US miner cuts 1200 jobs, closes eight mines

FEARS in the US industry over the domestic market’s uncertainties just became much larger after Alpha Natural Resources announced it would cut about 9% of its workforce over the next several months and halt production at eight of its Appalachian thermal mines.
US miner cuts 1200 jobs, closes eight mines US miner cuts 1200 jobs, closes eight mines US miner cuts 1200 jobs, closes eight mines US miner cuts 1200 jobs, closes eight mines US miner cuts 1200 jobs, closes eight mines

Alpha Natural Resources corporate headquarters.

Donna Schmidt

Alpha officials called it an effort to reshape mine operations and strengthen its core cost-competitive assets as it put a stronger, sharper focus on its metallurgical business as it met “the evolving demands of a changing global coal market”

The severe cuts to payroll and production will begin immediately and extend through early 2013.

The first step has already occurred with the temporary idling of eight of its Virginia, West Virginia and Pennsylvania operations that will result in the elimination of 400 jobs.

The company did not indicate which mines would close but did confirm the decision would reduce annualised coal production and shipments by about 16 million short tons (14.5 million metric tonnes).

About 40% of that will stem from Alpha’s eastern higher-cost thermal operations that officials feel will not be competitive for the foreseeable future.

Roughly half the cuts will come from planned curtailments in the Powder River Basin so Alpha can match committed sales volumes.

The remainder will be through the reduced production of lesser quality metallurgical coal.

Some of those working at the mines that are being closed will be able to transfer to other opportunities under the Alpha umbrella.

“By early 2013, the company will be fully aligned to focus on two key strategic priorities: enhancing Alpha's metallurgical coal leadership position in both the domestic and international markets and establishing a durable core of cost-competitive thermal coal assets better suited to supply structurally shifting power markets in the United States and tap into new thermal markets overseas,” the company said.

Chairman and chief executive officer Kevin Crutchfield said the company was responding to “fundamental changes” in the mining industry.

“[W]e're taking decisive actions that set the table for Alpha to compete successfully as a leader in the global coal markets for years to come,” he said.

“We're taking a long-term view of the thermal coal market and we believe there are solid opportunities for diversified suppliers like Alpha to produce and sell thermal coal profitably into a smaller domestic market and to customers in new markets overseas.”

While a push for an international presence is certainly part of that plan, so is the opportunity to advance the producer’s position as a met coal supplier.

“Forecasts point to more than 100 million tons of increased seaborne metallurgical coal demand by the end of this decade and persistent structural supply limitations exist on sources of high-quality metallurgical coal,” he said.

“We intend to participate meaningfully in the market upside with costs that are globally competitive.”

Aside from jobs and production cuts, Alpha’s plan also includes further development of its international sales and trading function.

Also, with 25-30Mt of export capacity via the East Coast and Gulf of Mexico – untapped in part – the producer said it had the capability to increase exports swiftly.

“With approximately 1.5 billion tons of quality metallurgical coal reserves and a number of significant organic growth projects in various stages of development, Alpha is well positioned to

scale up quickly as demand from steelmakers around the world warrants,” it said.

Alpha is also planning a streamlining and optimisation effort under which it will consolidate its four operating regions into two, parallel with the smaller footprint going forward.

Officials said the realignment would allow a reduction in operational overhead while increasing effectiveness at the same time and because executive and administrative support would also be scaled down, it would be able to realise permanent overhead savings.

That plan includes establishing an Operational Performance Group to handle centralised technical support services to both of the company’s new operating regions.

Alpha Australia president Brian Sullivan will transfer back to the US to fill the chief commercial officer seat. Paul Vining held the position before being named president.

Sullivan will oversee all global sales and marketing activities.

Alpha executive leadership team members Randy McMillion and Eddie Neely will retire from November 1 and at that time the two seats will be merged with the current duties of other members of the team, as well as company executives.

Financially, the producer has estimated the comprehensive cost of the changes will be about $US150 million, including the $50-60M in reductions it already announced in June.

“The focus and shape of our company need to change to reflect our new business environment," Vining said.

“We must have a nimble operating model, superior cost management and an overhead structure that matches our streamlined operational footprint.

“We recognise these changes will impact our people, suppliers and communities in some areas where we operate.

“Alpha is committed to acting transparently and responsibly throughout the transition, with respectful consideration of our people and all other stakeholders."