	~~397~~447,~~509~~706
Depreciation, depletion and amortization	—			—			3029,~~736~~287			1311,~~304~~226			—			4440,~~040~~513
Amortization of acquired sales contracts, net	—			—			10,753			—			—			10,753
Amortization of acquired sales contracts net	—			—			5,603			—			—			5,603
Selling, general and administrative expenses	78,~~841~~337			—			—			—			—			78,~~841~~337
Other operating income, net	(~~309~~1,358		)	—			(~~773~~862		)	(~~1,705~~341		)	~~1,397~~—			(12,~~390~~561		)
	8,499			—			365,276			84,978			—			458,753
	6,278			—			415,320			78,000			—			499,598
Income from investment in subsidiaries	2272,~~209~~072			—			—			—			(2272,~~209~~072		)	—
Income from operations	1365,~~710~~794			—			1356,~~159~~264			916,~~434~~048			(2272,~~209~~072		)	1466,~~094~~034
Interest expense	(1710,~~096~~201		)	(167,~~230~~687		)	—			(~~208~~164		)	167,~~031~~594			(1710,~~503~~458		)
Interest income	1113,~~892~~248			167,~~031~~594			1—			2217			(167,~~031~~594		)	1113,~~915~~265
	(5,204		)	(199		)	1			(186		)	—			(5,588		)
	3,047			(93		)	—			(147		)	—			2,807
Net income (loss)	$	868,~~506~~841		$	(~~199~~93	)	$	1356,~~160~~264		$	915,~~248~~901		$	(2272,~~209~~072	)	$	868,~~506~~841

Table of Contents

Condensed Consolidating ~~Balance~~Statements ~~Sheets~~of Income

~~March~~Three Months Ended June 3130, ~~2011~~2010

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
	(In thousands)
Cash and cash equivalents	$	957		$	—		$	65,045		$	112		$	—		$	66,114
Coal sales	$	—		$	—		$	387,161		$	94,317		$	—		$	481,478
Receivables	493			—			3,013			246			—			3,752
Cost of coal sales	(2,088		)	—			325,633			74,192			(1,167		)	396,570
Receivable from Arch Coal	627,025			—			—			—			—			627,025
Depreciation, depletion and amortization	—			—			27,958			12,129			—			40,087
Intercompanies	(558,712		)	7,594			371,367			179,751			—			—
Amortization of acquired sales contracts, net	—			—			5,214			—			—			5,214
Inventories	—			—			119,662			49,968			—			169,630
Selling, general and administrative expenses	11,408			—			—			—			—			11,408
Other	7,080			1,011			3,690			7,781			—			19,562
Other operating income, net	(56		)	—			(759		)	(1,466		)	1,167			(1,114		)
Total current assets	76,843			8,605			562,777			237,858			—			886,083
	9,264			—			358,046			84,855			—			452,165
Property, plant and equipment, net	—			—			1,200,297			263,255			—			1,463,552
Income from investment in subsidiaries	38,366			—			—			—			(38,366		)	—
Investment in subsidiaries	2,856,620			—			—			—			(2,856,620		)	—
Income from operations	29,102			—			29,115			9,462			(38,366		)	29,313
Receivable from Arch Coal	908,846			—			—			21,564			—			930,410
Interest expense	(17,155		)	(16,230		)	—			(218		)	16,032			(17,571		)
Intercompanies	(1,636,306		)	455,401			1,051,676			129,229			—			—
Interest income	13,898			16,032			185			20			(16,032		)	14,103
Other	1,466			1,259			3,716			4,159			—			10,600
	(3,257		)	(198		)	185			(198		)	—			(3,468		)
Total other assets	2,130,626			456,660			1,055,392			154,952			(2,856,620		)	941,010
Net income (loss)	$	25,845		$	(198	)	$	29,300		$	9,264		$	(38,366	)	$	25,845
Total assets	$	2,207,469		$	465,265		$	2,818,466		$	656,065		$	(2,856,620	)	$	3,290,645
Accounts payable	$	6,536		$	—		$	77,332		$	17,292		$	—		$	101,160
Accrued expenses	2,642			7,594			119,870			10,039			—			140,145
Commercial paper	60,585			—			—			—			—			60,585
Total current liabilities	69,763			7,594			197,202			27,331			—			301,890
Long-term debt	—			451,456			—			—			—			451,456
Note payable to Arch Coal	225,000			—			—			—			—			225,000
Asset retirement obligations	—			—			292,539			11,136			—			303,675
Accrued postretirement benefits other than pension	3,729			—			10,638			8,263			—			22,630
Accrued pension benefits	522			—			10,210			9,178			—			19,910
Accrued workers’ compensation	195			—			2,255			4,432			—			6,882
Other noncurrent liabilities	2,058			—			50,893			49			—			53,000
Total liabilities	301,267			459,050			563,737			60,389			—			1,384,443
Redeemable membership interest	10,718			—			—			—			—			10,718
Non-redeemable membership interest	1,895,484			6,215			2,254,729			595,676			(2,856,620		)	1,895,484
Total liabilities and membership interests	$	2,207,469		$	465,265		$	2,818,466		$	656,065		$	(2,856,620	)	$	3,290,645

Table of Contents

Condensed Consolidating Statements of Income

Six Months Ended June 30, 2011

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)

