Market fundamentally changed: Alpha

ALPHA Natural Resources has said the structural changes being experienced are unlike any of the previous cycles. <i>ILN</i> spoke with the company about the mines to close and the restructuring it says it is aligning with long-term changes.

Donna Schmidt
Market fundamentally changed: Alpha

“We believe that long-term, the market for thermal coal has fundamentally changed as a result of [Environmental Protection Agency] regulations and the abundant supply of domestic natural gas,” spokeswoman Samantha Davison said.

“We can’t prosper when we mine and sell thermal coal at a loss, so we are taking action on that front.

“We don’t see natural gas competition going away and we see regulatory pressure from the EPA increasing on coal-fired power generation.”

The company’s view on the global market is broad, particularly for metallurgical coal, as it feels there is demand long into the future for steelmaking met coal as well as thermal output that is competitively priced.

“Alpha has the largest domestic reserves of high-quality met coal in the US – [the] third-largest in the world, as well as a solid portfolio of lower-cost thermal coal,” she said.

“We want to build our business around these assets.”

The eight idling mines in Virginia, West Virginia and Pennsylvania are split between underground and surface operations.

West Virginia will bear the largest percentage of closures.

In Virginia, the Twin Star surface mine near Hurley (Buchanan County) will be shut, as will the Guest Mountain deep mine #8 near Appalachia (Wise County) and nearby sister mine Guest Mountain deep mine #9.

In West Virginia, two mines each will close in Fayette and Mingo counties. They include the Alloy deep mine near Alloy, the Alloy surface mine near Boomer, the Premium highwall mine near Gilbert and the White Flame surface mine near Varney.

Finally, the Dora no. 8 deep mine in Jefferson County will be the only closure in Pennsylvania and Davison said most of the employees from that operation would be offered an opportunity to transfer once the idling process had been completed.

“It is impossible to say at this time if any of the idled mines will reopen but we made decisions because we believe there were long-term and fundamental shifts in the demand for thermal coal,” she confirmed.

The process of closing all eight mines will take some time but Alpha has already laid off 160 people in those three states.

The idlings, however, are only part of the changes Alpha is making as it prepares for what it feels may be a new norm for the industry.

“We are making changes across our organisation, including our headquarters,” Davison said.

“We are streamlining our operations, consolidating our geographic regions from four to two and initiating some organisational changes to support our operations better, so we can operate more efficiently and better manage costs.

“Together, these actions will create a more nimble and durable company that can scale operations to any market conditions.”

It is the human element of these changes that is perhaps the most challenging for Alpha.

“For the 160 or so who have [already] been laid off, Alpha is working closely with them to provide pay and benefits to help with the transition,” Davison said, adding that by the first quarter of next year, that number would grow to 1200 positions.

“Laying off people is absolutely the hardest part of these changes but we believe it is absolutely necessary to make sure we are positioning Alpha to be a successful company long-term.”

She said the company recognised that, as time passed, the number of opportunities for employees to transfer or find other jobs at affiliated operations would become fewer and farther between.

At the moment, it is looking “across the board” at its entire portfolio for ways to streamline costs and overheads.

“By reshaping the company we hope to become that much more nimble and agile so that we can alter things as the market dictates,” Davison said.

No Massey connection

Alpha’s announcement of the eight mine closures and cut of more than 9% of its payroll comes just 15 months after the Virginia-based producer closed its acquisition of fellow Appalachian miner Massey Energy in June 2011.

However, Davison said, the timing of the takeover was unrelated and in fact, none of the newly idled mines were Massey complexes.

“No group/company is being singled out, these are fact-based decisions,” she said.

“We are making these changes to position Alpha for long-term success.”

The company’s strategy, Davison explained, focused on three key things: strengthening its met portfolio and leadership in the global markets; creating a focused and profitable thermal business while eliminating operations that were the most costly; and creating a single durable, sustainable and profitable company model that could adapt to any market going forward.

Responding to ILN’ question regarding the timing of the acquisition in a down market and so soon before making the fundamental changes, Davison quickly acknowledged the positive role the takeover had in putting Alpha where it was.

“Alpha would not enjoy its leadership position today on met coal were it not for the Massey purchase … and that’s a centrepiece of our go-forward business strategy,” she said.

“Today, we have the largest reserves of met coal in the US and the largest capacity to export.

“Before Massey, Alpha sold about 10-12 million tonnes of met coal a year [and] on our last quarterly call with investors, we projected 20-23Mt of met coal sales.”


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