Alpha result suffers from gas competition

A MILD northern hemisphere winter and increasing gas usage in the US have contributed to Alpha Natural Resources reporting a net loss of $29.1 million for the March quarter compared to a $49.8 million profit for the previous corresponding quarter.
Alpha result suffers from gas competition Alpha result suffers from gas competition Alpha result suffers from gas competition Alpha result suffers from gas competition Alpha result suffers from gas competition

Courtesy Alpha Natural Resources.

Lou Caruana

Utility inventories are approaching record levels and have grown rapidly to greater than 200 million tons nationwide.

Based on today's natural gas prices, coal-to-gas switching has expanded from the east, where it has been a fairly common phenomenon, into areas served by Powder River Basin coals.

In response, Alpha had scaled back its forecast for shipments for 2012, chief executive officer Kevin Crutchfield said.

“Alpha responded swiftly to challenging market conditions, reducing planned 2012 production volumes by approximately 4 million tons based on actions announced in early February,” he said.

“Since then, unusually mild winter weather and decade-low natural gas prices have significantly reduced domestic steam coal consumption and driven utility inventories to near record levels.

“In response, coal producers continue to announce plans to reduce production.

“Alpha plans to introduce additional production adjustments in the near future.

“Accordingly, we are reducing the midpoint of our 2012 shipment guidance by an additional 7 million tons of steam coal.

“The market for metallurgical coal has also softened somewhat, particularly for lower quality metallurgical coals, due to increased global supply and a geographically mixed demand picture.

“In response, we are reducing the midpoint of our shipment guidance for metallurgical coal by 0.5 million tons.

“In this environment, Alpha will remain focused on selectively pruning our portfolio, controlling costs and maximizing free cash flow generation."

The company expects to ship between 20Mt and 24Mt of eastern metallurgical coal, compared to the previous range of 20-25Mt.

Eastern steam coal shipments in 2012 are now expected to range from 38Mt to 44Mt, compared to the previous range of 42-48Mt.

Western steam coal shipments out of the Powder River Basin in 2012 are anticipated to be in the range of 42-48Mt, compared to the previous range of 45-51Mt.

Anticipated capital expenditures for 2012 have been reduced by $100 million to a range of $450-650 million, compared to the prior guidance of $550-750 million.

Total revenues in the first quarter of 2012 were $1.93 billion compared to $1.13 billion in the same period of 2011 and coal revenues were $1.64 billion, up 66% compared to $990 million in Q1 2011.

Coal revenues were higher than the previous corresponding period primarily due to the inclusion of legacy Massey operations which contributed estimated coal revenues of $680 million during the first quarter.

In one month, Alpha will reach the first anniversary of its acquisition of Massey.

“With three full quarters as a combined entity now behind us, the integration is progressing well and we are on track to achieve our targeted synergies,” Crutchfield said.

“Following the Massey transaction, Alpha is now among the top three leading global suppliers of metallurgical coal and controls more export terminal capacity than any other US producer.

“As market conditions improve, Alpha is well-positioned to capitalize on strengthening global demand for metallurgical coal."

Announced cutbacks to date are in the range of approximately 50Mt annually and additional reductions appear necessary to balance supply and demand.

Alpha remains focused on creating a sustainable thermal coal portfolio and continues to evaluate how best to match thermal coal production with expected demand.

The company said markets for both metallurgical and thermal coal were under pressure but the challenges facing the metallurgical market appeared to be cyclical and could reverse quickly.

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