Coal sales	$	—		$	—		$	910,342		$	189,695		$	—		$	1,100,037
Cost of coal sales	(216		)	—			736,191			135,055			—			871,030
Depreciation, depletion and amortization	—			—			58,136			21,963			—			80,099
Amortization of acquired sales contracts, net	—			—			11,547			—			—			11,547
Selling, general and administrative expenses	17,635			—			—			—			—			17,635
Other operating income, net	(1,368		)	—			(1,762		)	(605		)	—			(3,735		)
	16,051			—			804,112			156,413			—			976,576
Income from investment in subsidiaries	139,034			—			—			—			(139,034		)	—

Income from operations	122,983			—			106,230			33,282			(139,034		)	123,461
Interest expense	(20,438		)	(15,375		)	—			(324		)	15,188			(20,949		)
Interest income	26,089			15,188			—			33			(15,188		)	26,122
	5,651			(187		)	—			(291		)	—			5,173

Net income (loss)	$	128,634		$	(187	)	$	106,230		$	32,991		$	(139,034	)	$	128,634

Table of Contents

Condensed Consolidating Statements of Income

Six Months Ended June 30, 2010

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)

Coal sales	$	—		$	—		$	765,596		$	188,729		$	—		$	954,325
Cost of coal sales	(1,121		)	—			650,193			147,571			(2,564		)	794,079
Depreciation, depletion and amortization	—			—			58,694			25,433			—			84,127
Amortization of acquired sales contracts, net	—			—			15,967			—			—			15,967
Selling, general and administrative expenses	19,249			—			—			—			—			19,249
Other operating income, net	(365		)	—			(1,532		)	(3,171		)	2,564			(2,504		)
	17,763			—			723,322			169,833			—			910,918
Income from investment in subsidiaries	60,575			—			—			—			(60,575		)	—

Income from operations	42,812			—			42,274			18,896			(60,575		)	43,407
Interest expense	(34,251		)	(32,460		)	—			(426		)	32,063			(35,074		)
Interest income	25,790			32,063			186			42			(32,063		)	26,018
	(8,461		)	(397		)	186			(384		)	—			(9,056		)
Net income (loss)	$	34,351		$	(397	)	$	42,460		$	18,512		$	(60,575	)	$	34,351

Table of Contents

Condensed Consolidating Balance Sheets

June 30, 2011

(unaudited)

	Parent Company			Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
	(In thousands)

Cash and cash equivalents	$	67		$	—	$	69,833	$	239	$	—		$	70,139
Receivables	962			—		779		356		—			2,097
Receivable from Arch Coal	627,349			—		—		—		—			627,349
Intercompanies	(620,342		)	15,188		393,446		211,708		—			—
Inventories	—			—		114,238		58,349		—			172,587
Other	3,953			1,008		5,080		5,354		—			15,395
Total current assets	11,989			16,196		583,376		276,006		—			887,567

Property, plant and equipment, net	—			—		1,190,461		257,724		(15		)	1,448,170

Investment in subsidiaries	2,930,100			—		—		—		(2,930,100		)	—
Receivable from Arch Coal	917,611			—		—		21,564		—			939,175
Intercompanies	(1,648,470		)	455,401		1,079,206		113,863		—			—
Other	1,480			1,008		7,278		4,107		—			13,873
Total other assets	2,200,721			456,409		1,086,484		139,534		(2,930,100		)	953,048
Total assets	$	2,212,710		$	472,605	$	2,860,321	$	673,264	$	(2,930,115	)	$	3,288,785

Accounts payable	$	4,313		$	—	$	74,607	$	16,558	$	—		$	95,478
Accrued expenses	3,723			15,188		122,116		10,423		—			151,450
Total current liabilities	8,036			15,188		196,723		26,981		—			246,928
Long-term debt	—			451,294		—		—		—			451,294
Note payable to Arch Coal	225,000			—		—		—		—			225,000
Asset retirement obligations	—			—		294,886		11,388		—			306,274
Accrued postretirement benefits other than pension	3,860			—		10,707		8,437		—			23,004
Accrued pension benefits	(776		)	—		9,802		9,601		—			18,627
Accrued workers’ compensation	193			—		2,527		4,125		—			6,845
Other noncurrent liabilities	2,121			—		34,362		69		—			36,552
Total liabilities	238,434			466,482		549,007		60,601		—			1,314,524
Redeemable membership interest	11,032			—		—		—		—			11,032
Non-redeemable membership interest	1,963,244			6,123		2,311,314		612,663		(2,930,115		)	1,963,229
Total liabilities and membership interests	$	2,212,710		$	472,605	$	2,860,321	$	673,264	$	(2,930,115	)	$	3,288,785

Table of Contents

Condensed Consolidating Balance Sheets

December 31, 2010

(unaudited)

