Alpha's 3Q mixed amid massive restructuring

ALPHA Natural Resources’ “swift and decisive” moves to cut production and payroll numbers helped take the edge off a drop in revenues and prices during the third quarter, leaving it with a narrower than expected loss.
Alpha's 3Q mixed amid massive restructuring Alpha's 3Q mixed amid massive restructuring Alpha's 3Q mixed amid massive restructuring Alpha's 3Q mixed amid massive restructuring Alpha's 3Q mixed amid massive restructuring

Photo courtesy Alpha Natural Resources.

Donna Schmidt

For the period ended September 30, the Virginia-based producer suffered a net loss of $US46 million, compared with a profit of $63 million during the third period of last year.

Overall revenue totaled $1.6 billion, versus $2.3 billion during the same period of 2011, and coal revenues were $1.5 billion, compared to $2 billion year-on-year.

Officials said the revenue drop in the coal business was primarily due to lower metallurgical revenues from a 23% decrease in per-ton averages as well as an 18% reduction in shipment volumes and a 23% percent drop in eastern steam coal shipments.

The final figures were offset in some part by an increase of 13% for Alpha’s western coal. Revenues rose on higher volumes and higher per-ton realizations over 2011.

Third-quarter shipments were 13.2 million tons of coal from the Powder River Basin, 9.8Mt of eastern steam coal and 4.9Mt of metallurgical coal.

PRB prices rose per-ton to $12.87 from $11.98, but eastern steam coal shipments dove to $66.40/t from $67.07/t and met coal also fell to $129.96 from $168.49 year-on-year.

“Market conditions for both metallurgical and thermal coal have been challenging throughout much of 2012, and continued in the third quarter," chairman and chief executive officer Kevin Crutchfield said.

“In the face of these market headwinds, Alpha has taken swift and decisive actions to right-size our operational footprint and our cost structure.”

He referred in length to the company’s decision in September to reduce annualized production by an additional 16Mt, meaning eight of its mines would close and some 1200 workers would become unemployed.

“These actions are being taken in a pricing environment where we estimate that the majority of US thermal coal would be uneconomic to produce at today's spot market prices and, similarly, metallurgical coal has fallen to levels at which a significant percentage of worldwide supply is uneconomic,” Crutchfield said.

Alpha said that, in order to properly align its efforts, about half of the planned tonnage reduction would stem from its PRB holdings, where it planned to adjust production to match its committed and priced volumes for next year.

About 40% of the reduction will come from eastern thermal coal production, a higher-cost region in central Appalachia, and the remainder of the cutbacks will encompass its lower-quality metallurgical coal, which the company called “uneconomic in today's market”.

When the actions end in early 2013, the producer is hoping to have trimmed $150 million annual from recurring overhead costs and other associated factors.

“This restructuring is a difficult but necessary step, impacting approximately 1200 positions and the communities where we operate," Crutchfield said.

"We never take such actions lightly, but our goal remains to emerge from the current headwinds in an even stronger position within our industry, which ultimately will benefit all our constituents."

Looking ahead, Alpha officials said, its outlook for the remainder of the year would be in a holding pattern. Guidance for total 2012 shipment volumes would remain unchanged at 100 to 115Mt. That is split 20-23Mt eastern met, 38-44Mt eastern steam and 42-48Mt western steam.

Guidance for adjusted cost of coal sales for the balance of the year also will be steady over its prior outlook, and is anticipated to range between $74 and $78/t in the east and $10.50 and $11.50/t in the west.

Capex is also unchanged at $450 million to $600 million.

For 2013 (as of October 25), the company had 2.9Mt of eastern met coal committed and priced at an average $129.78/t; 11.2Mt of eastern met is committed and unpriced.

For eastern steam coal, Alpha has 16.7Mt committed and priced at an average $66.30/t, while 3.2Mt is committed and unpriced.

In the west, 37.9Mt is committed and priced at an average $12.87/t.

Alpha was not alone in its better-than-expected results run for the September quarter. Peabody Energy and Arch Coal, which also have undertaken cost-cutting measures, also posted numbers that beat analysts’ anticipations.

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