Reuters: Global Markets: Coal miner Alpha posts second-quarter loss; stock falls

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Coal miner Alpha posts second-quarter loss; stock falls Aug 8th 2012, 18:50 By Steve James Wed Aug 8, 2012 2:50pm EDT (Reuters) - Alpha Natural Resources Inc (ANR.N), which idled four mines and cut production as coal prices slumped this year, reported a quarterly loss of $2.2 billion on Wednesday, sending its stock down over 8 percent. The company also narrowed its production target for this year and said it might further adjust production levels as pricing remains "unattractive" in U.S. domestic and European export markets. Although there were signs of improvement in the market for thermal coal used to generate electricity, stockpiles at U.S. utilities were still high, at around 200 million tons, it said. Last week, Arch Coal (ACI.N) said it expected a return to around 175 million tons as a result of a hot summer which has increased electricity demand and coal burn at power plants. Alpha's stock dropped 8.2 percent to $6.33 in Wednesday afternoon trading on the New York Stock Exchange. Analysts said the negative comments on inventories also dragged Arch's stock down 8.6 percent to $6.76. "While signs of improvement are evident, the thermal coal market in the U.S. remains weak," Chairman and Chief Executive Officer Kevin Crutchfield told Wall Street analysts. Much of the Appalachian coalfields region was "under water" with coal prices below typical cash cost levels, he said. But Crutchfield said recent production cuts totaling more than 100 million tons across the industry were beginning to have an impact and prices are inching up. "We would expect the combination of increasing coal burn and less supply should drive inventories to more normal levels over the course of the next 12 months," he said on a conference call. Prices for thermal coal have slumped about 20 percent this year, while metallurgical coal, used by steelmakers, has dipped recently as demand softened. "Spot pricing remains unattractive, both domestically and in the Atlantic market," Alpha said. "In this environment, Alpha will continue to assess expected demand and adjust its thermal coal production accordingly." As a result of European economic woes, metallurgical coal is being sold at a discount and "the market is awash with lower-quality metallurgical coals, placing significant downward pressure on pricing," the company said. "If you're an optimist, you can say they did a good job of keeping costs down. If you're a pessimist, you see how poor met (metallurgical) coal pricing is," said analyst Daniel Scott of Dahlman Rose & Co. Lucas Pipes, of Brean Murray & Carret, noted metallurgical coal Alpha has contracted for sale was previously priced at $146 per ton, and was now at $136. "I was not encouraged by that update," Pipes said. Alpha said its second-quarter loss was $2.2 billion, or $10.14 per share, compared with a year-earlier loss of $50 million, or 32 cents per share. Excluding about $2.5 billion for a goodwill impairment charge and restructuring and asset write-downs, its adjusted loss was $72 million, or 33 cents per share. On that basis, it was in line with Wall Street estimates, according to Thomson Reuters I/B/E/S. Revenue rose 13 percent to $1.8 billion, the Virginia-based company said. But the higher coal revenues mostly due to a 40-percent increase in Eastern thermal coal sales due to the inclusion of a full quarter of legacy Massey operations. Alpha acquired Massey for $7 billion in June 2011. CEO Crutchfield was asked during the conference call if Alpha paid too much, given the state of the industry now and the fact that some write-downs related to former Massey mines. "I think it is too soon to say whether the strategic merits of the transaction will pay off," the CEO said. Alpha's loss highlights a difficult period for the U.S. coal industry, as coal prices slumped, especially in the Appalachian region of Virginia, West Virginia and eastern Kentucky. In addition to reduced electricity demand, some power companies have switched from coal to cheaper natural gas, forcing coal producers to slash jobs and cut production. Patriot Coal Corp (PCXCQ.PK) on July 9 became the first U.S. coal producer to seek court protection from its creditors since coal prices began to plummet. And second-quarter results of other companies, such as Peabody Energy Corp (BTU.N) and Consol Energy Inc (CNX.N) have been disappointing. Arch posted a loss. In June, Alpha amended its credit facility and the company has idled production at four mines in Kentucky to reduce thermal coal output and has cut 150 jobs. On Wednesday, Alpha narrowed its expected 2012 coal shipment target to a range of 100 million to 115 million tons, from 100 million to 116 million tons previously. (Reporting by Matt Daily and Steve James in New York and Swetha Gopinath in Bangalore; editing by John Wallace, Jeffrey Benkoe and Kenneth Barry) Link this Share this Digg this Email Reprints

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