High prices tip balance in Alpha's favour

HIGHER sales prices and lower costs for Alpha Natural Resources successfully beat ongoing market issues, with the master limited partnership posting a significant first-quarter net income and jump in revenue.
High prices tip balance in Alpha's favour High prices tip balance in Alpha's favour High prices tip balance in Alpha's favour High prices tip balance in Alpha's favour High prices tip balance in Alpha's favour

Courtesy Alpha Natural Resources.

Donna Schmidt

For the period ended March 31, the Virginia-based company recorded net income of $US41 million, well over last year’s first quarter total of $25.5 million and an even larger spike over the December quarter’s earnings of $5.6 million.

Revenues from coal sales were $424.4 million, compared with $422.4 million in the first quarter of 2008. This was despite a 1.3 million ton drop, equating to 20%, in sales volumes year-on-year.

The coal margin per ton was a record $23.48 in the period, 81% better than last year’s comparable quarter and a large jump over the last quarter’s $14.15. The average realised price per ton was $82.09 which, thanks to contracts Alpha settled in 2008, brought thermal coal pricing up 34% and helped metallurgical coal jump 21% year-on-year.

"In dealing with a sluggish demand environment, our primary focus has been on managing margins," company chairman Michael Quillen said.

"We've demonstrated an ability to react nimbly and adjust asset utilisation to lower demand levels. Since the end of 2008 we've made a series of calculated production adjustments to bring raw coal output and inventories in line with our sales commitments and, in doing so, we've gravitated towards our most efficient mines, which has yielded better productivity and lower unit production costs.”

Alpha outlined one large loss it took in the quarter, $5.7 million from the idling and closure of its Whitetail Kittanning operation last December. The loss was due to $10.2 million in expenses, with $2.9 million in revenues and an income tax benefit of $1.6 million.

The loss from discontinued operations for the first quarter of 2008 was $2.5 million.

Alpha president Kevin Crutchfield said the company was in a better liquidity position thanks to positive earnings and a 46% reduction in capital expenditures in the previous year. Total costs and expenses were $417.4 million in the first quarter, down 11% from 2008.

"With over a billion dollars of total liquidity – including about $700 million in cash – Alpha is well positioned to not only weather this downturn but also to opportunistically pursue strategically sound growth initiatives," Crutchfield said.

Looking ahead, Alpha said it was feeling the impact of “mostly negative” economic forecasts and believed the volume trend for the remainder of the year would more likely be down than up.

“Alpha now projects sales volumes for 2009 of approximately 22 million tons, consisting of approximately 18.5Mt of company mine production, 1.3Mt of third-party contractor production, 450,000t of coal purchases at the plant level and 1.8Mt of purchased brokerage coal,” the company said, adding that actual volumes could vary largely pending its business conditions throughout the rest of the year.

As of the beginning of March, Alpha’s committed and priced metallurgical coal sales were 4.8Mt at about $114/t at the mine. It had 3.2Mt committed but unpriced as of that time and less than 1Mt uncommitted for the year.

Thermal coal committed and priced for this year totals 12.6Mt at about $70/short ton, with less than 1Mt uncommitted for 2009.

The company was currently in talks with international steelmakers regarding the remainder of its metallurgical coal business for the balance of the year.

“At this time the picture for international settlements remains unclear; as such, Alpha is not able to predict the final terms and conditions of these settlements,” the company noted.

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