Coal Company Closes Eight Mines Today, More to Come (ANR)

Coal miner Alpha Natural Resources Inc. (NYSE: ANR) announced today that it was “idling” eight mines in Virginia, West Virginia and Pennsylvania and eliminating about 400 jobs in an effort to reduce costs as the company struggles with both lower demand and lower prices for coal. Ultimately the company plans to eliminate 1,200 jobs.

The company’s chairman and CEO outlined the ANR’s strategy:

We’re taking a long-term view of the thermal coal market, and we believe there are solid opportunities for diversified suppliers like Alpha to produce and sell thermal coal profitably into a smaller domestic market and to customers in new markets overseas. At the same time we have a big opportunity to advance Alpha’s position as a premier supplier of metallurgical coal. Forecasts point to more than 100 million tons of increased seaborne metallurgical coal demand by the end of this decade, and persistent structural supply limitations exist on sources of high-quality metallurgical coal. We intend to participate meaningfully in the market upside with costs that are globally competitive.

According to the announcement, ANR will cut 2013 production by 16 million tons, of which about 40% will come from “higher-cost thermal coal” mines in the Appalachians and 50% will come from thermal-coal operations in the Powder River Basin. The remaining 10% will come from reducing production of lower-quality metallurgical (met) coal.

Alpha is looking at its met coal production and sales to Asia and South America to raise the company’s revenues and profits. The company notes that new steel mills are being build in those places and that Alpha is well-positioned to supply the new mills with the met coal needed for steel production.

But Alpha faces a couple of major difficulties. First, it has no U.S. west coast terminal to give it cheap seaborne access to Asia. The company’s terminals are located on the U.S East and Gulf coasts. Second, met coal accounts for about 25% of the company’s production. If that percentage rises only because the company lowers production of thermal coal, that doesn’t really change anything unless the price for met coal rises sharply. That will depend in large part on a recovery in the global economy.

Alpha’s shares are up 1.1% in the premarket this morning, at $8.17 in a 52-week range of $5.28 to $30.66.

Paul Ausick