Alpha Natural Resources Inc., the second-largest U.S. coal producer, may have its credit ratings lowered by Standard & Poor’s Ratings Services after the company said it will close eight mines and cut production.
S&P put Alpha on Creditwatch with negative implications, meaning it will review the ratings and possibly lower them, according to a statement today. The Bristol, Virginia-based company is currently rated BB-, three levels below investment grade.
Alpha said yesterday it will reduce annual production by 16 million tons, about 16 percent of 2011 output, and eliminate 1,200 jobs through early 2013. The company is among producers that have cut or plan to cut output this year after some power stations switched to using natural gas, and prices for metallurgical, or coking, coal used to make steel dropped.
“Many fixed-income investors take the current spot price and extrapolate that into the future,” David Beard, a New Orleans-based analyst at Iberia Capital Partners LLC, said in an e-mail today. “The mathematics is such that if coking coal prices stayed at current spot levels and Alpha did not cut capital expenditures, they would burn through most of their cash in three years.”
Alpha dropped 3.2 percent to $7.63 at the close in New York. The shares have declined 63 percent this year.
Peabody Energy Corp. is the largest U.S. coal producer by sales.