Coverage Launch Alpha Natural Resources: $54 Trefis Price Estimate


Alpha Natural Resources ( ANR )  is America's third largest coal producer competing with the likes of Peabody Energy ( BTU ), Arch Coal ( ACI ) and CONSOL ( CNX ) Energy. Alpha Natural Resources has production capacity of nearly 100 million tons of steam and metallurgical coal. The size and quality of its coal reserves enable it to provide top quality products to a wide range of customers including thermal coal for power generating utilities, custom blend industrial coal for industrial customers and high quality metallurgical coal for use in the production of steel. The company produces, processes and sells steam and metallurgical coal from more than 60 active mines and 14 coal preparation plants located throughout Virginia, West Virginia, Kentucky, Pennsylvania and Wyoming. From 2005 to 2009, the company's revenues increased from $1.6 billion to nearly $2.5 billion, an annual growth rate of over 11%.

Our price estimate for Alpha Natural Resources is $51.98 , which is slightly ahead of the current market price.

Launch of Coverage on Alpha Natural Resources ; $51.98 Price Estimate

We've broken down our analysis of Alpha Natural Resources into three main business segments:

  1. Utility & Industrial Coal
  2. Metallurgical Coal
  3. Freight & Handling & Other Revenues

Demand for coal expected to pick up gradually

According to the U.S. Energy Information Administration ( EIA ), coal production in 2009 fell by nearly 8.5% as a result of lower U.S. coal consumption, fewer exports and higher coal inventories. Going forward, the EIA estimates a 0.3% decline in U.S. coal production in 2010, as drawdowns in both producer and end user inventories are expected to meet the increased coal consumption in 2010. Coal production however is expected to improve  in 2011 and increase by 1.8%. At the current rate of recovery, the EIA estimates that the world coal consumption will rebound, returning to its pre-recession level (2008 level) by 2013.

Increasing focus on clean coal technologies

As a result of growing focus on climate change a substantial amount of global investments are being made in clean coal technologies that mitigate the harmful environmental effects of conventional coal. Clean coal technologies are generally segmented into three areas of focus: the reduction or elimination of pollutant emissions such as particulates, sulfur and nitrogen oxides; the improvement of conversion technologies to increase efficiency; and the reduction of atmospheric carbon dioxide emissions with the development of carbon capture and storage.

The deployment of clean coal technologies will continue to expand internationally as coal-fired power generation increases to meet escalating electricity demands worldwide.

China's impact on global coal prices

China currently consumes half of the global production of coal, and its demand for coal is only expected to increase in the near future. To further aggravate this situation, the Chinese government intends to limit the amount of coal that is produced in the country to ensure that the reserves are not depleted very quickly. These factors would significantly raise global coal prices in the years to come.

See our full analysis for Alpha Natural Resources.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ACI , ANR , BTU , CNX , EIA



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