Coal Miner Expects Continued Weakness in Demand

coal train
coal train

Alpha Natural Resources Inc. (NYSE: ANR) reported first-quarter 2013 results before markets opened this morning. The coal miner posted an adjusted diluted earnings per share (EPS) loss for the quarter of $0.47 on revenues of $1.33 billion. In the same quarter a year ago, the company posted a net EPS loss of $0.13 on revenues of $1.93 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for an EPS loss of $0.58 and $1.32 billion in revenues.

On a GAAP basis, Alpha's net loss totaled $0.50, compared with an adjusted loss of $0.27 in the year-ago quarter.

The company attributed its lower revenues to lower average realized prices for its metallurgical and Appalachian steam coal and lower volume shipments from its Powder River Basin steam coal operations. The company only did as well as it did because it closed several mines in the last part of 2012, thus reducing its overall production costs.

The coal miner's CEO said:

Considering continued difficult market conditions, Alpha delivered solid results during the first quarter of 2013, maintaining a sharp focus on operational execution and building on our recent strategic restructuring. … The restructuring plan we announced in September of 2012 is largely behind us, and we've taken many necessary steps to align our business with current market conditions from both an operational and capital spending standpoint. Going forward, we will continue to assess the need for further adjustments to our portfolio and marketing strategy where necessary to position ourselves for both sides of the commodity cycle.

In its outlook, Alpha said it expects to ship a total of 83 million to 93 million tons of coal in 2013, the largest portion of which will be its low-priced Powder River Basin coal. The company noted that total quarterly production capacity in the Basin is around 500 million tons. Actual production in the first quarter from all miners was about 380 million tons. Alpha notes, "[I]t is unrealistic to expect the latent capacity in the PRB to be absorbed in the near-term, suggesting a period of relatively stagnant market conditions for PRB coal." Alpha's average realized price per ton of Powder River Basin coal was $12.74 in the first quarter, and costs fell between $10 and $11 a ton.

The company's Appalachian steam coal is in worse shape, so Alpha is hoping for the best in its seaborne shipments of metallurgical (met) coal that is used to make steel. But that does not appear to be an immediate solution:

In the intermediate to long run, the world is expected to require increasing volumes of met coal, and when market conditions improve, we believe Alpha is well-positioned to benefit from its leadership position in met coal reserves, met coal production and export terminal capacity.

In the near term, Alpha expects Chinese steel production to increase by 4% to 5% in 2013. Demand for steel in Europe fell 5% in the first two months of this year, reducing overall demand for met coal in the Atlantic basin and pushing down prices for U.S. met coal.

Ever-hopeful investors have bid up shares by about 1.3% in premarket trading this morning, to $7.57 in a 52-week range of $5.28 to $16.69. The Thomson Reuters consensus target price for the shares was around $10.80 before today's report.

Filed under: 24/7 Wall St. Wire, Commodities & Metals, Earnings, Metals Tagged: ANR, featured