Alpha trudges through another rough quarter

CONTINUED demand and price slumps and the idle of a flagship operation on geological issues were no help to Alpha Natural Resources’ second quarter. The company ended up with another loss with warnings of more possible actions to address the market before the end of the year.
Alpha trudges through another rough quarter Alpha trudges through another rough quarter Alpha trudges through another rough quarter Alpha trudges through another rough quarter Alpha trudges through another rough quarter

Alpha Natural Resources corporate headquarters.

Donna Schmidt

For the period ended June 30, the Virginia-based producer reported a net loss of $186 million, down considerably from the $2.2 billion net loss in the same period last year.

Margins and fallen volumes drove down revenue 28% from $1.85 billion in 2012 to $1.34 billion.

Operationally, Alpha’s picture looked up, with 5.6 million tons of metallurgical coal shipped – 10% higher than the first quarter of 2013.

However, despite the strong end result, the quarter was not challenge-free. Alpha cited an oversupply in the global market for seaborne metallurgical coal that further pressured its margins and steam coal exports in the Atlantic basin that are uneconomic for most, if not all, of US production.

While utilities are drawing down inventories, a step towards a better picture of supply and demand later, central Appalachian and Powder River Basin thermal coals continue to be in an oversupply position.

Its higher margin coal from the Cumberland and Emerald mines were also impacted by unexpected downtime at the former and less favorable conditions at the latter. Both have impacted production and shipments.

“Alpha continues to proactively address changing market conditions by optimizing our mine portfolio and idling additional uneconomic metallurgical and thermal coal capacity, and we anticipate additional actions may be required between now and the end of the year,” chairman and chief executive officer Kevin Crutchfield said.

“At the same time, we remain focused on adjusting our overhead and capital expenditures in proportion with our changing operational footprint.

“In this environment, operational execution and the ability to implement thoughtful changes with alacrity are paramount to our success.”

Alpha focused on addressing its debt structure in the second quarter.

Crutchfield said the company was able to accomplish several key objectives with respect to its capital structure during the period, including managing debt maturities, reducing 2015 maturities, relaxing covenant requirements to weather the challenging market environment, limit potential equity dilution from 2017 converts with a 50% conversion premium and maintain its cash and liquidity position.

Looking ahead, Alpha said it was looking at late August for its idled Cumberland mine to restart operations. The mine has been closed since July 15 due to geological issues at the headgate.

Officials said the impact on Alpha's eastern steam coal shipment volumes and its eastern adjusted cost of coal sales per ton in the third quarter would depend largely on the completion of the ongoing remediation work at the mine.

With regard to Alpha's expected eastern adjusted cost of coal sales per ton for 2013, the company said it expected unit costs would be similar to prior estimates for eastern operations other than the Pennsylvania longwall mines Cumberland and Emerald.

“At those two high volume operations, adjusted cost of coal sales per ton are now expected to be higher than previous estimates as a result of mining conditions and ventilation issues experienced in the second quarter and the adverse geologic conditions presently being experienced at the Cumberland mine,” officials said.

On the shipment front, Alpha projects it will ship between 83 and 91Mt in 2013, including 19 to 21Mt eastern met, 27 to 30Mt eastern steam and 37 to 40Mt western steam from the PRB.

As of July 17, 88% of its midpoint of anticipated 2013 metallurgical coal shipments were committed and priced at an average $102.20.

Based on the midpoint of guidance, it said, 98% of anticipated eastern steam was committed and priced at an average $62.66 and 100% of the midpoint of anticipated PRB shipments are committed and priced at an average $12.64.

Capital expenditures for whole-year 2013 are expected to fall within the range of $275 million to $325 million.

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