	Parent Company			Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
	(In thousands)
Cash and cash equivalents	$	1,613		$	—	$	78,070	$	134	$	—		$	79,817
Receivables	1,033			—		663		319		—			2,015
Receivable from Arch Coal	582,384			—		—		—		—			582,384
Intercompanies	(519,808		)	15,188		341,981		162,639		—			—
Inventories	—			—		104,394		46,025		—			150,419
Other	10,096			1,015		4,129		6,195		—			21,435
Total current assets	75,318			16,203		529,237		215,312		—			836,070
Property, plant and equipment, net	—			—		1,223,493		265,350		—			1,488,843
Investment in subsidiaries	2,789,637			—		—		—		(2,789,637		)	—
Receivable from Arch Coal	888,306			—		—		22,491		—			910,797
Intercompanies	(1,609,147		)	455,401		1,023,119		130,627		—			—
Other	1,402			1,511		3,802		4,205		—			10,920
Total other assets	2,070,198			456,912		1,026,921		157,323		(2,789,637		)	921,717
Total assets	$	2,145,516		$	473,115	$	2,779,651	$	637,985	$	(2,789,637	)	$	3,246,630
Accounts payable	$	2,604		$	—	$	102,290	$	16,776	$	—		$	121,670
Accrued expenses and other current liabilities	5,714			15,188		122,473		9,766		—			153,141
Commercial paper	56,904			—		—		—		—			56,904
Total current liabilities	65,222			15,188		224,763		26,542		—			331,715
Long-term debt	—			451,618		—		—		—			451,618
Note payable to Arch Coal	225,000			—		—		—		—			225,000
Asset retirement obligations	—			—		290,473		10,882		—			301,355
Accrued postretirement benefits other than pension	3,629			—		11,571		8,309		—			23,509
Accrued pension benefits	3,342			—		11,962		8,600		—			23,904
Accrued workers’ compensation	(94		)	—		2,042		4,154		—			6,102
Other noncurrent liabilities	1,903			—		34,930		80		—			36,913
Total liabilities	299,002			466,806		575,741		58,567		—			1,400,116
Redeemable membership interest	10,444			—		—		—		—			10,444
Non-redeemable membership interest	1,836,070			6,309		2,203,910		579,418		(2,789,637		)	1,836,070
Total liabilities and membership interests	$	2,145,516		$	473,115	$	2,779,651	$	637,985	$	(2,789,637	)	$	3,246,630

1013

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Condensed Consolidating Statements of Cash Flows

~~Three~~Six Months Ended ~~March~~June 3130, 2011

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
	(in thousands)
	(In thousands)
Cash provided by (used in) operating activities	$	(58,~~219~~112	)	~~(7,594~~$	—	)	$	56139,~~358~~469		$	2343,~~394~~631		$	66174,~~939~~988
Investing Activities
Capital expenditures	—			—			(525,~~555~~020		)	(814,~~642~~320		)	(1439,~~197~~340		)
Change in receivable from Arch Coal, Inc.	(71,067		)	—			—			927			(70,140		)
Change in receivable from Arch Coal	(87,790		)	—			—			3,044			(84,746		)
Proceeds from dispositions of property, plant and equipment	—			—			141			1355			1496
Cash used in investing activities	(71,067		)	—			(5,554		)	(7,702		)	(84,323		)
Additions to prepaid royalties	—			—			(3,772		)	—			(3,772		)
Cash used in investing activities	(87,790		)	—			(28,751		)	(11,221		)	(127,762		)
Financing Activities
Net proceeds fom commercial paper	3,681			—			—			—			3,681
Net repayments on commercial paper	(56,904		)	—			—			—			(56,904		)
Transactions with affiliates, net	71151,~~949~~260			~~7,594~~—			(63118,~~829~~955		)	(1532,~~714~~305		)	—
Cash provided by (used in) financing activities	7594,~~630~~356			~~7,594~~—			(63118,~~829~~955		)	(1532,~~714~~305		)	3(56,~~681~~904		)
Decrease in cash and cash equivalents	(656		)	—			(13,025		)	(22		)	(13,703		)
Increase (decrease) in cash and cash equivalents	(1,546		)	—			(8,237		)	105			(9,678		)
Cash and cash equivalents, beginning of period	1,613			—			78,070			134			79,817
Cash and cash equivalents, end of period	$	~~957~~67		$	—		$	6569,~~045~~833		$	~~112~~239		$	6670,~~114~~139

1114

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Condensed Consolidating Statements of Cash Flows

~~Three~~Six Months Ended ~~March~~June 3130, 2010

(unaudited)

	Parent Company			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
	(in thousands)
	(In thousands)
Cash provided by (used in) operating activities	$	(718,~~279~~021	)	$—	~~(16,032~~	)	$	~~107~~173,~~573~~321		$	1841,~~778~~108		$	~~103~~196,~~040~~408
Investing Activities
Capital expenditures	—			—			(1129,~~087~~361		)	(28,~~739~~842		)	(1338,~~826~~203		)
Change in receivable from Arch Coal, Inc.	(96,616		)	—			—			9,642			(86,974		)
Change in receivable from Arch Coal	(150,854		)	—			—			7,524			(143,330		)
Proceeds from dispositions of property, plant and equipment	—			—			45			29			74
Additions to prepaid royalties	—			—			(2,509		)	—(126		)	(2,~~509~~635		)
Cash provided by (used in) investing activities	(96,616		)	—			(13,551		)	6,932			(103,235		)
Cash used in investing activities	(150,854		)	—			(31,825		)	(1,415		)	(184,094		)
Financing Activities
Net proceeds on commercial paper	3,778			—			—			—			3,778
Net proceeds from commercial paper	12,545			—			—			—			12,545
Debt financing costs	(63		)	—			—			—			(63		)
Transactions with affiliates, net	103,654			16,032			(94,028		)	(25,658		)	—
Contribution from non-redeemable membership interest	891			—			—			—			891
Cash provided by (used in) financing activities	107,369			16,032			(94,028		)	(25,658		)	3,715
Transactions with affiliates, net	151,178			—			(111,504		)	(39,674		)	—
Increase (decrease) in cash and cash equivalents	3,474			—			(6		)	52			3,520
Cash provided by (used in) financing activities	164,551			—			(111,504		)	(39,674		)	13,373
Increase (decrease) in cash and cash equivalents	(4,324		)	—			29,992			19			25,687
Cash and cash equivalents, beginning of period	6,714			—			61			44			6,819
Cash and cash equivalents, end of period	$	102,~~188~~390		$	—		$	5530,053		$	9663		$	1032,~~339~~506

1215

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This document contains “forward-looking statements” — that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from regulations relating to mine safety; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, see “Risk Factors” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

We are a subsidiary of Arch Coal, Inc., one of the world’s largest coal producers by volume. We sell substantially all of our coal to power plants and industrial facilities. Our two reportable business segments are based on the low-sulfur U.S. coal producing regions in which we operate — the Powder River Basin and the Western Bituminous region. These geographically distinct areas are characterized by geology, coal transportation routes to consumers, regulatory environments and coal quality. These regional similarities have caused market and contract pricing environments to develop by coal region and form the basis for the segmentation of our operations.

