Alpha Cuts Steelmaking Coal Outlook as Export Market ‘Awash’
Alpha’s average realized price for metallurgical coal will be $136.06 a ton in 2012, including 2.4 million tons of coal sold at $105 a ton, the Bristol, Virginia-based company said in a statement today. It forecast an average 2012 price of $146.31 a ton in May. The shares fell as much as 10 percent.
“The market is awash with lower-quality metallurgical coals, placing significant downward pressure on pricing,” Alpha said in the statement.
The company is among U.S. coal producers losing money from a combination of declining global steelmaking capacity utilization and domestic power companies switching to cheaper natural gas. Patriot Coal Corp. (PCXCQ), a U.S. competitor, sought bankruptcy protection on July 10, citing lower prices, canceled contracts and rising costs for environmental liabilities.
“Met coal prices look pretty darn weak,” Lucas Pipes, an analyst at Brean Murray Carret & Co. in New York, said by telephone today.
“Their realized prices are coming down by $10 per ton,” he said. “On 20 million tons produced, that’s $200 million in Ebitda,” referring to earnings before interest, taxes, depreciation and amortization.
Low-volatility metallurgical coal averaged $207 in the second quarter, 35 percent lower than a year earlier, according to data from Energy Publishing Inc.
Alpha fell 8.7 percent to $6.30 at the close in New York. The shares have declined 69 percent this year.
The company said it will ship 20 million to 23 million tons of metallurgical coal this year, compared with the May forecast of 20 million to 24 million tons.
Alpha also produces thermal coal used for electricity generation. Central Appalachian thermal coal futures, the U.S. benchmark, averaged $59.41 in the second quarter, 24 percent less than a year earlier.
The company’s second-quarter net loss widened to $2.2 billion, or $10.14 a share, from $50.1 million, or 32 cents, a year earlier. Sales rose to $1.85 billion from $1.6 billion, beating the $1.76 billion average of 16 analysts’ estimates compiled by Bloomberg.
Alpha wrote off $1.5 billion in goodwill and took $1 billion in restructuring charges. Excluding those items, the loss was 33 cents a share, wider than the 31-cent average of 26 estimates.
The company bought Massey Energy Co. for $7.1 billion in June 2011 to become the largest domestic producer of metallurgical coal.
The goodwill writedown relates to Massey and other assets including those from Alpha’s 2009 purchase of Foundation Coal Holdings Inc., Chief Financial Officer Frank Wood said today on a conference call with analysts.
Alpha revised its 2012 capital expenditure forecast to $450 million to $600 million from a previous range of $450 million to $650 million.
Alpha said in February it would idle four mines in Kentucky and West Virginia and reduce production at others to cut output by 4 million tons, eliminating 320 jobs. In June, it said it would shut mines in Kentucky to reduce thermal-coal shipments by 2 million tons this year and 4 million tons in 2013, cutting about 150 jobs.
In June, Alpha said lenders gave it a “holiday” on a requirement to keep its total debt level at or below 3.75 times Ebitda through 2014.
Peabody Energy Corp. (BTU) is the largest U.S. coal mining company ranked by revenue.
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