- ANR narrows y-o-y operating loss to around $44 million on
lower production costs, beating expectations.
- Revenues continue to be impacted by slowing U.S. thermal
coal shipments and lower met coal prices.
- Thermal coal exports doubled last year to 6 million tonnes,
pricing could be weak going forward.
- Benefits from restructuring taking effect, eastern thermal
coal production costs reduced by 13% y-o-y.
- Met coal could see a recovery as Chinese
consumption rebounds and Australian supply
Alpha Natural Resources (
), one of America's largest coal producers, released its third
quarter earnings on February 14. While the numbers were weak amid
weak industry conditions, they beat market estimates sending the
stock around 15% higher in Thursday's trading. Quarterly revenues
were down to around $1.56 billion from $2.07 billion last year on
account of lower volumes and selling prices. However, the firm's
loss from operations narrowed to around $44 million from around
$784 million last year, partly due to lower production costs.
Thermal Coal Volumes Continue To Decline
Low gas prices and stringent environmental regulations are
causing power plants and industries to shift away from thermal
coal, and this trend continues to reflect on ANR's business.
Shipments declined by around 20% since the last year. Thermal coal
sales amounted to around $759 million, down from around $964
million last year.
Thermal Coal Exports Rise, But Pricing Could Impede Growth
ANR has been ramping up its thermal coal exports to offset
weak demand in the U.S. market. Thermal coal demand is still
relatively strong in markets like Europe which have relatively high
gas prices. Over the last year ANR's thermal coal exports
touched 6 million tonnes, nearly double the 2011 number. However,
since most U.S. producers have been scaling up thermal coal
exports, this has taken a toll on the pricing for seaborne coal due
to sudden surge in supply. Lower pricing
could potentially hamper thermal coal exports in the near
Production Cost Reductions
In September, the firm announced that it would be shutting down
a total of eight mines with high production costs and mines
producing varieties of coal that was in lower
demand. The restructuring resulted in a reduction of around 1,200
jobs and production cutbacks to the tune of 16 million tons. The
move seems to be paying off now as the firm reported that costs for
eastern coal dropped by around 13% since last year to around $68.
The firm is also implementing plans to cut overhead costs by around
$150 million per year.
Met Coal Continues Its Decline, But Recovery Could Be
ANR became the largest met coal producer in the U.S. following
its acquisition of Massey Energy.
The division is heavily geared towards exports and is of
strategic importance for the firm since it allows it to diversify
revenues away from the U.S. market.
However, the performance of this division has been weak through
2012 due to slowing growth in China and weaker demand from Europe.
Additionally, prices have also been impacted by stronger supply
from Australia, one of the world's largest met coal producers.
Realized prices declined by around 22% over the past year while
shipments for the quarter dipped by around 8%
year-over-year. To navigate the difficult market, ANR
has been focusing on the highest margin coals while scaling
down production of lower quality coals that are commanding weaker
pricing. (See Also:
Our Take On ANR's Met Coal Business
) However, prices are expected to be bottomed out in the near
future, as Chinese consumption has been picking up and weather
effects in Australia are beginning to impact supply from the
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