The Powder River Basin is located in northeastern Wyoming and southeastern Montana. The coal we mine from surface operations in this region is very low in sulfur content and has a low heat value compared to the other regions in which we operate. The price of Powder River Basin coal is generally less than that of coal produced in other regions because Powder River Basin coal exists in greater abundance, is easier to mine and thus has a lower cost of production. In addition, Powder River Basin coal is generally lower in heat content, which requires some electric power generation facilities to blend it with higher Btu coal or retrofit some existing coal plants to accommodate lower Btu coal. The Western Bituminous region includes Colorado, Utah and southern Wyoming. Coal we mine from underground and surface mines in this region typically is low in sulfur content and varies in heat content.

Growth in domestic and global coal demand combined with coal supply constraints in many traditional coal exporting countries benefited coal markets ~~during~~in ~~2010.~~the first half of 2011. We expect global coal markets to remain tight throughout the remainder of 2011, and additional tightening in the domestic market as 2011 progresses. Global power demand is increasing, creating seaborne demand for U.S. coal. We have expanded our seaborne sales utilizing ports on the West Coast and the Gulf of Mexico. We have provided additional information about the performance of our operating segments under the heading “Operating segment results”.

Domestic power demand so far in 2011 is even with last year, through the third week of July, according to the Edison Electric Institute. U.S. coal consumption through May has declined due to strong contributions from other fuel sources, but is expected to increase meaningfully during the summer burn season, particularly in light of hot summer temperatures across much of the country in recent weeks. U.S. coal production in the first half of 2011 remained essentially flat versus a year ago, according to recently released MSHA data and company estimates. Shipments out of the PRB region fell to the lowest quarterly level since the depth of the recession in 2009. Flooding of the Missouri and Mississippi rivers disrupted shipments from the Powder River Basin, and have resulted in a further reduction in generator stockpiles. These disruptions resulted in a loss of shipments from our PRB operations during the second quarter of 2011, with continuing impacts in the third quarter.

U.S. steam coal is migrating offshore to meet the continuing growth in global coal demand to fuel electricity generation. In response to the global steam coal demand, we have expanded our seaborne sales and have shipped steam coal to Europe, South America, and Asia. Each of our operating segments is participating in the expansion of seaborne shipments, from ports on the West Coast as well through the Gulf of Mexico. We have provided additional information about the performance of our operating segments under the heading “Operating segment results”.

Results of Operations

Three Months Ended ~~March~~June 3130, 2011 Compared to Three Months Ended ~~March~~June 3130, 2010

Summary. Our improved results during the ~~first~~second quarter of 2011 when compared to the ~~first~~second quarter of 2010 were due primarily to higher average sales realizations as a result of improved market conditions. ~~The impact of lower overall sales volumes partially offset the benefit from the higher average realizations.~~

~~Revenues. The following table summarizes information about coal sales for the three months ended March 31, 2011 and compares it with the information for the three months ended March 31, 2010:~~16

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	Three Months Ended March 31				Increase (Decrease)
	2011		2010		Amount			%
	(Amounts in thousands, except per ton data and percentages)
Coal sales	$	534,405	$	472,847	$	61,558		13.0	%
Tons sold	32,310		33,808		(1,498		)	(4.4	)%
Coal sales realization per ton sold	$	16.54	$	13.98	$	2.56		18.3	%

Revenues. The following table summarizes information about coal sales for the three months ended June 30, 2011 and compares it with the information for the three months ended June 30, 2010:

Coal sales increased in the first quarter of 2011 from the first quarter of 2010 due to higher pricing in both regions, partially offset by lower sales volumes in the Powder River Basin. We remain selective in committing tonnage by matching our production levels to our estimates of market demand, which we believe will provide for the best long-term results based on our outlook for the coal markets. We have provided more information about the tons sold and the coal sales realizations per ton by operating segment under the heading “Operating segment results”.

	Three Months Ended June 30				Increase (Decrease)
	2011		2010		Amount			%
	(Amounts in thousands, except per ton data and percentages)
Coal sales	$	565,632	$	481,478	$	84,154		17.5	%
Tons sold	32,000		33,922		(1,922		)	(5.7	)%
Coal sales realization per ton sold	$	17.68	$	14.19	$	3.49		24.6	%

~~Costs,~~Coal ~~expenses~~sales ~~and~~increased ~~other. The~~in ~~following~~the ~~table~~second ~~summarizes~~quarter ~~costs,~~of ~~expenses~~2011 ~~and~~from ~~other~~the ~~components~~second quarter of ~~operating~~2010, ~~income~~due ~~for~~to ~~the~~higher ~~three~~pricing ~~months~~in ~~ended~~both ~~March 31~~regions, ~~2011~~partially ~~and~~offset ~~compares~~by ~~them~~lower ~~with~~sales volumes in the Powder River Basin. We have provided more information ~~for~~about the ~~three~~tons ~~months~~sold ~~ended~~and ~~March 31,~~the ~~2010:~~coal sales realizations per ton by operating segment under the heading “Operating segment results”.

