Alpha Results Exceed Estimates as Production Costs DropSonja Elmquist
Alpha Natural Resources Inc., the second-biggest U.S. coal producer by revenue, jumped the most in four months after reporting better-than-expected quarterly results and production costs that dropped 13 percent.
Alpha rose 14 percent to $9.67 at the close in New York, the biggest increase since Oct. 11. The shares have declined 52 percent in the past year.
The cost of coal sales in the eastern U.S., including mines in Kentucky, West Virginia and Pennsylvania, fell to $68.55 a ton during the fourth quarter, the Bristol, Virginia-based company said in a statement today. Alpha closed some mines and improving performance at others in the region as prices and demand for coal fell.
“The key highlight here is just good cost performance in the eastern coal segment,” Kuni Chen, an analyst at CRT Capital Group in Stamford, Connecticut, said in a phone interview today. “They’ve done a good job getting to that cost improvement fairly quickly. You saw a very big sequential decline in their costs. That’s encouraging.”
Alpha, which became the country’s largest producer of metallurgical coal with its $6.67 billion purchase of Massey Energy Co. in 2011, has cut about half of its production in the central Appalachian region compared with its footprint after the Massey acquisition. Closing the higher-cost mines contributed to cost improvement, Kevin Crutchfield, Alpha’s chief executive officer, said on the call.
The company is working to increase sales and exports of the commodity used in steelmaking as domestic utility demand slumps.
Alpha said in September it would shut eight mines, cutting 1,200 jobs and 16 million tons of output, as U.S. demand fell amid mild weather and low natural gas prices.
The company’s fourth-quarter net loss narrowed to $127.6 million, or 58 cents a share, from $792.9 million, or $3.62, a year earlier. Excluding one-time items, the loss was 19 cents a share, beating the average of 24 analysts’ estimates compiled by Bloomberg. Sales fell 25 percent to $1.56 billion, topping the $1.55 billion average estimate.
Central Appalachian thermal coal, the U.S. benchmark, fell 11 percent to average $63.07 a ton in the fourth quarter from a year earlier on the New York Mercantile Exchange. An increase in gas produced from U.S. shale-rock formations helped drive prices for that fuel, which competes with coal at power plants, to a decade-low price in April.
U.S. coal producers exported 19 percent more of the fuel in the first 11 months of 2012 than in the prior year, according to the most recent data available from the Energy Information Administration. U.S. exports of thermal coal to Europe jumped as the average quarterly price of U.K. gas climbed to its highest in at least five years.
Alpha plans to ship 81 million to 92 million tons this year, including 19 million to 22 million tons of metallurgical coal used in steelmaking while spending $300 million to $350 million in capital expenditures.
Alpha’s northern Appalachian operations, including Pennsylvania, produced coal with costs in the “mid-$30 range,” Chief Financial Officer Frank Wood said today on an earnings conference call.
“Our northern Appalachian longwalls performed very well,” Wood said, referring to a style of mining large coal seams. “That’s not going to happen quarter after quarter.” The company’s costs in Wyoming’s Powder River Basin were little changed from a year earlier at $9.43 a ton.
“They’re still going to lose money for the year ahead, but at least you don’t have a situation where the numbers are going to further decline from here,” said CRT’s Chen, who rates Alpha the equivalent of a hold.
Peabody Energy Corp., based in St. Louis, is the biggest U.S. coal producer.