Alpha back in black for third quarter

DESPITE continued market volatility, Alpha Natural Resources made a significant jump in net income and revenue in the third quarter due to increased prices and a strong mix of eastern and western output.
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Underground at an Alpha mine. Courtesy Alpha Natural Resources.

Donna Schmidt

For the period ended September 30, Alpha’s net income was $US31.9 million, comparing favorably to a net loss of $16.3 million a year ago. Income from continuing operations was $32.4 million versus a loss in last year’s third quarter of $16.7 million.

Total revenues were $1 billion, up from $729.2 million a year ago. Coal revenues also rose, up to $896.4 million from $662.4 million.

Metallurgical coal shipment volumes and average realizations were up a respective 43% and 26%, resulting in an 80% revenue spike year-on-year from metallurgical coal to $365 million.

Alpha reported Powder River Basin coal shipments of 12.3 million tons in the September quarter, while eastern steam coal totaled 5.8Mt and metallurgical product shipments were 3Mt.

The average realization for PRB shipments was up to $11.10 per ton versus $10.92/t in the previous quarter. Per-ton averages for eastern steam and met product were up to $67.72/t from $66.11/t and up to $122.24/t from $117.61/t, respectively, from the previous quarter.

The producer noted that it had experienced market volatility throughout 2010, beginning with an early-year focus on strengthening metallurgical markets and a shift in the second quarter to falling utility inventories and improving thermal prices as met prices softened.

“Now just a few months later, the industry has come full circle,” Alpha said.

“The metallurgical market is again strengthening and low-priced natural gas is constraining domestic thermal coal prices, leading investors to take a renewed interest in metallurgical coal.

“Throughout this cycle, Alpha has remained positioned to deliver consistent results [and] due to [our] well-diversified asset base, we have consistently generated greater than $200 million of adjusted EBITDA from continuing operations in every quarter of 2010.”

Alpha’s benefits stretch the country, with strong access to low-cost Pittsburgh 8 coal with its longwall operations and significant leverage for increasing thermal prices with its western holdings in the Powder River Basin.

“This combination, and the resulting consistency of results, is unique to Alpha and unmatched by any other domestic producer,” the company said.

Within the quarterly report was a reminder of the human element of mining, as Alpha chief executive Kevin Crutchfield discussed the October death of a worker at the Kingston complex.

"This loss reminds us that the pursuit of safety is a journey without a destination and renews our commitment to ensure that every member of the Alpha team returns home safely every night,” he said.

“We are proud of our operations and the safety awards received by our PRB and CAPP operations during the past quarter, but make no mistake, our ultimate goal is very basic – to have an injury-free workplace. To that end, our efforts continue.”

Looking ahead, the producer said it was “fine tuning” its guidance for 2010, as well as updating 2011 shipment and average realization guidance and establishing a guidance for next year’s costs and capital expenditures.

Whole-year 2010, Alpha’s outlook has narrowed and now includes an anticipated range of Eastern metallurgical coal shipments at 11.5-12.5Mt versus 11-13Mt previously. The midpoint is unchanged at 12Mt.

Eastern steam coal shipments are now expected to be 23.5-25Mt, compared to previous guidance of 23-26Mt, and shipment guidance for the West remains unchanged at 47-50Mt.

Based on shipment guidance midpoints, Alpha has 100% of its eastern metallurgical, eastern steam and western coal committed and priced. Expected average per-ton realizations are $114.49, $66.34 and $10.88 respectively.

For 2011, Alpha shaved its range of anticipated met shipments to 11.5-13.5Mt, leaving the midpoint of 12.5Mt unchanged. Eastern steam coal shipments are now expected to be 23-26Mt versus previous guidance of 23-28Mt.

Next year’s cost of coal sales per ton from eastern mines is expected to range from $58 to $63 and the cost of western coal sales should range from $9.25/t to $9.75/t. Capital expenditures for 2011 are forecast in the $340-440 million range.