	Three Months Ended March 31						Increase (Decrease) in Net Income
	2011			2010			$			%
	(Amounts in thousands, except percentages)
Cost of coal sales	$	423,324		$	397,509		$	(25,815	)	(6.5	)%
Depreciation, depletion and amortization	39,586			44,040			4,454			10.1
Amortization of acquired sales contracts, net	5,944			10,753			4,809			44.7
Selling, general and administrative expenses	9,298			7,841			(1,457		)	(18.6	)
Other operating income, net	(1,174		)	(1,390		)	(216		)	(15.5	)
	$	476,978		$	458,753		$	(18,225	)	(4.0	)%

Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the three months ended June 30, 2011 and compares them with the information for the three months ended June 30, 2010:

Cost of coal sales. Our cost of coal sales increased in 2011 from 2010 primarily due to higher per-ton production costs, an increase in sales-sensitive costs and an increase in transportation costs, as a result of an increase in export shipments. We have provided more information about our operating segments under the heading “Operating segment results”.

	Three Months Ended June 30						Increase (Decrease) in Net Income
	2011			2010			$			%
	(Amounts in thousands, except percentages)
Cost of coal sales	$	447,706		$	396,570		$	(51,136	)	(12.9	)%
Depreciation, depletion and amortization	40,513			40,087			(426		)	(1.1	)
Amortization of acquired sales contracts, net	5,603			5,214			(389		)	(7.5	)
Selling, general and administrative expenses	8,337			11,408			3,071			26.9
Other operating income, net	(2,561		)	(1,114		)	1,447			129.9
	$	499,598		$	452,165		$	(47,433	)	(10.5	)%

~~Depreciation,~~Cost ~~depletion~~of ~~and~~coal ~~amortization~~sales. ~~When~~Our ~~compared~~cost ~~with~~of coal sales increased in 2011 from 2010, ~~lower~~primarily ~~depreciation,~~due ~~depletion~~to ~~and~~an ~~amortization~~increase in sales-sensitive costs, inan ~~2011~~increase ~~resulted~~in ~~primarily~~transportation ~~from~~costs, ~~the~~as ~~impact~~a result of ~~lower~~an ~~production~~increase in export shipments, and ~~sales~~higher ~~volumes~~production oncosts. ~~assets~~We ~~amortized~~have orprovided ~~depleted~~more oninformation about our operating segments under the ~~basis~~heading of“Operating ~~tons~~segment ~~produced~~results”.

Depreciation, depletion and amortization. When compared with 2010, higher depreciation, depletion and amortization costs in 2011 were primarily due to the impact of the addition of the preparation plant at the West Elk mining complex in Colorado in the fourth quarter of 2010.

Amortization of acquired sales contracts, net. Arch Coal acquired both above- and below-market sales contracts with a net fair value of $58.4 million with the Jacobs Ranch mining operation. The sales contracts were not contributed to us, however, the amortization of these acquired sales contracts is reflected in our results. The fair values of acquired sales contracts are amortized over the tons of coal shipped during the term of the contracts.

Selling, general and administrative expenses. Selling, general and administrative expenses represent expenses allocated to us from Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on our behalf.

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Operating segment results. The following table shows results by operating segment for the three months ended ~~March~~June 3130, 2011 and compares it with information for the three months ended ~~March~~June 3130, 2010:

	Three Months Ended March 31				Increase (Decrease)
	Three Months Ended June 30				Increase (Decrease)
	2011		2010		$			%
Powder River Basin
Tons sold (in thousands)	2827,~~124~~278		29,~~681~~927		(12,~~557~~649		)	(58.29	)%
Coal sales realization per ton sold (1)	$	13.3454	$	11.3858	$	1.96		1716.29	%
Operating margin per ton sold (2)	$	1.3700	$	0.3280	$	10.0520		~~328~~25.10	%
Western Bituminous
Tons sold (in thousands)	4,~~186~~722		43,~~127~~995		59727			118.42	%
Coal sales realization per ton sold (1)	$	3135.7759	$	2832.9891	$	2.7968		98.61	%
Operating margin per ton sold (2)	$	69.3516	$	23.6009	$	36.7507		~~144~~196.24	%

(1) Coal sales prices per ton exclude certain transportation costs that we pass through to our customers. We use these financial measures because we believe the amounts as adjusted better represent the coal sales prices we achieved within our operating segments. Since other companies may calculate coal sales prices per ton differently, our calculation may not be comparable to similarly titled measures used by those companies. For the three months ended ~~March~~June 3130, 2011, transportation costs per ton were $0.1327 for the Powder River Basin and $54.3647 for the Western Bituminous region. For the three months ended ~~March~~June 3130, 2010, transportation costs per ton were $0.0809 for the Powder River Basin and $30.1716 for the Western Bituminous region.

(2) Operating margin per ton sold is calculated as coal sales revenues less cost of coal sales and depreciation, depletion and amortization divided by tons sold.

Powder River Basin — The operating margin per ton sold in the Powder River Basin was higher in 2011 than in 2010 due to higher average coal sales realizations, reflecting the improved coal markets. ~~The~~Lower ~~decrease in~~ sales volumes in the Powder River Basin in 2011 when compared with 2010 ~~resulted~~were primarily ~~from~~the ~~our~~result ~~market-driven~~of ~~sales~~the ~~commitment~~flooding ~~approach,~~in asthe ~~discussed previously~~Midwest. Lower ~~Partially~~production ~~offsetting~~volumes ~~the~~contributed ~~increase~~to inhigher ~~average~~per-ton ~~realizations~~costs, ~~was~~which analong ~~increase~~with inhigher ~~labor~~production and ~~diesel~~sales-sensitive costs ~~and~~partially anoffset ~~increase~~the inbenefit ~~sales-sensitive~~from the higher realizations. Higher production costs were the result of higher labor, ~~due~~maintenance toand ~~increased~~diesel ~~realizations~~costs.

Western Bituminous — ~~In the Western Bituminous region, per~~Per-ton operating margins in the ~~first~~second quarter of 2011 were higher than 2010, reflecting improved pricing, ~~despite~~resulting from increased demand from the ~~ongoing~~Eastern ~~soft~~U.S. ~~domestic~~and ~~demand~~export inmarkets for coal from the Western Bituminous region. Effective cost control in the region and slightly higher production levels reduced our per-ton operating costs, which contributed to the improved results in 2011, when compared to the second quarter of 2010, when two outages affected production at the Dugout Canyon mine.

Net interest income (expense). The following table summarizes our net interest income (expense) for the three months ended ~~March~~June 3130, 2011 and compares it with the information for the three months ended ~~March~~June 3130, 2010:

	Three Months Ended March 31						Increase in Net Income
	Three Months Ended June 30						Increase (Decrease) in Net Income
	2011			2010			$			%
	(Amounts in thousands, except percentages)
Interest expense	$	(10,~~491~~458	)	$	(17,~~503~~571	)	$	7,~~012~~113		40.15	%
Interest income	1213,~~857~~265			1114,~~915~~103			~~942~~(838		)	7(5.9	)
	$	2,~~366~~807		$	(53,~~588~~468	)	$	76,~~954~~275		~~142~~180.39	%

Interest expense consists primarily of interest on our 6.75% senior notes, the discount on trade accounts receivable sold to Arch Coal under Arch Coal’s accounts receivable securitization program, interest on ~~our~~ commercial paper, and interest on the $225.0 million loan from Arch Coal. The decrease in the ~~first~~second quarter of 2011, when compared with 2010, is the result of the retirement of $500.0 million aggregate principal amount of the outstanding 6.75% senior notes in September 2010. The redemption was funded by a loan from Arch Coal of $225 million and a repayment of a portion of the balance receivable from Arch Coal.

Interest income primarily reflects the interest on the receivable balance from Arch Coal, which earns interest at the prime interest rate.

15Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Summary. Our improved results during the first half of 2011 when compared to the first half of 2010 were due primarily to higher average sales realizations as a result of improved market conditions.

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Revenues. The following table summarizes information about coal sales for the six months ended June 30, 2011 and compares it with the information for the six months ended June 30, 2010:

	Six Months Ended June 30				Increase (Decrease)
	2011		2010		Amount			%
	(Amounts in thousands, except per ton data and percentages)
Coal sales	$	1,100,037	$	954,325	$	145,712		15.3	%
Tons sold	64,310		67,730		(3,420		)	(5.0	)%
Coal sales realization per ton sold	$	17.11	$	14.09	$	3.02		21.4	%

Coal sales increased in the first half of 2011 from the first half of 2010, due to higher pricing in both regions, partially offset by lower sales volumes in the Powder River Basin. We have provided more information about the tons sold and the coal sales realizations per ton by operating segment under the heading “Operating segment results”.

Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the six months ended June 30, 2011 and compares them with the information for the six months ended June 30, 2010:

	Six Months Ended June 30						Increase (Decrease) in Net Income
	2011			2010			$			%
	(Amounts in thousands, except percentages)
Cost of coal sales	$	871,030		$	794,079		$	(76,951	)	(9.7	)%
Depreciation, depletion and amortization	80,099			84,127			4,028			4.8
Amortization of acquired sales contracts, net	11,547			15,967			4,420			27.7
Selling, general and administrative expenses	17,635			19,249			1,614			8.4
Other operating income, net	(3,735		)	(2,504		)	1,231			49.2
	$	976,576		$	910,918		$	(65,658	)	(7.2	)%

Cost of coal sales. Our cost of coal sales increased in 2011 from 2010 primarily due to an increase in sales-sensitive costs, an increase in transportation costs, as a result of an increase in export shipments, and higher production costs. We have provided more information about our operating segments under the heading “Operating segment results”.

Depreciation, depletion and amortization. When compared with 2010, lower depreciation, depletion and amortization costs in 2011 resulted primarily from the impact of lower production and sales volumes on assets amortized or depleted on the basis of tons produced.

Operating segment results. The following table shows results by operating segment for the six months ended June 30, 2011 and compares it with information for the six months ended June 30, 2010:

	Six Months Ended June 30				Increase (Decrease)
	2011		2010		$			%

Powder River Basin
Tons sold (in thousands)	55,402		59,608		(4,206		)	(7.1	)%
Coal sales realization per ton sold (1)	$	13.44	$	11.48	$	1.96		17.1	%
Operating margin per ton sold (2)	$	1.19	$	0.56	$	0.63		112.5	%

Western Bituminous
Tons sold (in thousands)	8,908		8,122		786			9.7	%
Coal sales realization per ton sold (1)	$	35.25	$	32.45	$	2.80		8.6	%
Operating margin per ton sold (2)	$	7.84	$	2.84	$	5.00		176.1	%

(3) Coal sales prices per ton exclude certain transportation costs that we pass through to our customers. We use these financial measures because we believe the amounts as adjusted better represent the coal sales prices we achieved within our operating segments. Since other companies may

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calculate coal sales prices per ton differently, our calculation may not be comparable to similarly titled measures used by those companies. For the six months ended June 30, 2011, transportation costs per ton were $0.20 for the Powder River Basin and $3.43 for the Western Bituminous region. For the six months ended June 30, 2010, transportation costs per ton were $0.09 for the Powder River Basin and $0.15 for the Western Bituminous region.

(4) Operating margin per ton sold is calculated as coal sales revenues less cost of coal sales and depreciation, depletion and amortization divided by tons sold.

Powder River Basin — The operating margin per ton sold in the Powder River Basin was higher in 2011 than in 2010 due to higher average coal sales realizations, reflecting the improved coal markets. Lower sales volumes in the Powder River Basin in 2011 when compared with 2010 were primarily the result of our market-driven sales commitment approach in the Powder River Basin and the flooding in the Midwest in the second quarter of 2011. Lower production volumes contributed to higher per-ton costs, which along with and higher production and sales-sensitive costs partially offset the benefit from the higher realizations. Higher production costs were the result of higher labor, maintenance and diesel costs.

Western Bituminous — In the Western Bituminous region, per-ton operating margins in the first quarter of 2011 were higher than 2010, reflecting improved pricing resulting from increased demand from the Eastern U.S. and export markets for coal from the Western Bituminous region. Effective cost control in the region and slightly higher production levels reduced our per-ton operating costs, which contributed to the improved results in 2011, with the first half of 2010, when two outages affected production at the Dugout Canyon mine.

Net interest income (expense). The following table summarizes our net interest income (expense) for the six months ended June 30, 2011 and compares it with the information for the six months ended June 30, 2010:

	Six Months Ended June 30						Increase in Net Income
	2011			2010			$		%
	(Amounts in thousands, except percentages)
Interest expense	$	(20,949	)	$	(35,074	)	$	14,125	40.3	%
Interest income	26,122			26,018			104		0.4
	$	5,173		$	(9,056	)	$	14,229	157.1	%

Interest expense consists primarily of interest on our 6.75% senior notes, the discount on trade accounts receivable sold to Arch Coal under Arch Coal’s accounts receivable securitization program, interest on commercial paper, and interest on the $225.0 million loan from Arch Coal. The decrease in the first quarter of 2011, when compared with 2010, is the result of the retirement of $500.0 million aggregate principal amount of the outstanding 6.75% senior notes in September 2010. The redemption was funded by a loan from Arch Coal of $225 million and a repayment of a portion of the balance receivable from Arch Coal.

Interest income primarily reflects the interest on the receivable balance from Arch Coal, which earns interest at the prime interest rate.

Liquidity and Capital Resources

Liquidity and capital resources

Our primary sources of cash are coal sales to customers, ~~our commercial paper program~~ and debt related to significant transactions. Excluding any significant business acquisitions, we generally satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations, and if necessary, from Arch Coal. Arch Coal manages our cash transactions. Cash paid to or from us that is not considered a distribution or a contribution is recorded through a note receivable from Arch Coal, with exception of the borrowings under the intercompany credit agreement.

Our ability to satisfy debt service obligations, to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, which will be affected by prevailing economic conditions in the coal industry and financial, business and other factors, some of which are beyond our control.

On June 14, 2011, the Company terminated its commercial paper placement program and the supporting credit facility.

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The following is a summary of cash provided by or used in each of the indicated types of activities:

	Three Months Ended March 31
	Six Months Ended June 30
	2011			2010
	(in thousands)
Cash provided by (used in):
Operating activities	$	66174,~~939~~988		$	~~103~~196,~~040~~408
Investing activities	(84127,~~323~~762		)	(~~103~~184,~~235~~094		)
Financing activities	3(56,~~681~~904		)	313,~~715~~373

Cash provided by operating activities decreased in the ~~three~~six months ended ~~March~~June 3130, 2011 compared to the ~~three~~six months ended ~~March~~June 3130, 2010, primarily as a result of an increased investment in working capital, primarily coal inventories, and a decrease in accounts payable.

Cash used in investing activities for the ~~three~~six months ended ~~March~~June 3130, 2011 was $1856.93 million lower when compared to the ~~three~~six months ended ~~March~~June 3130, 2010, primarily due to a decrease in amounts advanced to Arch Coal under the intercompany note.

We used $56.9 million of cash in financing activities during the first half of 2011, compared to cash provided by financing activities of $13.4 million during the first half of 2010, primarily for the termination of the commercial paper program in June of 2011.

Critical Accounting Policies

For a description of our critical accounting policies, see “Critical Accounting Policies” under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2010. There were no significant changes to our critical accounting policies during the ~~three~~six months ended ~~March~~June 3130, 2011.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We manage our commodity price risk for our long-term coal contract portfolio through the use of long-term coal supply agreements, rather than through the use of derivative instruments. The majority of our tonnage is sold under long-term contracts. We are also exposed to price risk related to the value of sulfur dioxide emission allowances that are a component of quality adjustment provisions in many of our coal supply contracts. We manage this risk through the use of long-term coal supply agreements.

We are also exposed to the risk of fluctuations in cash flows related to our purchase of diesel fuel. We use approximately 45 to 50 million gallons of diesel fuel annually in our operations. Arch Coal enters into heating oil swaps and options to reduce volatility in the price of diesel fuel for our operations. The swap agreements essentially fix the price paid for diesel fuel by requiring us to pay a fixed heating oil price and receive a floating heating oil price. The call options protect against increases in diesel fuel by granting us the right to participate in increases in heating oil prices. The cash settlements related to these swaps and options are allocated to us through the Arch Coal intercompany account.

We are exposed to market risk associated with fluctuating interest rates on ~~our outstanding commercial paper and~~ the ~~note~~notes payable to Arch Coal. A one percentage point increase in the interest rates related to these borrowings would result in an annualized increase in interest expense of $2.93 million, based on borrowing levels at ~~March~~June 3130, 2011.

Item 4. Controls and Procedures.

We performed an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date. There were no changes in internal control over financial reporting that occurred during our quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March~~PART ~~31,~~II ~~2011. Based~~OTHER on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date. There were no changes in internal control over financial reporting that occurred during our quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.INFORMATION

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various claims and legal actions in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial results.

Item 1A. Risk Factors.

Our business inherently involves certain risks and uncertainties. The risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Should one or more of any of these risks materialize, our business, financial condition, results of operations or liquidity could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Reserved

Item 5. Other Information.

We believe that we have some of the safest ~~producing~~coal mining operations in the world. Safety is a core value at our parent company, Arch Coal, and at each of its subsidiary operations. We have in place a comprehensive safety program that includes extensive health & safety training for all employees, site inspections, emergency response preparedness, crisis communications training, incident investigation, regulatory compliance training and process auditing, as well as an open dialogue between all levels of employees. The goals of our processes are to eliminate exposure to hazards in the workplace, ensure that we comply with all mine safety regulations, and support regulatory and industry efforts to improve the health and safety of our employees along with the industry as a whole.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, each operator of a coal or other mine is required to include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. The operation of our mines is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Below we present the following items regarding certain mine safety and health matters, broken down by mining complex owned and operated by Arch Western or our subsidiaries, for the three-month period ended ~~March~~June 3130, 2011:

· Section 104 Citations: Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Mine Act for which we have received a citation from MSHA;

· Section 104(b) Orders: Total number of orders issued under section 104(b) of the Mine Act;

· Section 104(d) Citations/Orders: Total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act;

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· Section 107(a) Orders: Total number of imminent danger orders issued under section 107(a) of the Mine Act; and

· Total Dollar Value of Proposed MSHA Assessments: Total dollar value of proposed assessments from MSHA under the Mine Act.

Mining complex(1)	Section 104 Citations	Section 104(b) Orders	Section 104(d) Citations/Orders	Section 107(a) Orders	Total Dollar Value of Proposed MSHA Assessments (in thousands)(2)
Power River Basin:
Black Thunder	4	—	—	—	$	4.6
Coal Creek	1	—	—	—	$	1.1
Western Bituminous:
Arch of Wyoming	2	—	—	—	$	0
Dugout Canyon	3	—	1	—	$	0
Skyline	7	—	—	—	$	5.5
Sufco	3	—	—	—	$	4.5
West Elk	7	—	—	—	$	7.3

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Mining complex(1)	Section 104 Citations	Section 104(b) Orders	Section 104(d) Citations/Orders	Section 107(a) Orders	Total Dollar Value of Proposed MSHA Assessments (in thousands)(2)

Power River Basin:
Black Thunder	10	—	1	—	$	44.0
Coal Creek	1	—	—	—	$	8.2
Western Bituminous:
Arch of Wyoming	1	—	—	—	$	0.5
Dugout Canyon	2	—	—	—	$	0
Skyline	5	1	—	—	$	11.2
Sufco	8	—	—	—	$	3.4
West Elk	14	—	—	—	$	23.8

(1) MSHA assigns an identification number to each coal mine and may or may not assign separate identification numbers to related facilities such as preparation plants. We are providing the information in this table by mining complex rather than MSHA identification number because we believe this format will be more useful to investors than providing information based on MSHA identification numbers. For descriptions of each of these mining operations please refer to the descriptions under Item 1. Business, in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

(2) Amounts included under the heading “Total Dollar Value of Proposed MSHA Assessments” are the total dollar amounts for proposed assessments received from MSHA on or before ~~April~~July 1526, 2011, for citations and orders occurring during the three-month period ended ~~March~~June 3130, 2011.

For the three-month period ended ~~March~~June 3130, 2011, none of our mining complexes received written notice from MSHA of (i) a flagrant violation under section 110(b)(2) of the Mine Act; (ii) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) of the Mine Act; or (iii) the potential to have such a pattern. For the three-month period ended ~~March~~June 3130, 2011, none of our mining complexes experienced a mining-related fatality.

As of ~~March~~June 3130, 2011, we had a total of ~~fifty-one~~53 matters pending before the Federal Mine Safety and Health Review Commission. This includes legal actions that were initiated prior to the three-month period ended ~~March~~June 3130, 2011 and which do not necessarily relate to the citations, orders or proposed assessments issued by MSHA during such three-month period.

In evaluating the above information regarding mine safety and health, investors should take into account factors such as: (i) the number of citations and orders will vary depending on the size of a coal mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process are often reduced in severity and amount, and are sometimes dismissed.

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Item 6. Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:

Exhibit		Description
31.1		Rule 13a-14(a)/15d-14(a) Certification of Paul A. Lang.
31.2		Rule 13a-14(a)/15d-14(a) Certification of John T. Drexler.
32.1		Section 1350 Certification of Paul A. Lang.
32.2		Section 1350 Certification of John T. Drexler.
101		Interactive Data File (Form 10-Q for the quarter ended June 30, 2011 furnished in XBRL). The financial information contained in the XBRL - related documents is not deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under these sections.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Arch Western Resources, LLC
	By:	~~/s/ John T. Drexler~~
		John T. Drexler
		Vice President
		May 16, 2011
		August 15, 2011

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